As filed with the Securities and Exchange Commission on June 13, 2014

Registration No. 333-_______

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

______________________

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

______________________

MASSROOTS, INC.
(Exact name of registrant as specified in its charter)

 

Delaware 7370 46-2612944
(State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number)

 

6525 Gunpark Drive, Ste. 370 #150, Boulder, CO 80301
(720) 442-0052
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

______________________

Isaac Dietrich, Chief Executive Officer

MassRoots, Inc.
6525 Gunpark Drive, Ste. 370 #150

Boulder, CO 80301
(720) 442-0052
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

______________________

Please send copies of all communications to:

Peter J. Gennuso, Esq.

Thompson Hine LLP
335 Madison Avenue, 12 th Floor
New York, NY  10017
Tel: (212) 908-3958

Fax: (212) 344-6101

 

 

Isaac Dietrich, Chief Executive Officer

MassRoots, Inc.

6525 Gunpark Drive, Ste. 370 #150

Boulder, CO 80301
Tel: (720) 442-0052

 

______________________

 

As soon as practicable after the effective date of this Registration Statement.

(Approximate date of commencement of proposed sale to the public)

     
 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: [x]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. [ ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. [ ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [ ] Accelerated filer [ ]

Non-accelerated filer [ ]

(Do not check if smaller reporting company)

Smaller reporting company [x]

 

 

Calculation of Registration Fee

 

Title of each class of securities to be registered Amount to be registered Proposed maximum offering price per share (2) Proposed maximum aggregate offering price (2) Amount of registration fee
Common Stock, par value $0.001 per share (1) 38,909,000 $0.10 $3,890,900 $501.15
Common Stock, par value $0.001 per share, issuable upon conversion of Debentures (2) 2,691,000 $0.10 $269,100 $34.66
Common Stock, par value $0.001 per share, issuable upon exercise of Debenture Warrants (2) 1,345,500 $0.10 $134,550 $17.33
Common Stock, par value $0.001 per share, issuable upon exercise of Common Stock Warrants (2) 1,029,500 $0.10 $102,950 $13.26
Common Stock, par value $0.001 per share, exercise of Consulting Warrants (2) 6,425,000 $0.10 $642,500 $82.76
Total 50,400,000   $5,040,000 $649.15*

 

(1) The shares of our common stock being registered hereunder are being registered for sale by the selling security holders named in the prospectus. Under Rule 416 of the Securities Act of 1933, the shares being registered include such indeterminate number of shares of common stock as may be issuable with respect to the shares being registered in this registration statement as a result of any stock splits, stock dividends or other similar event.

 

(2) Estimated pursuant to Rule 457(c) of the Securities Act of 1933 solely for the purpose of computing the amount of the registration fee.

 

*Registration fee was paid in relation to the filing of a draft registration statement on April 24, 2014, file number 377-00577 (Accessin No. 0000721748-14-000399)

 

     
 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

     
 

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

 

 

     

PRELIMINARY PROSPECTUS - SUBJECT TO COMPLETION

Dated June 13, 2014

 

 

 

 

MASSROOTS, INC.

 

 

50,400,000 Shares of Common Stock

 

This prospectus relates to the resale of up to 50,400,000 shares of our common stock, of which: (1) 38,909,000 shares are currently issued and outstanding; (2) 2,691,000 shares are issuable upon the conversion of outstanding convertible debentures; and (3) 8,880,000 shares are issuable upon the exercise of outstanding warrants. The selling security holders named in this prospectus are offering to sell shares of our common stock of MassRoots, Inc. through this prospectus and they may be deemed “underwriters” as that term is defined in Section 2(a)(11) of the Securities Act of 1933, as amended (the “Securities Act”).

Our common stock is presently not traded or reported on any market, securities exchange or quotation system. After the effective date of this prospectus, the selling security holders may offer the shares covered herein in negotiated transactions or otherwise at a fixed price of $0.10 per share and thereafter at market prices prevailing at the time, or at privately negotiated prices. The selling security holders will pay all brokerage commissions and discounts attributable to the sale of the shares, plus brokerage fees. The selling security holders will receive all of the net proceeds from the offering. We will bear all costs associated with the registration of the shares covered by this prospectus.

We have not made a decision to seek quotation on the Over-the-Counter Bulletin Board (“OTCBB”) at this time and there is no guarantee that quotation will be sought. Until our common stock is quoted on the OTCBB, selling security holders must sell their shares at the fixed price of $0.10 per share. In the event we file an application with FINRA for a quotation and we are cleared by FINRA for quotation, then the selling security holders may use any one or more of the following methods when selling shares: (i) ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; (ii) block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (iii) purchases by a broker-dealer as principal and resale by the broker-dealer for its account; (iv) an exchange distribution in accordance with the rules of the applicable exchange; (v) privately negotiated transactions; (vi) effected short sales after the date the registration statement of which this prospectus is a part is declared effective by the SEC; (vii) through the writing or settlement of options or other hedging transactions, whether through options exchange or otherwise; (viii) broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share; and (ix) a combination of any such methods of sale.

Our common stock is not currently listed or quoted on any quotation medium and involves a high degree of risk. You should read the "RISK FACTORS" section beginning on page 7 before you decide to purchase any of our common stock.

We qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act (“JOBS Act”). For more information, see the prospectus section titled “Emerging Growth Company Status” starting on page 3.

Our common stock is presently not listed on any national securities exchange or reported on any quotation system. Subsequent to the initial filing date of the registration statement on Form S-1, in which this prospectus is included, we may have an application filed on our behalf by a market maker for approval of our common stock for quotation on the OTCBB quotation system. No assurance can be made, however, that we will choose to file such an application or will be able to locate a market maker to submit such application or that such application will be approved.

The Company is currently in the development stage and has minimal operations and revenues to date and there can be no assurance that the company will be successful in furthering its operations and/or revenues. Persons should not invest unless they can afford to lose their entire investment. Investing in our securities involves a high degree of risk. You should purchase these units only if you can afford a complete loss of your investment. See “Risk Factors” beginning on page 7 of this prospectus.

Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

   

The date of this prospectus is June 13, 2014 

     
 

Table of Contents

PROSPECTUS SUMMARY 2
THE OFFERING 4
THE REORGANIZATION AND PREVIOUS OFFERINGS 4
SUMMARY FINANCIAL DATA 6
RISK FACTORS 7
TAX CONSIDERATIONS 13
USE OF PROCEEDS 13
DETERMINATION OF OFFERING PRICE 13
DIVIDEND POLICY 13
SELLING SECURITY HOLDERS 14
PLAN OF DISTRIBUTION 17
DESCRIPTION OF BUSINESS 18
PROPERTIES 24
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS 24
EXECUTIVE COMPENSATION 25
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 29
DESCRIPTION OF SECURITIES 30
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 31
DECEMBER 31, 2013 -- FINANCIAL STATEMENTS 36
MARCH 31, 2014 – FINANCIAL STATEMENTS 45
LEGAL MATTERS 55
EXPERTS   55
WHERE YOU CAN FIND MORE INFORMATION 55

 

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by us or on our behalf. We have not authorized anyone to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. The information in this prospectus is accurate only as of the date on the front of this prospectus. Our business, financial condition, results of operations and prospects may have changed since the date of this prospectus. This prospectus is not an offer or solicitation relating to the securities in any jurisdiction in which such an offer or solicitation relating to the securities is not authorized. You should not consider this prospectus to be an offer or solicitation relating to the securities if the person making the offer or solicitation is not qualified to do so, or if it is unlawful for you to receive such an offer or solicitation.

  1  
 

PROSPECTUS SUMMARY

This summary highlights certain information appearing elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider prior to investing. After you read this summary, you should read and consider carefully the more detailed information and financial statements and related notes that we include in this prospectus, especially the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If you invest in our securities, you are assuming a high degree of risk.

Unless we have indicated otherwise or the context otherwise requires, references in the prospectus to “MassRoots,” the “Company,” “we,” “us” and “our” or similar terms are to MassRoots, Inc. Unless otherwise indicated, all share and per share information relating to our common stock in this prospectus has been adjusted to reflect the “Exchange” which occurred during our “Reorganization”. See “The Reorganization And Previous Offerings” for additional discussion of the Exchange and Reorganization.

Our Company

MassRoots is a mobile network for the cannabis community. Our semi-anonymous mobile network is a platform where people can share their cannabis-related experiences, discover the highest-quality content and connect with like-minded individuals.

Since launching in July 2013 through June 7, 2014, MassRoots has grown into a community of 134,000 users that have interacted with each other 30.7 million times. Our mobile apps are now opened more than 1.8 million times every month.

From the inception of MassRoots to December 31, 2013, we have incurred a net loss of $919,123 and our auditors have issued a going concern opinion. We do not plan on monetizing our network until we reach at least one million users and, as such, will have to raise additional capital to continue operations.

Background

 

MassRoots, Inc. was formed on April 24, 2013 to be a mobile network for the cannabis community. We define cannabis community as individuals who engage in the use of cannabis which is permissible under state law. Given the history of cannabis in the United States, many people would prefer to keep their cannabis experiences separate from Facebook, Instagram and Twitter where a user’s family, co-workers and employers may be connected with them. Our goal was to provide a platform where users were not required to provide personally identifiable information, as to create a semi-anonymous environment where users feel comfortable posting about cannabis.

 

Given that consumers are shifting their digital consumption habits from desktop computers to mobile devices, our primary focus was developing an iOS App for use on iPhones and iPads. The MassRoots management team firmly believes in lean-startup methodology, which dictates that companies should focus on developing a minimum viable product, launch it to consumers, and then gain their feedback before spending time and resources on a full product pipeline. As such, we launched the minimum-viable MassRoots iOS App on July 16, 2013. Since that time, the MassRoots development team added several features to the iOS App, including symbol support (such as smiley faces), double-click to like pictures, a news feed to show a user’s friends' activity on the network, as well as restructuring the application and database to handle tens of thousands of monthly active users. The MassRoots iOS App remains MassRoots’ primary source of new users, usage and support – with a five star review in the iOS App Store from several hundred users as of March 15, 2014.

 

Shortly after launching the iOS App, we began developing an Android App to make MassRoots available to more people on more devices. However, Android development proved to be far more costly and difficult than we had anticipated due to the 2,500+ devices that currently have the Android operating system, the complexity of our App and the financial limitations of the Company. We launched a minimum viable product in late September 2013, however it was only able to run on a small percentage of Android devices. We decided in mid-October to completely redevelop our Android App with a newly retained development team. We successfully re-launched a minimum viable product on Android in late February 2014. The Android App remains roughly three months behind the iOS App in terms of functionality and user-experience.

 

Since its inception, our sole objective has been to grow its user-base and acquire market share. As of June 7, 2014, MassRoots has built a network of approximately 134,000 users, facilitated 30.7 million interactions and our mobile applications are being opened more than 1.8 million times each month.

MassRoots’ Value Proposition to Users:

With approximately 134,000 users, MassRoots continues to grow. People primarily use MassRoots for the following reasons:

MassRoots’ Value Proposition to Advertisers:

To date, MassRoots has solely focused on building out its user-facing platforms and growing its network; businesses are only interested in advertising on networks with a large and active user base, which we are just now starting to achieve. Over the coming months, we will be unveiling a self-service advertising portal for dispensaries, glass shops and cannabis brands looking to market themselves to cannabis consumers. The reasons we believe that they will advertise on MassRoots are:

Table of Contents 2  
 

MassRoots’ Value Proposition to Developers:

Over the coming months, we will be introducing an Application Programming Interface (API) to developers looking to integrate MassRoots’ network into their cannabis-related platform. The benefits to developers are:

MassRoots’ Value Proposition to Investors:

For investors looking to capitalize on the rapidly growing cannabis industry which is permissible under certain state laws, MassRoots presents a unique and valuable opportunity for the following reasons:

Company Information

We are a Delaware corporation. Our address is 6525 Gunpark Drive, Ste. 370 #150, Boulder, CO 80301, our telephone number is (720) 442-0052 and our website is www.MassRoots.com. The information on our website or mobile apps is not a part of this prospectus.

Emerging Growth Company

We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies.

Section 107(b) of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues are $1 billion, as adjusted, or more, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) , which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

Table of Contents 3  
 

THE OFFERING

 

Securities offered   Up to 50,400,000 shares of our common stock.
     
Offering price   $0.10 per share for the duration of the offering relating to the resale of our common shares or until such time as the stock is quoted on the OTCBB or listed on an exchange at which time the selling security holders may then sell at the prevailing market price.  
     
Common stock outstanding before this offering   38,909,000 shares.
     
Common stock to be outstanding after this offering   Up to 50,400,000 shares, provided all outstanding convertible debentures and warrants are converted and exercised, respectively.
     

Use of

proceeds

  We will not receive any proceeds from the resale of the common stock or the conversion of outstanding convertible debentures into common stock.  However, we may receive up to $1,904,050 in gross proceeds from the exercise of outstanding warrants.  For a more complete description, see “Use of Proceeds.”
     
Risk factors   See “Risk Factors” beginning on page 7 and the other information set forth in this prospectus for a discussion of factors you should consider before deciding to invest in our securities.
     
Market for Common Stock  

Our common stock is not presently quoted on or traded on any securities exchange or reported on an automatic quotation system and we have not yet applied for quotation on any public market. We can provide no assurance that there will ever be an established pubic trading market for our common stock. If we decide to seek quotation on the OTCBB, we must obtain a market maker to file an application with the Financial Industry Regulatory Authority (FINRA) on our behalf. There is a risk that we may not be able to obtain a market maker to file such an application. If a market maker does file an application on our behalf, it may take as long as nine (9) months to one (1) year to be approved by the FINRA. We may or may not seek to have a market maker file a Listing Application on our behalf.

 

Dividends   We have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future.

 

The number of shares of our common stock outstanding before this offering and that will be outstanding after completion of this offering excludes:  

 

2,050,000 shares of common stock issuable upon the exercise of options granted under our 2014 Equity Incentive Plan to certain employees and directors, which has not vested as of June 11, 2014, will not vest within 60 days of June 11, 2014, and/or contains performance-based vesting conditions; and
3,150,000 shares of common stock reserved for issuance remaining under our 2014 Equity Incentive Plan, or 2014 Plan (which includes the 2,050,000 shares of common stock issuable upon the exercise of options granted as described above) of as well as any future increases in the number of shares of our common stock reserved for issuance under the 2014 Plan

  Except as otherwise indicated, the information in this prospectus assumes or gives effect to:

 

all outstanding convertible debentures and warrants are converted and exercised, respectively; and
per share amounts and shares has been adjusted to reflect the “Exchange” which occurred during our “Reorganization”.

 

THE REORGANIZATION AND PREVIOUS OFFERINGS

The following is a discussion detailing the transactions in which the selling security holders acquired the securities described in this prospectus.

 

MassRoots was incorporated in the state of Delaware on April 24, 2013. Our original Certificate of Incorporation authorized the issuance of 1,000 shares of common stock with a par value of $1.00 per share.

 

On April 24, 2013, the Company approved the issuance of 15.25 shares of common stock (4,569,970 shares post-Exchange, as defined herein) to the Company’s CEO and Chairman, Isaac Dietrich, to repay $17,053 in short term borrowings from him and for services provided. The Company also approved the issuance of 3.75, 3.00, and 3.00 shares of common stock (1,142,493, 913,994, and 913,994 shares post-Exchange) to the Company’s officers, Hyler Fortier, Stewart Fortier, and Tyler Knight, respectively, in exchange for their services. In addition, options to purchase 42.81, 11.25, 9.0, and 9.0 shares (13,042,695, 3,427,478, 2,741,982 and 2,741,982 shares post-Exchange) of the Company’s common stock at $1.00 per share were issued to Mr. Dietrich, Ms. Fortier, Mr. Fortier, and Mr. Knight, respectively. The options vested through January 1, 2017 and contained an acceleration clause which was triggered on January 1, 2014 that caused all options to vest immediately. On that date, all outstanding options were exercised at that time by each officer named herein.

 

The Original Offering

 

In connection with an offering to occur in October 2013, the Company filed an Amended and Restated Certificate of Incorporation which authorized the issuance of 21 shares of preferred stock with a par value of $1.00 per share, 17.65 shares of which were designated as Series A Preferred Stock. Among other rights and privileges, holders of Series A Preferred Stock are entitled to a cumulative dividend of 7% annually, preferential payments over common stock in liquidation and other events, and the ability to convert their Series A Preferred Stock to common stock on a one to one basis (taking into account any unpaid dividends).

 

In October 2013, the Company entered into agreements to issue 5.88, 5.88, and 5.89 Series A Preferred shares (1,791,430, 1,791,430, and 1,791,430 common shares post Exchange) to Bass Point Capital, LLC, WM18 Finance LTD, and Rother Investments, LLC, respectively, in exchange for a $50,000 investment from each. In addition, the Company entered into an agreement to issue as compensation for services provided a total of 2.94 Series A Preferred shares (895,715 common shares post-Exchange) with a market value of $24,998 to Douglas Leighton for financial consulting services (collectively, the “Original Offering”).

Table of Contents 4  
 

 

The Reorganization, March 2014 Offering and Registration Rights

 

In preparation for the March 2014 Offering (as defined herein) and the Company’s intention of becoming a publicly traded entity, on March 18, 2014 the Company entered into an Agreement and Plan of Reorganization with its shareholders in which the following was effected: (i) on March 21, 2014, the Company’s Amended and Restated Certificate of Incorporation was amended to allow for the issuance of 200,000,000 shares of the Company’s common stock and amended the par value of the Company’s common stock to $0.001 per share; (ii) on March 24, 2014, each of the Company’s preferred shareholders converted their shares into common stock on a one for one basis (including the accrued divided); and (iii) on March 24, 2014, each of the Company’s shareholders surrendered their shares of the Company’s common stock in exchange for the pro-rata distribution of 36,000,000 newly issued shares of Company’s common stock, based on the percentage of the total shares of common stock held by the shareholder immediately prior to the exchange (the “Exchange”).

 

In March 2014, we raised gross proceeds of $475,000 through an offering of our securities to certain accredited and non-accredited investors consisting of: (i) $269,100 face amount of convertible debentures convertible into up to 2,691,000 shares of the Company’s common stock at $0.10 per share (the “Debentures”), together with warrants, exercisable into an amount of our common stock equal to fifty percent (50%) of the common stock underlying the Debentures, at $0.40 per share (“Debenture Warrants”); and (ii) 2,059,000 shares of our common stock at $0.10 per share (“Common Stock”) with a warrant, exercisable into an amount of our common stock equal to fifty percent (50%) of the Common Stock purchased, at $0.40 per share (the “Common Stock Warrants”, together with the Debentures, the Debenture Warrants, and the Common Stock, the “March 2014 Offering”). Five investors received Debentures and Debenture Warrants, while 36 accredited and unaccredited investors received the Common Stock and Common Stock Warrants.

 

The Debentures mature on March 24, 2016 and do not accrue interest. If any amount of the Debentures remains outstanding on March 24, 2016, the unconverted portion of the Debentures shall automatically be converted into shares of Company’s common stock at $0.10 per share. Each of the Debenture Warrants and Common Stock Warrants may be exercised any time after their issuance date through and including the third anniversary of their issuance date.

 

In connection with the March 2014 Offering, we entered into certain registration rights agreements (the “Registration Rights Agreement”), whereby we agreed to use our commercially reasonable efforts to prepare and file a registration statement with the SEC within forty-five (45) days after March 24, 2014, covering all outstanding shares of common stock (including all shares of Common Stock sold in the March 2014 Offering), in addition to all shares of common stock underlying the Debentures, Debenture Warrants, and Common Stock Warrants.

 

Additionally, a s payment for consulting services provided in relation to the March 2014 Offering, we issued Dutchess Opportunity Fund, II LP (“Dutchess”) a warrant exercisable into 4,050,000 shares of our common stock at $0.001 per share (the “$0.001 Consulting Warrants”), and a warrant exercisable into 2,375,000 shares of our common stock at $0.40 per share (the “$0.40 Consulting Warrants”, and together with the $0.001 Consulting Warrants, the “Consulting Warrants”) (the $0.40 Consulting Warrants, the Common Stock Warrants, and the Debenture Warrants , are collectively known as the “$0.40 Warrants”). The Consulting Warrants may be exercised any time after their issuance date through and including the third anniversary of their issuance date.. The Company also granted certain registration rights to Dutchess covering all shares of common stock issuable upon the excise of the Consulting Warrants.

 

Each of the Debentures, the Debenture Warrants, the Common Stock Warrants, and Consulting Warrants contain a provision which prevent the Company from effecting the conversion or exercise of the respective debenture or warrant, to the extent that, as a result of such conversion or exercise, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of the Company's common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion or exercise (collectively, the “4.99% Blocker”).

 

Offerings Under the 2014 Equity Incentive Plan

 

On June 6, 2014, each of Ean Seeb, Tripp Keber, and Sebastian Stant received a stock award of 250,000 shares of our common stock, while Jesus Quintero, the Company’s Chief Financial Officer, received a stock award of 100,000 shares of our common stock as compensation for their service. Each of Ean Seeb, Tripp Keber, and Sebastian Stant also received unvested options to purchase shares of our common stock pursuant to our 2014 Equity Incentive Plan; shares of common stock underlying such options are not covered under this registration statement (see “Executive Compensation” for more details).

Table of Contents 5  
 

 

SUMMARY FINANCIAL DATA

 

The following summary of our financial data should be read in conjunction with, and is qualified in its entirety by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, appearing elsewhere in this prospectus.  

 

Statements of Operations Data

   

For the period

April 24, 2013

to
December 31, 2013

  For the quarter-ended
March, 31, 2014
             
Revenue   $ 470   $ 995
             
Loss from operations   $ 919,593   $ 682,465
             
Net loss   $ 919,123   $ 682,465
             

  

  

Balance Sheet Data

   

December 31,

2013

  March 31, 2014
             
Cash   $ 80,479   $ 326,876
             
Total assets   $ 82,573   $ 335,368
             
Total liabilities   $ 1,846   $ 143,704
             
Total stockholders’ equity (deficit)   $ 80,727   $ 191,665

 

 

Table of Contents 6  
 

RISK FACTORS

You should carefully consider the risks described below and other information in this prospectus, including the financial statements and related notes that appear at the end of this prospectus, before deciding to invest in our securities. These risks should be considered in conjunction with any other information included herein, including in conjunction with forward-looking statements made herein. If any of the following risks actually occur, they could materially adversely affect our business, financial condition, operating results or prospects. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial may also impair our business, financial condition, operating results and prospects.

 

Risks Relating to Our Financial Condition

 

Our independent registered accounting firm has expressed concerns about our ability to continue as a going concern.

The report of our independent registered accounting firm expresses concern about our ability to continue as a going concern based on the absence of significant revenues, our significant losses from operations and our need for additional financing to fund all of our operations. It is not possible at this time for us to predict with assurance the potential success of our business. The revenue and income potential of our proposed business and operations are unknown. If we cannot continue as a viable entity, we may be unable to continue our operations and you may lose some or all of your investment in our common stock.

We have limited operational history in an emerging industry, making it difficult to accurately predict and forecast business operation.

As we have less than one year of corporate operational history, it is extremely difficult to make accurate predictions and forecasts on our user growth and finances. This is compounded by the fact we operate in both the technology and cannabis industries, two rapidly transforming industries. There is no guarantee our products or services will remain attractive to potential and current users as these industries undergo rapid change. 

As a growing technological company, we have yet to achieve a profit and may not achieve a profit in the near future, if at all.

While we have less than one year of operational history, we have not yet produced a net profit and may not in the near future, if at all. For the period from our inception, April 24, 2013, through December 31, 2013, we incurred a net loss of $919,123. While we expect our revenue to grow significantly, we have not achieved profitability and cannot be certain that we will be able to sustain our current growth rate or realize sufficient revenue to achieve profitability. Further, many of our competitors in the technological fields, such as Twitter, Inc., have a significantly larger user base and revenue stream, but have yet to achieve profitability. Our ability to continue as a going concern may be dependent upon raising capital from financing transactions, increasing revenue throughout the year and keeping operating expenses below our revenue levels in order to achieve positive cash flows, none of which can be assured.

We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features and products or enhance our existing products, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be impaired, and our business may be harmed.

Risks Relating to Our Business and Industry

New platform features or changes to existing platform features could fail to attract new users, retain existing users or generate revenue.

Our business strategy is dependent on its ability to develop platforms and features to attract new users and retain existing ones. Staffing changes, changes in user behavior or development of competing networks may cause users to switch to alternative platforms or decrease their use of our platform. To date, we have not released products and services to the business community beyond beta tests involving 10-20 companies. There is no guarantee that companies and dispensaries will use these features and we may fail to generate revenue. Additionally, any of the following events may cause decreased use of our properties:

Emergence of competing websites and applications;
Inability to convince potential users to join our network;
A decrease or perceived decrease in the quality of posts on the network;
An increase in content that is irrelevant to our users;
Technical issues on certain platforms or in the cross-compatibility of multiple platforms;
An increase in the level of advertisements may discourage user engagement;
A rise in safety or privacy concerns; and
An increase in the level of spam or undesired content on the network.

 

Failure to properly scale our network could result in diminished user experience.

To date, we have been able to sustain approximately 134,000 users with only minor issues. As we potentially scale to hundreds of thousands and millions of users, the network's infrastructure as it relates to storage space, bandwidth, processing ability, speed and other factors may begin to deteriorate or fail completely. This may result in deteriorating user experience, system failures or system outages for continued periods of time. Additionally, issues with cross- compatibility of our Android, iOS and Web properties may cause system glitches, failures or other technical issues.

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Conflicts of interest may arise from other business activities of our directors and officers.

Several of our officers and directors are engaged in business activities outside of MassRoots that may cause conflicts of interest to arise. Our Chief Executive Officer, Isaac Dietrich, is also the President of RoboCent, Inc. (“RoboCent”), a political technology company. Per RoboCent's bylaws, it is party and cause-agnostic, meaning RoboCent is retained by candidates of both parties that may be supportive or opposed to cannabis legalization. While RoboCent is not currently retained by any campaigns or political action committees directly related to cannabis legalization, it is possible for it to be retained by committees seeking to pass or defeat cannabis legalization initiatives. Mr. Dietrich is no longer involved in the day-to-day operations of RoboCent, nor is he involved RoboCent's client relations. Mr. Dietrich spends less than one hour per week on RoboCent-related matters and spends 40+ hours per week on MassRoots-related work.

Our Chief Financial Officer, Jesus Quintero, is also the CFO of Brazil Interactive Media, Inc. We currently do not have any agreements with Brazil Interactive Media, Inc. Mr. Quintero spends roughly 10 hours per week on MassRoots-related work.

Our independent director, Tripp Keber, is the Managing Partner of Dixie Elixirs & Edibles (“Dixie”), a cannabis edibles brand in Colorado. Dixie is one of MassRoots' partners in beta-testing advertising strategies; however, there is not currently a financial relationship between the two companies.

Our other independent director, Ean Seeb, is also a partner at Denver Relief Consulting LLC. In this capacity, he advises dispensaries and other cannabis-related companies on regulatory compliance, dispensary operations and marketing. His seat on the MassRoots Board of Directors may cause other cannabis-related consulting agencies and competitors to Denver Relief Consulting LLC's clients to be hesitant to advertise with MassRoots. Potential conflicts of interest may arise from Ean Seeb's position as Chairman of the National Cannabis Industry Association (“NCIA”), the leading trade group of the cannabis industry. While MassRoots has been in agreement with the NCIA's decisions and actions to date, we cannot guarantee conflicts will not arise in the future.

Stewart Fortier, our director and our Chief Technology Officer, Tyler Knight, our Chief Marketing Officer, and Hyler Fortier, our Chief Operating Officer, are not currently involved in any business outside of MassRoots and devote 100% of their time towards MassRoots-related matters.

We will need to raise additional capital to continue its operations over the coming year.

We anticipate the need to raise an additional $500,000 to fund our operations through the end of the second quarter of 2015. We expect to use these cash proceeds, in addition to the capital on hand, primarily to accelerate our user growth, implement consumer-facing features to boost engagement, develop and market a self-service advertising portal for cannabis-related businesses, and remain in full legal and accounting compliance with the SEC. We cannot guarantee that we will be able to raise these required funds or generate sufficient revenue to remain operational. In connection with the March 2014 Offering, we issued the $0.40 Warrants and the $0.001 Consulting Warrants. The exercise of the $0.40 Warrants and the $0.001 Consulting Warrants would result in approximately $1,904,050 to be provided to MassRoots for general corporate expenditures. However, we cannot guarantee that the $0.40 Warrants and the $0.001 Consulting Warrants will be exercised before MassRoots runs out of operational capital.

Our monetization strategy is dependent on many factors outside our control.

We do not plan to aggressively pursue a monetization strategy until we reach one million users. There is no guarantee we will reach one million users nor is there any guarantee that businesses will want to advertise on our platform. Furthermore, our competitors may introduce more advanced advertising portals that deliver a greater value proposition to cannabis related businesses over the coming months. For example, Google, Facebook and Twitter may decide to allow cannabis-related advertising on their platforms, significantly increasing the competitive environment. Users may stop using our products for many reasons, including the addition of advertising, preventing any monetization from occurring. The development of our advertising platform may take longer than expected and cost more money than projected. Dispensaries may not have credit or bank cards due to banking regulations, which could significantly increase the cost and time required for us to generate revenue. All these factors individually or collectively may preclude us from effectively monetizing our business.

Operating a network open to all internet users may result in legal consequences.

Our Terms and Conditions clearly state that our network and services are only to be used by users who are over 18 years old and located where the use of cannabis is permissible under state law and only in a manner which would be permissible under the applicable state law. However, it is impractical to independently verify that all activity occurring on our network fits into this description. As such, we run the risk of federal and state law enforcement prosecution, especially if our network is used in states where cannabis is not permitted under state law; by gangs, cartels, or criminal enterprises; and/or by minors.

We have taken several steps which attempt to prevent the use of our network in manners which violate our Terms and Conditions. For example, we have an aggressive content reporting review policy to remove any content which violates our Terms and Conditions. Any business seeking to advertise on MassRoots will be required to provide a copy of their state license to operate. Further, Google Play Marketplace and the iOS App Store, our primary distribution channels, only allow users that are 18 years of age and older to download our app. We will be introducing a system that automatically flags any posts for review, removal, and possible account suspension that includes certain words such as "gun" or "acid”, as well as temporarily suspending any profiles which include in their description an age under that of the minimum legal age in the user’s respective state. We are also considering adding to our verification process a step that requires a user to share their location so that it can be verified that they are in a legal state. However, we cannot guarantee that our current or future systems will be sufficient to prevent illegal activity from being posted on our network.

Although the Obama Administration has effectively stated that it is not an efficient use of resources to direct Federal law enforcement agencies to prosecute those following state laws allowing for the use and distribution of medical and recreational cannabis, there can be no assurance that the administration will not change its stated policy and begin enforcement of the Federal laws against us or our users. Additionally, there can be no assurance that we will not face criminal prosecution from states where the use of cannabis is permitted for the use of cannabis in ways which do not fall under the state law. Finally, even if we attempt to prevent the use of our product in states where cannabis use is not permitted under state law, use of our app by those in such states may still occur and state authorities may still bring an action against us for the promotion of cannabis related material by those residing in such states.

Changes in Apple App Store or Google Play Store policies could result in our mobile applications being de-listed.

Apple, Inc. and Google, Inc. may potentially update their App Store and Play Store policies, respectfully, to prohibit cannabis-related applications. This could result in many prospective users being unable to access and join our network through native smartphone applications. 

Failure to generate user growth or engagement could greatly harm our business model.

Our business model is reliant on its ability to attract and retain new users. There is no guarantee that growth strategies used in the past will continue to bring new users to the network. Changes in relationships with our partners, contractors and businesses we retain to grow the network may result in significant increases in the cost to acquire new users. Additionally, new users may fail to engage with the network to the same extent current users are, resulting in decreased usage of the network. Decreases in the size of our user base and/or decreased engagement on the network would greatly impair our ability to generate revenue.

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Failure to attract advertising clients could greatly harm our ability to generate revenue

Our ability to generate revenue is dependent on the continued growth of the network and its ability to convince advertisers of its value. Should we prove unable to continue to grow its network or register advertising partners as the network grows, its ability to generate revenue would be greatly compromised. There is no guarantee businesses will want to advertise on our network or that we will be able to generate revenue from its existing user base. 

Our proposed business is dependent on state laws pertaining to the cannabis industry.

As of April 30, 2014, 21 states and the District of Columbia allow its citizens to use medical cannabis. Additionally, voters in the states of Colorado and Washington approved ballot measures to legalize cannabis for adult use. Continued development of the cannabis industry is dependent upon continued legislative authorization of cannabis at the state level. Any number of factors could slow or halt progress in this area. Further, progress in the cannabis industry, while encouraging, is not assured. While there may be ample public support for legislative action, numerous factors impact the legislative process. Any one of these factors could slow or halt use of cannabis, which would negatively impact our proposed business.

Cannabis remains illegal under Federal law.

Despite the development of a cannabis industry legal under state laws, state laws legalizing medicinal and adult cannabis use are in conflict with the Federal Controlled Substances Act, which classifies cannabis as a schedule-I controlled substance and makes cannabis use and possession illegal on a national level. The United States Supreme Court has ruled that it is the Federal government that has the right to regulate and criminalize cannabis, even for medical purposes, and thus Federal law criminalizing the use of cannabis preempts state laws that legalize its use. However, the Obama Administration has effectively stated that it is not an efficient use of resources to direct Federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical and recreational cannabis. Yet, there is no guarantee that the Obama Administration will not change its stated policy regarding the low-priority enforcement of Federal laws in states where cannabis has been legalized. Additionally, we face another presidential election cycle in 2016, and a new administration could introduce a less favorable policy or decide to enforce the Federal laws strongly. Any such change in the Federal government’s enforcement of Federal laws could cause significant financial damage to us and our shareholders.

As the possession and use of cannabis is illegal under the Federal Controlled Substances Act, we may be deemed to be aiding and abetting illegal activities through the services that we provide to users and advertisers. As a result, we may be subject to enforcement actions by law enforcement authorities, which would materially and adversely affect our business.

Under Federal law, and more specifically the Federal Controlled Substances Act, the possession, use, cultivation, and transfer of cannabis is illegal. Our business provides services to customers that were engaged in the business of possession, use, cultivation, and/or transfer of cannabis. As a result, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, may seek to bring an action or actions against us, including, but not limited, to a claim of aiding and abetting another’s criminal activities. The Federal aiding and abetting statute provides that anyone who “commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.” 18 U.S.C. §2(a). As a result of such an action, we may be forced to cease operations and our investors could lose their entire investment. Such an action would have a material negative effect on our business and operations.

Federal enforcement practices could change with respect to services providers to participants in the cannabis industry, which could adversely impact us. If the Federal government were to change its practices, or were to expend its resources attacking providers in the cannabis industry, such action could have a materially adverse effect on our operations, our customers, or the sales of our products.

It is possible that additional Federal or state legislation could be enacted in the future that would prohibit our advertisers from selling cannabis, and if such legislation were enacted, such advertisers may discontinue the use of our services, our potential source of customers would be reduced, causing revenues could decline. Further, additional government disruption in the cannabis industry could cause potential customers and users to be reluctant use and advertise on our products, which would be detrimental to the Company. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.

Government actions could result in our products and services being unavailable in certain geographic regions, harming future growth.

Due to our connections to the cannabis industry, governments and government agencies could ban or cause our network or apps to become unavailable in certain regions and jurisdictions. This could greatly impair or prevent us from registering new users in affected areas and prevent current users from accessing the network. In addition, government action taken against our service providers or partners could cause our network to become unavailable for extended periods of time.

User engagement and growth depends on software and device updates beyond our control.

Our applications and websites are currently available on multiple operating systems, including iOS and Android, across multiple different manufacturers, including Motorola, LG, Apple and Samsung, on thousands of different individual devises. Changes to the device infrastructure or software updates on these devises could render our platforms and services useless or inoperable. This could prevent potential users from registering with us, decrease engagement among current users and devalue our value proposition to advertisers. 

We may be unable to manage growth, which may impact our potential profitability.

Successful implementation of our business strategy requires us to manage our growth.  Growth could place an increasing strain on our management and financial resources.  To manage growth effectively, we will need to:

Establish definitive business strategies, goals and objectives;
Maintain a system of management controls; and
Attract and retain qualified personnel, as well as, develop, train and manage management-level and other employees.

If we fail to manage our growth effectively, our business, financial condition or operating results could be materially harmed, and our stock price may decline.

Our Company may not be able to compete successfully with other established companies offering the same or similar services and, as a result, we may not achieve our projected revenue and user targets.

If our company is unable to compete successfully with other businesses in our existing market, we may not achieve our projected revenue and/or user targets. We compete with both start-up and established technology companies. Compared to our business, some of our competitors may have greater financial and other resources, have been in business longer, have greater name recognition and be better established in the technological or cannabis markets.

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Expansion by our well-established competitors into the cannabis industry could prevent us from realizing anticipated growth in users and revenues.

Our competitors, such as Twitter and Facebook, have continued to expand their businesses in recent years into other social network markets. If they decided to expand their social networks into the cannabis community, this could hurt the growth of our business and user base and cause our revenues to be lower than we expect.

Government regulation of the Internet and e-commerce is evolving, and unfavorable changes could substantially harm our business and results of operations.

We are subject to general business regulations and laws as well as Federal and state regulations and laws specifically governing the Internet and e-commerce. Existing and future laws and regulations may impede the growth of the Internet, e-commerce or other online services, and increase the cost of providing online services. These regulations and laws may cover sweepstakes, taxation, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, broadband residential Internet access and the characteristics and quality of services. It is not clear how existing laws governing issues such as property ownership, sales, use and other taxes, libel and personal privacy apply to the Internet and e-commerce. Unfavorable resolution of these issues may harm our business and results of operations.

If we have material weaknesses in the financial reporting of our company, it may cause us to restate our financial statements in the event such weaknesses are determined to not be acceptable to financial reporting requirements.

While our review of material weaknesses is ongoing, if we discover any weaknesses that could cause us to have to restate our financial statements, this could cause us to expend additional funds that would have a material impact on our ability to generate profits and on the profits of our business.

We will be dependent on clients that want to use the Internet and Mobile Applications.

Our ability to maintain consistent business depends in part upon our ability to acquire new clients. Our inability to gain new clients during periods of high unemployment could increase our costs and could cause a slowdown in business with the sales of our products or cause us to temporarily close our business. If we temporarily close our business, we may experience a significant reduction in revenue during the time affected by the closure.

The failure to enforce and maintain our intellectual property rights could enable others to use names confusingly similar to MassRoots, Inc. and other names and marks used by our business, which could adversely affect the value of the brand.

The success of our business depends on our continued ability to use our existing trade name in order to increase our brand awareness. In that regard, we believe that our trade name is valuable asset that is critical to our success. The unauthorized use or other misappropriation of our trade name could diminish the value of our business concept and may cause a decline in our revenue.

Any new indebtedness may adversely affect our financial condition, results of operations, limit our operational and financing flexibility and negatively impact our business.

Any revolving credit facility, and other debt instruments we may enter into in the future, may have negative consequences to our business, including but not limited to the following:

Our ability to obtain financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired;
We may use a substantial portion of our cash flows from operations to pay interest on any new indebtedness, which will reduce the funds available to us for operations and other purposes;
Our level of indebtedness could place us at a competitive disadvantage compared to our competitors that may have proportionately less debt;
Our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited; and
Our level of indebtedness may make us more vulnerable to economic downturns and adverse developments in our business.

We expect that we will depend primarily upon invested capital to provide funds to pay our expenses and to pay any amounts that may become due under any new credit facility and any other indebtedness we may incur. Our ability to make these payments depends on our future performance, which will be affected by various financial, business, economic and other factors, many of which we cannot control.

We depend on the services of key executives, the loss of who could materially harm our business and our strategic direction if we were unable to replace them with executives of equal experience and capabilities.

Our senior executives, Isaac Dietrich, Tyler Knight, Hyler Fortier, and Stewart Fortier are important to our success because they are instrumental in setting our strategic direction, operating our business, identifying, expansion opportunities and arranging any necessary financing. Losing the services of these individuals could adversely affect our business until suitable replacements could be found. We do not maintain key person life insurance policies on any of our executives.

We expect to incur substantial expenses to meet our reporting obligations as a public company. In addition, failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting and could harm our ability to manage our expenses.

We estimate that it will cost approximately $60,000 annually to maintain the proper management and financial controls for our filings. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to accurately report our financial performance on a timely basis, which could cause a decline in our stock price and adversely affect our ability to raise capital.

Due to our involvement in the cannabis industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liabilities.

Insurance that is otherwise readily available, such as workers compensation, general liability, and directors and officers insurance, is more difficult for us to find, and more expensive, because we were service providers to companies in the medicinal cannabis industry. There are no guarantees that we will be able to find such insurances in the future, or that the cost will be affordable to us. If we are forced to go without such insurances, it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional risk and financial liabilities.

Participants in the cannabis industry may have difficulty accessing the service of banks, which may make it difficult for us to operate.

Despite recent rules issued by the United States Department of the Treasury mitigating the risk to banks who do business with cannabis companies permitted under state law, as well as recent guidance from the United States Department of Justice, banks remain weary to accept funds from businesses in the cannabis industry. Since the use of cannabis remains illegal under Federal law, there remains a compelling argument that banks may be in violation of Federal law when accepting for deposit funds derived from the sale or distribution of cannabis. Consequently, businesses involved in the cannabis industry continue to have trouble establishing banking relationships. An inability to open bank accounts may make it difficult for us, or some of our advertisers, to do business.

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Risks Relating to our Common Stock

The market price for our common stock will be particularly volatile given our status as a relatively unknown company, with a limited operating history and lack of profits which could lead to wide fluctuations in our share price. You may be unable to sell your common stock at or above your purchase price, which may result in substantial losses to you.

While there is no market for our common stock, our price volatility in the future will be particularly volatile when compared to the shares of larger, more established companies that trade on a national securities exchange and have large public floats.  The volatility in our share price will be attributable to a number of factors.  First, our common stock will be compared to the shares of such larger, more established companies, sporadically and thinly traded.  As a consequence of this limited liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction.  The price for our shares could decline precipitously in the event that a large number of our common stock are sold on the market without commensurate demand.  Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential products.  As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a larger, more established company that trades on a national securities exchange and has a large public float.  Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance.  We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time.

Our future results may vary significantly which may adversely affect the price of our common stock.

It is possible that our quarterly revenues and operating results may vary significantly in the future and that period-to-period comparisons of our revenues and operating results are not necessarily meaningful indicators of the future. You should not rely on the results of one quarter as an indication of our future performance. It is also possible that in some future quarters, our revenues and operating results will fall below our expectations or the expectations of market analysts and investors. If we do not meet these expectations, the price of our common stock may decline significantly.  

We do not anticipate paying cash dividends for the foreseeable future, and therefore investors should not buy our stock if they wish to receive cash dividends.

We have not paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

A significant number of our shares will be eligible for sale and their sale or potential sale may depress the market price of our common stock.

Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock. This prospectus covers 50,400,000 shares of common stock, being registered for sale. If additional shares of our common stock become available for resale in the public market pursuant to other offerings, the supply of our common stock will increase, which could decrease its price.

If we apply to list on the OTCBB, but fail to comply with the listing requirements of the OTCBB, the price of our common stock and our ability to access the capital markets could be negatively impacted.

We may or may not apply to have our common stock listed on the OTCBB. If we choose to do so we will be subject to certain continued listing standards. We cannot provide any assurance that we will be able to continue to satisfy the requirements of the OTCBB’s continued listing standards. A delisting of our common stock could negatively affect the price and liquidity of our common stock and could impair our ability to raise capital in the future.

Our stock price will be extremely volatile.

The trading price of our common stock will be subject to wide fluctuations in response to announcements of our business developments or those of our competitors, quarterly variations in operating results, and other events or factors. In addition, stock markets have experienced extreme price volatility in recent years. This volatility has had a substantial effect on the market prices of companies, at times for reasons unrelated to their operating performance. Such broad market fluctuations may adversely affect the price of our stock.

We will not have an underwriter for our offering and so we cannot guarantee how much, if any, of the offering will be sold.

The shares of common stock offered are being offered by our existing security holders. We have not retained an underwriter to assist in offering the shares of common stock. Our security holders have limited experience in the offer and sale of securities, and as a result, they may be unable to sell any of the common stock.

Since our securities are subject to penny stock rules you may have difficulty selling your shares.

Our shares of common stock are “penny stocks” and are covered by Section 12(g) of the 1934 Securities and Exchange Act which imposes additional sales practices which requires broker/dealers who sell our securities, including the delivery of a standardized disclosure document; disclosure and confirmation of quotation prices; disclosure of compensation the broker/dealer receives; and furnishing monthly account statements.  For sales of our securities a broker/dealer must make a special suitability determination and receive from its client a written agreement prior to making a sale.  The imposition of the foregoing additional sales practices could adversely affect a shareholder’s ability to dispose of his stock.

Our stockholders may experience significant dilution from the exercise of warrants to purchase shares of our Common Stock and the conversion of debentures into shares of our Common Stock.

We currently have outstanding warrants to purchase a total of 6,425,000 shares of our common stock at an exercise price of $0.40 per share and an outstanding warrant to purchase 4,050,000 shares of our common stock at an exercise price of $0.001 per share. Further, we have outstanding Debentures of $269,100 redeemable via conversion into shares of our common stock at $0.10 per share. Accordingly, if such warrants are exercised and Debentures are converted, in whole or part, prior to their respective expiration dates, you may experience substantial dilution. In addition, the likelihood of such dilution may be accelerated if the price of our common stock increases to a level greater than the exercise price of these warrants.

Because we can issue additional shares of common stock, purchasers of our common stock may incur immediate dilution and experience further dilution.

We are authorized to issue up to 200,000,000 shares of common stock, of which 38,909,000 shares of common stock are outstanding as of June 11, 2014. Our Board of Directors has the authority to cause us to issue additional shares of common stock, and to determine the rights, preferences and privileges of such shares, without consent of any of our stockholders. Consequently, the stockholders may experience more dilution in their ownership of our stock in the future.

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If our shares are quoted on the over-the-counter bulletin board, our securities will not be eligible for quotation if we are not current in our filings with the Securities and Exchange Commission.

In the event that our shares are quoted on the OTCBB, we will be required to remain current in our filings with the SEC in order for shares of our common stock to be eligible for quotation on the over-the-counter bulletin board. In the event that we become delinquent in our required filings with the Securities and Exchange Commission (“SEC”), quotation of our common stock will be terminated following a 30 day grace period if we do not make our required filing during that time. If our shares are not eligible for quotation on the over-the-counter bulletin board, investors in our common stock may find it difficult to sell their shares. Regardless of whether our shares are quoted on the over-the-counter bulletin board, under Section 15(d) of the Exchange Act, we will be required to file periodic reports with the SEC once our registration statement becomes effective. See risk factor entitled “ We are not a fully reporting company under the Securities Exchange Act of 1934, as amended, and thus subject only to the reporting requirements of Section 15(d).

We are not a fully reporting company under the Securities Exchange Act of 1934, as amended, and thus subject only to the reporting requirements of Section 15(d).

Until our common stock is registered under the Exchange Act, we will be subject only to the reporting obligations imposed by Section 15(d) of the Exchange Act. Section 15(d) of the Exchange Act requires issuers to file periodic reporting with the SEC when they have issued any class of securities for which a registration statement was filed and became effective pursuant to the Securities Act of 1933, as amended. The purpose of Section 15(d) is to ensure that investors who buy securities in registered offering are provided with the same information on an ongoing basis that they would receive if the securities they purchased were listed on a securities exchange or the issuer were otherwise subject to periodic reporting obligations. However, companies that are only required to report under Section 15(d), are not subject to some of the Exchange Act reporting requirements. For example, companies that are only required to report under Section 15(d) are not subject to the short-swing profit reporting requirements, the beneficial ownership reporting requirements, the institutional investor reporting rules and the third-party tender offer rules. Additionally, shareholders in a company that is only required to report under Section 15(d) are not entitled to the benefits of the Exchange Act’s proxy rules.

The reporting obligations under Section 15(d) are automatically suspended when: (i) any class of securities of the issuer reporting under Section 15(d) is registered under Section 12 of the Exchange Act; or (ii) at the beginning of the issuer’s fiscal year, other than the year in which the registration statement became effective, the class of securities covered by the registration statement is held of record by fewer than 300 persons. In the latter case, the Company would no longer be subject to periodic reporting obligations so long as the number of holders remains below 300 unless we file a registration statement with the Securities and Exchange Commission under Section 12 of the Securities Act. Management of the Company, however, fully intends to file on an ongoing basis all periodic reports required under the Exchange Act, as well as all beneficial ownership reporting requirements under Section 16 of the Exchange Act.

We are classified as an “emerging growth company” as well as a “smaller reporting company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies will make our common stock less attractive to investors.

 

We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.  We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.  If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.  In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.   We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

Notwithstanding the above, we are also currently a “smaller reporting company.” In the event that we are still considered a “smaller reporting company,” at such time are we cease being an “emerging growth company,” the disclosure we will be required to provide in our SEC filings will increase, but will still be less than it would be if we were not considered either an “emerging growth company” or a “smaller reporting company.” Specifically, similar to “emerging growth companies,” “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings. Decreased disclosures in our SEC filings due to our status as an “emerging growth company” or “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects. Should we cease to be an “emerging growth company” but remain a “smaller reporting company”, we would be required to: (1) comply with new or revised US GAAP accounting standards applicable to public companies, (2) comply with new Public Company Accounting Oversight Board requirements applicable to the audits of public companies, and (3) to make additional disclosures with respect to related party transactions, namely Item 404(d).

Table of Contents 12  
 

NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risk and uncertainties. Any statements contained in this prospectus that are not statements of historical fact may be forward-looking statements. When we use the words such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. These factors include, among others:

 

current or future financial performance;
management’s plans and objectives for future operations;
uncertainties associated with product research and development;
uncertainties associated with dependence upon the actions of government regulatory agencies;
product plans and performance;

management’s assessment of market factors; and
statements regarding our strategy and plans.

          

TAX CONSIDERATIONS

We are not providing any tax advice as to the acquisition, holding or disposition of the securities offered herein. In making an investment decision, investors are strongly encouraged to consult their own tax advisor to determine the U.S. Federal, state and any applicable foreign tax consequences relating to their investment in our securities.

 

USE OF PROCEEDS

We will not receive any proceeds from the resale of the common stock or the conversion of the Debentures. However, we may receive up to $1,904,050 in gross proceeds from the exercise of outstanding warrants. Any proceeds received by us pursuant to our exercise of the outstanding warrants may be used for general corporate purposes and working capital, acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in its good faith, deems to be in the best interest of the Company.

 

DETERMINATION OF OFFERING PRICE

There is no established public market for our shares of common stock. The offering price for the sale of common stock held by the selling security holders of $0.10 per share was arbitrarily determined by us using the price paid in our March 2014 Offering as a benchmark. In this offering, we sold 2,059,000 shares of our common stock to third party investors at $0.10 per share and $269,100 worth of Debentures convertible into shares of our common stock at $0.10 per share. All investors in the March 2014 Offering also received warrants exercisable into an amount of our common stock equal to fifty percent (50%) of their total investment in our common stock and Debentures, as the case may be, at $0.40 per share.

At the time of the preparation of the registration statement, of which this prospectus forms a part, we determined, in consultation with our advisers, that in order to ensure attractiveness for investors, the price of $0.10 per share—which equaled the offering price of our shares in the March 2014 Offering excluding the value of the warrants—was proper as the Company has continued to grow since the offering.

 

DIVIDEND POLICY

We have never paid any cash dividends on our common stock and anticipate that, for the foreseeable future, no cash dividends will be paid on our common stock.

 

CAPITALIZATION

 

The following table sets forth our capitalization as of December 31, 2013 and March 31, 2014.  The table should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus :

 

Shareholders’ Equity  

As of

December 31,

2013

 

As of

March 31,

2014

Preferred Series A stock, $1 par value, 21 shares authorized; 0 shares issued and outstanding   -   -
Common stock, $0.001 par value, 200,000,000 shares authorized; 0 shares issued and outstanding   -   -
Preferred Series A stock to be issued (includes retroactive adjustment for subsequent conversion)   -   -
Common stock to be issued $ 13,889,677 $ 38,059,000
Additional paid in capital $ 985,960 $ 1,792,713
Retained deficit $ (919,123) $ (919,123)
TOTAL STOCKHOLDERS' EQUITY $ 80,727 $ 191,665
           

 

MARKET FOR COMMON STOCK

 

There is no public market for our common stock.  Although our common stock is not currently listed on a public exchange, we may seek to have our common stock quoted on the OTCBB when the registration statement, of which this prospectus forms a part, is declared effective by the SEC. In order to be quoted on the OTCBB, a market maker must file an application on our behalf in order to make a market for our common stock. There can be no assurance that a market maker will agree to file the necessary documents with FINRA, which operates the OTCBB, nor can there be any assurance that such an application for quotation will be approved.  In the event we are successful in our attempts to have a market maker quote our stock on the OTCBB, we will need to comply with ongoing reporting requirements in order to insure that the market maker will continue to quote our stock.

Table of Contents 13  
 

 

Our common stock may never be quoted on the OTCBB, or, even if quoted, a liquid or viable market may not materialize. There can be no assurance that an active trading market for our shares will develop, or, if developed, that it will be sustained.

 

As of the date of this prospectus, there were 49 stockholders of record.

 

As of the date of this prospectus, 11,491,000 shares of our common stock were subject to convertible debentures or warrants to purchase our common stock. 2,050,000 shares of common stock issuable upon the exercise of options which had not vested as of the date of this prospectus and will not vest within 60 days and/or contain performance-based vesting conditions, are not covered by the registration statement of which this prospectus is a part.

 

SELLING SECURITY HOLDERS

This prospectus will be used for the offering of shares of our common stock owned by the selling security holders named herein. The selling security holders may offer for sale up to 50,400,000 shares of our common stock issued to them. This amount includes selling security holders, both non-affiliates and affiliates, are considered “underwriters” under the Securities Act, and as such must sell their shares at the fixed price of $0.10 per share for the duration of the offering or until the stock is quoted on the OTCBB or other exchange then at which time the selling security holders may sell at the prevailing market price or at privately negotiated prices. We will not receive any proceeds from such sales. However, we may receive up to $1,904,050 in gross proceeds from the exercise of outstanding warrants. 

 

The following table provides information about each selling security holder including how many shares of our common stock they own on the date of this prospectus, how many shares are offered for sale by this prospectus, and the number and percentage of outstanding shares each selling security holder will own after the offering, assuming all shares covered by this prospectus are sold. The information concerning beneficial ownership has been taken from our stock transfer records and information provided by the selling security holders. Information concerning the selling security holders may change from time to time, and any changed information will be set forth if and when required in prospectus supplements or other appropriate forms permitted to be used by the SEC.

 

We do not know when or in what amounts a selling security owner may offer shares for sale. The selling security holders may not sell any or all of the shares offered by this prospectus. Because the selling security holders may offer all or some of the shares, and because there are currently no agreements, arrangements or understandings with respect to the sale of any of the shares, we cannot estimate the number of the shares that will be held by the selling security holders after completion of the offering. However, for purposes of this table, we have assumed that, after completion of the offering, all of the shares covered by this prospectus will be sold by the selling security holder.

 

Unless otherwise indicated, the selling security holders have sole voting and investment power with respect to their shares of common stock. All of the information contained in the table below is based upon information provided to us by the selling security holders, and we have not independently verified this information. The selling security holders may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time or from time to time since the date on which it provided the information regarding the shares beneficially owned, all or a portion of the shares beneficially owned in transactions exempt from the registration requirements of the Securities Act.

 

The number of shares outstanding and the percentages of beneficial ownership are based on 50,400,000 shares of our common stock issued and beneficially outstanding as of June 11, 2014. For the purposes of the following table, the number of shares common stock beneficially owned has been determined in accordance with Rule 13d-3 under the Exchange Act, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under Rule 13d-3, beneficial ownership includes any shares as to which a selling security holder has sole or shared voting power or investment power and also any shares which that selling security holder has the right to acquire within 60 days of the date of this prospectus through the exercise of any stock option, warrant or other rights.

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Selling Security Holders

Name

Number of

securities

beneficially

owned before

offering

Number of

securities

to be

offered

Number of

securities

owned after

offering (1)

Percentage of

securities

beneficially

owned after

offering (1)

Position, Office or other material relationship to the Company within last three years (2)
Isaac Dietrich 17,688,831   17,688,831 - - % Chief Executive Officer and Chairman.
Douglas Leighton 11,581,269 (3) 11,581,269 - - % Director (October 2013 – March 2014).
Michael Novielli 8,811,500 (4) 8,811,500 - - % Principal of Dutchess Opportunity Fund II, LP.
Dutchess Opportunity Fund II, LP 8,061,500 (5) 8,061,500 - - % Consultant to the March 2014 Offering, Controlled by our former Director, Douglas Leighton and Michael Novielli.
Hyler Fortier 4,569,970   4,569,970 - - % Chief Operations Officer, sister of Stewart Fortier.  
Stewart Fortier 3,655,976   3,655,976 - - % Chief Technology Officer, Director, brother of Hyler Fortier.
Tyler Knight 3,655,976   3,655,976 - - % Chief Marketing Officer, Director
Bass Point Capital, LLC 1,846,398 (6) 1,846,398 - - %  
WM18 Finance, Ltd. 1,834,374 (7) 1,834,374 - - %  
Rother Investments, LLC 1,825,104 (8) 1,825,104 - - %  
Zach Harvey 750,000 (9) 750,000 - - %  
Dave Hall 750,000 (10) 750,000 - - %  
Dutchess Global Strategies Fund, LLC 750,000 (11) 750,000 - - %  
Azure Capital Corp. 750,000 (12) 750,000 - - %  
Paradox Development, LLC 555,750 (13) 555,750 - - %  
Mike Sullivan 375,000 (14) 375,000 - - %  
Daniel Hunt 300,000 (15) 300,000 - - %  
Kevin Murphy 300,000 (16) 300,000 - - %  
Vincent “Tripp” Keber, III 250,000 (17) 250,000 - - % Director
Ean Seeb 250,000 (18) 250,000 - - % Director
Sebastian Stant 250,000 (19) 250,000 - - % Lead Developer
Tate Keogen 150,000 (20) 150,000 - - %  
Travis Trawick 112,500 (21) 112,500 - - %  
Jessica Geran 112,500 (22) 112,500 - - %  
Jesus Quintero 100,000   100,000 - - % Chief Financial Officer
Arthur Eli Kaplan 75,000 (23) 75,000 - - %  
Jay Harman 75,000 (24) 75,000 - - %  
Ashton Jones 75,000 (25) 75,000 - - %  
Devon Caldwell 45,000 (26) 45,000 - - %  
Christopher Ashley 37,500 (27) 37,500 - - %  
Valerio Romano 37,500 (28) 37,500 - - %  
Brian Trawick 37,500 (29) 37,500 - - %  
Ben Shaker 30,000 (30) 30,000 - - %  
Mathieu Bogrand 30,000 (31) 30,000 - - %  
Andrew Leighton 29,250 (32) 29,250 - - % Nephew of Douglas Leighton, our former Director.
Brian Ohlhausen 22,500 (33) 22,500 - - %  
Jeremy Ross 22,500 (34) 22,500 - - %  
Michael Kemp 15,000 (35) 15,000 - - %  
Andrew Carlone 15,000 (36) 15,000 - - %  
Jeffrey Immel 15,000 (37) 15,000 - - %  
Derek Weinstein 5,250 (38) 5,250 - - %  
Matthew Knight 3,000 (39) 3,000 - - % Brother of Tyler Knight, our Chief Marketing Officer.
Brittany Robertson 2,250 (40) 2,250 - - %  
Daniel DeMarais 1,500 (41) 1,500 - - %  
David Casey 1,500 (42) 1,500 - - %  
Andrew Geraci 1,500 (43) 1,500 - - %  
Shelby Been 1,500 (44) 1,500 - - %  
Danielle Been 1,500 (45) 1,500 - - %  
Denice Vaughan 1,500 (46) 1,500 - - %  
Cameron Young 1,500 (47) 1,500 - - %  

 

* Less than 1%.

 

(1) Assumes the Selling Security Holder sells all of their shares offered in the offering.  
(2) The family members listed above as shareholders are all of legal age who live separate and apart from their parents and have sole and dispositive rights over the disposal of their shares, and the voting rights attached thereto, and are not directly or indirectly influenced or controlled by any officer or director of the company.  
(3) The 11,581,269 shares of our common stock, aggregated without regard to the 4.99% Blocker, includes (i) 923,371 shares of our common stock held of record by Mr. Douglas Leighton; (ii) 1,846,398 shares of our common stock held of record by Bass Point Capital, LLC (of which Mr. Leighton, as Managing Member, has sole voting power and dispositive control); (iii) $109,100 in Debentures held by Dutchess (which Mr. Leighton and Michael Novelli, as Managing Members, have shared voting power and dispositive control), convertible into 1,091,000 shares of our common stock; (iv) 4,050,000 shares of our common stock issuable to Dutchess upon exercise of the $0.001 Consulting Warrants; (v) 2,920,500 shares of our common stock issuable to Dutchess upon exercise of the $0.40 Warrants ; (vi) $50,000 of Debentures held by Azure Capital, LLC (of which Mr. Leighton, as Managing Partner, has sole voting power and dispositive control), convertible into 500,000 shares of our common stock; and (vii) 250,000 shares of our common stock issuable to Azure Capital, LLC upon exercise of the $0.40 Warrants .

 

Table of Contents 15  
 

(4) The 8,811,500 shares of our common stock, aggregated without regard to the 4.99% Blocker, includes (i) $109,100 in Debentures held by Dutchess (which Mr. Douglas Leighton and Mr. Michael Novelli, as Managing Members, have shared voting power and dispositive control), convertible into 1,091,000 shares of our common stock; (ii) 4,050,000 shares of our common stock held by Dutchess issuable upon exercise of the $0.001 Consulting Warrants; (iii) $50,000 in Debentures held by Dutchess Global Strategies Fund, LLC (which Mr. Novelli, as Managing Member, has sole voting power and dispositive control), convertible into 500,000 shares of our common stock; and (iv) 250,000 shares of our common stock issuable to Dutchess Global Strategies Fund, LLC upon exercise of the $0.40 Warrants.  
(5) Each of Mr. Michael Novielli and Mr. Douglas Leighton, as Managing Partners of Dutchess, has voting power and dispositive control over these shares. The 8,061,500 shares of common stock are aggregated without regard to the 4.99% Blocker and include (i) $109,100 in Debentures convertible into 1,091,000 shares of our common stock; (ii) 4,050,000 shares of our common stock issuable upon exercise of the $0.001 Consulting Warrants; and (iii) 2,920,500 shares of our common stock issuable upon exercise of the $0.40 Warrants.
(6) Mr. Douglas Leighton, as the sole owner of Bass Point Capital, LLC, has voting power and dispositive control over these shares.  
(7) Ingmarus J.M. Snijders, as Director of WM18 Finance, Ltd., has sole voting power and dispositive control over these shares.  
(8) Keith Ubben, as sole member of Rother Investments, LLC, has sole voting power and dispositive control over these shares.
(9) The 750,000 shares of common stock include (i) 500,000 shares of common stock, and (ii) 250,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(10) The 750,000 shares of common stock include (i) 100,000 shares of common stock, (ii) $40,000 in Debentures convertible into 400,000 shares of our common stock; and (iii) 250,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(11) Mr. Michael Novielli, as the sole owner of Dutchess Global Strategies Fund, LLC, has voting power and dispositive control over these shares.  The 750,000 shares of common stock include (i) $50,000 in Debentures convertible into 500,000 shares of our common stock; and (ii) 250,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(12) Mr. Douglas Leighton, as the sole shareholder of Azure Capital Corp., has voting power and dispositive control over these shares.  The 750,000 shares of common stock include (i) $50,000 in Debentures convertible into 500,000 shares of our common stock; and (ii) 250,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(13) Paul Durta, as sole member of Paradox Development, LLC, has voting power and dispositive control over these shares.  The 555,750 shares of common stock include (i) 370,500 shares of common stock, and (ii) 185,250 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(14) The 375,000 shares of common stock include (i) 50,000 shares of common stock; (ii) $20,000 in Debentures convertible into 200,000 shares of our common stock; and (iii) 125,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(15) The 300,000 shares of common stock include (i) 200,000 shares of common stock; and (ii) 100,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(16) The 300,000 shares of common stock include (i) 200,000 shares of common stock; and (ii) 100,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(17) Does not include the underlying shares related to options to purchase 750,000 shares of our common stock which had not yet vested on June 11, 2014, were not exercisable within 60 days of June 11, 2014, and/or contained performance-based conditions.
(18) Does not include the underlying shares related to options to purchase 750,000 shares of our common stock which had not yet vested on June 11, 2014, were not exercisable within 60 days of June 11, 2014, and/or contained performance-based conditions.
(19) Does not include the underlying shares related to options to purchase 550,000 shares of our common stock which had not yet vested on June 11, 2014, were not exercisable within 60 days of June 11, 2014, and/or contained performance-based conditions.
(20) The 150,000 shares of common stock include (i) 100,000 shares of common stock; and (ii) 50,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(21) The 112,500 shares of common stock include (i) 75,000 shares of common stock; and (ii) 37,500 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(22) The 112,500 shares of common stock include (i) 75,000 shares of common stock; and (ii) 37,500 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(23) The 75,000 shares of common stock include (i) 50,000 shares of common stock; and (ii) 25,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(24) The 75,000 shares of common stock include (i) 50,000 shares of common stock; and (ii) 25,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(25) The 75,000 shares of common stock include (i) 50,000 shares of common stock; and (ii) 25,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(26) The 45,000 shares of common stock include (i) 30,000 shares of common stock; and (ii) 15,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(27) The 37,500 shares of common stock include (i) 25,000 shares of common stock; and (ii) 12,500 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(28) The 37,500 shares of common stock include (i) 25,000 shares of common stock; and (ii) 12,500 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(29) The 37,500 shares of common stock include (i) 25,000 shares of common stock; and (ii) 12,500 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(30) The 30,000 shares of common stock include (i) 20,000 shares of common stock; and (ii) 10,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(31) The 30,000 shares of common stock include (i) 20,000 shares of common stock; and (ii) 10,000 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(32) The 29,250 shares of common stock include (i) 19,500 shares of common stock; and (ii) 9,750 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(33) The 22,500 shares of common stock include (i) 15,000 shares of common stock; and (ii) 7,500 shares of common stock issuable upon exercise of the $0.40 Warrants.  
(34) The 22,500 shares of common stock include (i) 15,000 shares of common stock; and (ii) 7,500 shares of common stock issuable upon exercise of the $0.40 Warrants.
(35) The 15,000 shares of common stock include (i) 10,000 shares of common stock; and (ii) 5,000 shares of common stock issuable upon exercise of the $0.40 Warrants.
(36) The 15,000 shares of common stock include (i) 10,000 shares of common stock; and (ii) 5,000 shares of common stock issuable upon exercise of the $0.40 Warrants.
(37) The 15,000 shares of common stock include (i) 10,000 shares of common stock; and (ii) 5,000 shares of common stock issuable upon exercise of the $0.40 Warrants.
(38) The 5,250 shares of common stock include (i) 3,500 shares of common stock; and (ii) 1,750 shares of common stock issuable upon exercise of the $0.40 Warrants.
(39) The 3,000 shares of common stock include (i) 2,000 shares of common stock; and (ii) 1,000 shares of common stock issuable upon exercise of the $0.40 Warrants.
(40) The 2,250 shares of common stock include (i) 1,500 shares of common stock; and (ii) 750 shares of common stock issuable upon exercise of the $0.40 Warrants.
(41) The 1,500 shares of common stock include (i) 1000 shares of common stock; and (ii) 500 shares of common stock issuable upon exercise of the $0.40 Warrants.

 

Table of Contents 16  
 

(42) The 1,500 shares of common stock include (i) 1000 shares of common stock; and (ii) 500 shares of common stock issuable upon exercise of the $0.40 Warrants.
(43) The 1,500 shares of common stock include (i) 1000 shares of common stock; and (ii) 500 shares of common stock issuable upon exercise of the $0.40 Warrants.
(44) The 1,500 shares of common stock include (i) 1000 shares of common stock; and (ii) 500 shares of common stock issuable upon exercise of the $0.40 Warrants.
(45) The 1,500 shares of common stock include (i) 1000 shares of common stock; and (ii) 500 shares of common stock issuable upon exercise of the $0.40 Warrants.
(46) The 1,500 shares of common stock include (i) 1000 shares of common stock; and (ii) 500 shares of common stock issuable upon exercise of the $0.40 Warrants.
(47) The 1,500 shares of common stock include (i) 1000 shares of common stock; and (ii) 500 shares of common stock issuable upon exercise of the $0.40 Warrants.

 

PLAN OF DISTRIBUTION

Our common stock is currently not quoted on any market. No market may ever develop for our common stock, or if developed, may not be sustained in the future. Accordingly, our shares should be considered totally illiquid, which inhibits investors’ ability to resell their shares.

Selling security holders are offering up to 50,400,000 shares of common stock. The selling security holders may offer their shares at $0.10 per share until our shares are reported on the OTCBB or quoted on an exchange, if any, and thereafter at prevailing market prices or privately negotiated prices. We will not receive proceeds from the sale of shares from the selling security holders. However, we will receive up to $1,904,050 in proceeds from outstanding warrants issued if the holders of such warrants chose to exercise their right to purchase the shares of our common stock underlying such warrants

The securities offered by this prospectus will be sold by the selling security holders from time to time, in one or more transactions. Selling security holders in this offering may be considered underwriters. We are not aware of any underwriting arrangements that have been entered into by the selling security holders. The distribution of the securities by the selling security holders may be effected in one or more transactions that may take place in the over-the-counter market, including broker's transactions or privately negotiated transactions.

The selling security holders may pledge all or a portion of the securities owned as collateral for margin accounts or in loan transactions, and the securities may be resold pursuant to the terms of such pledges, margin accounts or loan transactions. Upon default by such selling security holders, the pledge in such loan transaction would have the same rights of sale as the selling security holders under this prospectus. The selling security holders may also enter into exchange traded listed option transactions, which require the delivery of the securities listed under this prospectus. After our securities are qualified for quotation on the over the counter bulletin board, the selling security holders may also transfer securities owned in other ways not involving market makers or established trading markets, including directly by gift, distribution, or other transfer without consideration, and upon any such transfer the transferee would have the same rights of sale as such selling security holders under this prospectus.

In addition to the above, each of the selling security holders will be affected by the applicable provisions of the Exchange Act, including, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the securities by the selling security holders or any such other person. Unless granted an exemption by the SEC from Regulation M under the Exchange Act, or unless otherwise permitted under Regulation M, the selling security holder will not engage in any stabilization activity in connection with our common stock, will furnish each broker or dealer engaged by the selling security holder and each other participating broker or dealer the number of copies of this prospectus required by such broker or dealer, and will not bid for or purchase any common stock of our or attempt to induce any person to purchase any of the common stock other than as permitted under the Exchange Act.

Upon this registration statement being declared effective, the selling security holders may offer and sell their shares from time to time on a continuous basis.

There can be no assurances that the selling security holders will sell any or all of the securities. In various states, the securities may not be sold unless these securities have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

All of the foregoing may affect the marketability of our securities. Pursuant to oral promises we made to the selling security holders, we will pay all the fees and expenses incident to the registration of the securities.

Should any substantial change occur regarding the status or other matters concerning the selling security holders or us, we will file a post-effective amendment to this registration statement disclosing such matters.

OTC Bulletin Board Considerations

 

Management has not made a decision to seek quotation on the OTCBB at this time and there is no guarantee that quotation will be sought.  To be quoted on the OTCBB, a market maker must file an application on our behalf in order to make a market for our common stock. We anticipate that after this registration statement is declared effective, market makers will enter “piggyback” quotes and our securities will thereafter trade on the OTCBB.

The OTCBB is separate and distinct from the NASDAQ stock market. NASDAQ has no business relationship with issuers of securities quoted on the OTCBB. The SEC’s order handling rules, which apply to NASDAQ-listed securities, do not apply to securities quoted on the OTCBB.

Although the NASDAQ stock market has rigorous listing standards to ensure the high quality of its issuers, and can delist issuers for not meeting those standards, the OTCBB has no listing standards. Rather, it is the market maker who chooses to quote a security on the system, files the application, and is obligated to comply with keeping information about the issuer in its files. FINRA cannot deny an application by a market maker to quote the stock of a company. The only requirement for inclusion in the bulletin board is that the issuer be current in its reporting requirements with the SEC.

Investors must contact a broker-dealer to trade OTCBB securities. Investors do not have direct access to the bulletin board service. For bulletin board securities, there only has to be one market maker.

Bulletin board transactions are conducted almost entirely manually. Because there are no automated systems for negotiating trades on the bulletin board, they are conducted via telephone. In times of heavy market volume, the limitations of this process may result in a significant increase in the time it takes to execute investor orders. Therefore, when investors place market orders - an order to buy or sell a specific number of shares at the current market price - it is possible for the price of a stock to go up or down significantly during the lapse of time between placing a market order and getting execution. Because bulletin board stocks are usually not followed by analysts, there may be lower trading volume than for NASDAQ-listed securities.

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DESCRIPTION OF BUSINESS

Organization

 

We were incorporated in the state of Delaware on April 24, 2013 to be the mobile network for the cannabis community.

 

Our principal executive office is located at MassRoots, Inc., 6525 Gunpark Drive, Ste. 370 #150, Boulder, CO 80301, and our telephone number is (720) 442-0052. Information contained in, or accessible through our website or mobile apps does not constitute part of this prospectus.

 

We have not been involved in a bankruptcy receivership or similar proceeding. Additionally, we have not been involved in a reclassification, merger, consolidation, or purchase or sale of a significant amount of assets not in the ordinary course of business.

 

Since our inception on April 24, 2013, through March 31, 2014, we raised an aggregate of $642,000 from the sale of our securities. From April 24, 2013 (inception) to December 31, 2013, we have a net loss of $919,123.

 

Our independent registered public accounting firm has issued an audit opinion for our Company which includes an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern.

 

We have never declared bankruptcy, have never been in receivership, and have never been involved in any legal action or proceedings. Since incorporation, we have not made any significant purchase or sale of assets. We do not own physical properties.

 

We are not a blank check registrant, as that term is defined in Rule 419(a)(2) of Regulation C of the Securities Act, since we have a specific business plan or purpose. We have not had preliminary contact or discussions with, nor do we have any present plans, proposals, arrangements or understandings with, any representatives of the owners of any business or company regarding the possibility of an acquisition or merger.

 

Background

 

MassRoots, Inc. was formed on April 24, 2013 to be a mobile network for the cannabis community. Given the history of cannabis in the United States, many people would prefer to keep their cannabis experiences separate from Facebook, Instagram and Twitter where a user’s family, co-workers and employers may be connected with them. Our goal was to provide a platform where users were not required to provide personally identifiable information, as to create a semi-anonymous environment where users feel comfortable posting about cannabis.

 

Given that consumers are shifting their digital consumption habits from desktop computers to mobile devices, our primary focus was developing an iOS App for use on iPhones and iPads. The MassRoots management team firmly believes in lean-startup methodology, which dictates that companies should focus on developing a minimum viable product, launch it to consumers, and then gain their feedback before spending time and resources on a full product pipeline. As such, we launched the minimum-viable MassRoots iOS App on July 16, 2013. Since that time, the MassRoots development team added several features to the iOS App including symbol support (such as smiley faces), double-click to like pictures, a news feed to show a user’s friends' activity on the network, as well as restructuring the application and database to handle tens of thousands of monthly active users.. The MassRoots iOS App remains MassRoots’ primary source of new users, usage and support – and holds a 4.5 star rating in the iOS App Store through several hundred reviews as of May 1, 2014.

 

Shortly after launching the iOS App, we began developing an Android App to make MassRoots available to more people on more devices. However, Android development proved to be far more costly and difficult than we had anticipated due to the 2,500+ devices that currently have the Android operating system, the complexity of our App and the financial limitations of the company. We launched a minimum viable product in late September 2013, however it was only able to run on a small percentage of Android devices. We decided in mid-October to completely redevelop our Android App with a newly retained development team. We successfully re-launched a minimum viable product on Android in late February 2014. The Android App remains roughly three months behind the iOS App in terms of functionality and user-experience.

 

Since inception, our sole objective has been to grow our user-base and acquire market share. As of June 7, 2014, MassRoots has built a network of approximately 134,000 users, facilitated 30.7 million interactions and our mobile applications are being opened an average of 1.8 million times per month.

 

Definitions of Key Metrics

 

On April 30, 2014, at Facebook's F8 Conference, Parse Inc. (“Parse”) announced it was implementing an improved analytics platform for applications built using its services. As these metrics are compiled by third party and are becoming an industry-standard, MassRoots decided to begin implementing Parse's analytics platform immediately and to thereafter rely on Parse's metrics for key usage statistics.

 

Total users ("Users") is defined as every user who currently has an account with MassRoots. It does not include users who have deleted their account. It does not reflect active usage over any set period of time.

 

User interactions ("Interactions") is defined as anytime a User follows another User, posts a status, comments on a status, or likes a status.

 

“Daily App Opens” is defined as the number of times the MassRoots App is opened on an iPhone and Android device over the course of a 24 hour period. This is not unique, so if the same person opens MassRoots twice, it is counted as two app opens.

 

“Picture Views” is defined as the total number of times pictures are displayed on the network, either in a User’s timeline, profile or search results. If the same person views one photo two times, it is viewed as two picture views.

 

Operations and Advertising

 

While MassRoots does not collect users’ names, email addresses or phone numbers, we still collect a sufficient amount of information to effectively monetize our network. For instance:

 

Based on the nature of someone downloading and using MassRoots, we know they’re an active cannabis consumer or enthusiast.

 

When a user accesses MassRoots’ apps and websites, we are able to collect users’ location information down to the zip code.

 

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Based on the pictures and hashtags a user posts, we can determine what type of cannabis they prefer to consume; how they prefer to consume it; what time of day they are most active.

 

Based on the usertags a user posts, we can determine who their friends are and who is within their social circle of influence.

 

Because we do not collect personally-identifiable information, this data has relatively little value outside of our network, so MassRoots has no intention of selling or disclosing this information. However, it has significant value when used to target advertising and services directly to users within the MassRoots network; therefore, it is of the highest importance that MassRoots is able to build out products and services that keep our users engaged and on the network for extended periods of time. The amount of revenue MassRoots will be able to generate per user is directly correlated to the time they spend on the network, their engagement with other users and the quality of posts they put on the network. Additionally, the number of Apps, Websites and Services built using MassRoots’ APIs will also significantly impact the value per user – so long as MassRoots is integrated with these 3rd party applications, we will be able to collect data, serve advertising and boost engagement to, from and between our users, increasing their value.

 

MassRoots’ primary goals for 2014 are building out features and services that attract new users and increase their engagement while, at the same time, significantly investing in the growth and infrastructure of our network. We estimate that by September 30, 2014, MassRoots will have reached the scale and engagement among our niche market of cannabis consumers that businesses will view having a presence on MassRoots as a necessity. As soon as we reach that “necessity” point is when MassRoots will start focusing on monetizing the network. This will be done by developing a self-service advertising portal that will allow businesses to sponsor hashtag searches, promote posts and integrate their current products and services into their MassRoots profile; they will be able to target these advertisements based on a users’ location, consumption patterns and with social endorsements from their friends. The reasons we would like to wait until we reach the “necessity” point to launch the advertising portal are:

 

Businesses are willing to pay more for a product or service if they view it as a necessity rather than an option;

 

It will take significantly less advertising resources to sign cannabis-related businesses up for a service if they are already familiar with it and several of their customers are already using it; and

 

It allows us to focus on creating the best user-experience for our end-users; the more time they spend interacting on the network, the greater their long-term value to advertisers and shareholders.

 

Our lack of profitability today is part of a deliberate strategy of prioritizing our limited resources on what will deliver the greatest long-term value for our shareholders: a growing and thriving user-base of end cannabis consumers. In order to build that user-base, our developers must focus on creating the best user experience, our marketing staff must be focused on acquiring end-cannabis consumers and our leadership team needs to focus on the requisite strategies to reach one million users; once that has been accomplished, we can start focusing on developing, marketing and growing an advertising platform that will connect cannabis-related businesses to end cannabis consumers. If we attempt to develop the advertising portal prematurely, it will jeopardize the growth of the MassRoots user-base, the ultimate source of shareholder value.

 

Our Products and Services

 

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The MassRoots network is accessible as a free mobile application through the iOS App Store, the Google Play Marketplace, and as a website at www.MassRoots.com. These applications and services work in a similar manner as other social networks, such as Facebook, Instagram, Twitter and Vine:

 

Users may create a profile by choosing a username, setting their password and agreeing to our Terms and Conditions. We do not require users’ real names, email address or phone numbers.
Users have the ability to follow other users on the network. By “following” an account, users are essentially “opting-in” to their posts, allowing them to be displayed on their newsfeed.
A users’ newsfeed displays all the posts from users in which they follow in reverse-chronological order, with the most recent posts being at the top. A users’ profile page displays all the posts from that particular user.
Users have the ability to like, comment and report statuses from other users. By “liking” a status, a user is indicating their approval of the posts’ content. By commenting on a status, users are free to voice their opinions or comments on the posts’ content. By reporting a status, users can flag content that violates our Terms and Conditions, including spam, harassing content and posts about other drugs.
Users have the ability to tag other users and use hashtags to categorize posts. By using the “@” symbol followed by a username, users can tag other users in posts they want them to see or if they are included in the picture or post. By using the “#” followed by a categorical word, users can categorize posts based on their content.
Users have the ability to post pictures with text captions or just text statuses.
Users have the ability to search for users based on their username and the ability to search by hashtag to display all results within a particular category. Users can sort hashtag searches by their popularity or when they were posted.
Users have the option to provide their phone number to MassRoots (but is not required) so their friends can search their contacts for friends with a MassRoots profile. Users also have the ability to invite their contacts that are not on MassRoots to join via text message.
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Whenever an interaction takes place involving a user (follow, like, comment, tag), they are sent a push notification on their mobile device notifying them of the action.
Users have the ability to set their profile to public and private, as well as enabling and disabling web-access. By setting their profile to public, any user on MassRoots’ apps will be able to see the public profile’s posts and follow the account. When a profile is private, another user must request to follow their account and the account owner must grant permission before they can view any of the account’s posts. By setting an account to web-enabled, it allows public profiles to be visible via the MassRoots website. By setting an account to web-disabled, both public and private profiles are not viewable through www.MassRoots.com.

MassRoots also operates MassRootsStore.com, an e-commerce platform built on the Shopify Platform. Visitors are able to order MassRoots t-shirts, jars and stickers by selecting the products they would like to order, entering their shipping and billing information and confirming the order.

 

Development of Products and Services for the Business Community

 

Since January 2014, MassRoots has been internally beta testing several strategies to boost the followers of businesses, the number of likes they receive per post and engagement amongst their follower base. We have involved approximately 10-20 companies in these tests, including vaporizer, edible and dispensary brands, in an attempt to minimize outside factors, such as the popularity of one particular brand. These beta tests have involved automated activity, such as likes and comments, along with promoted posts within users' news feeds, and have been administered internally by our employees to determine the best course of action to follow.

 

Based on these beta tests, we have concluded that the most effective way for businesses to reach consumers is through the development of a self-service advertising portal that will allow businesses to promote posts within their target users' news feeds. We anticipate the advertising portal will function in a matter similar to the one described herein:

 

A business will register for the advertising portal with their name, business name, email address, phone number, MassRoots username and password (to verify ownership of a particular page).
A MassRoots employee will then review the account to ensure they are in full compliance with state law. This may involve requiring the dispensary to provide their state dispensary license.
The business will then be able to access the advertising portal, which will consist of five main pages: Dashboard, Campaigns, Profile, Billing and Contact.
On the Dashboard, a business will be able to view all the main analytics regarding their account: their follower count, likes per post, total reach of their posts and advertising, and balance on their account. Interactive graphs will allow businesses to track these metrics over time.
On the Campaigns page, businesses will be able to select a post to promote, target their audience by zip code, set a budget for the campaign, and click approve. As soon as they click approve, that particular post will be promoted in the targeted users' timelines. They will also be able to see analytics related to past promoted posts, including total views.
On the Profile page, businesses will be able to edit their description, username, profile picture, URL, address, contact email, contact phone number and schedule future posts.
On the Billing page, businesses will be able to enter their credit card information and view past receipts of payment. The advertising portal will operate on a pre-paid basis.
On the Contact page, businesses will be able to contact a MassRoots employee with any questions or issues.

 

This is what we believe will be the minimum viable product for an advertising portal. We have already designed the basic layout, begun to structure the database and are planning to develop the functionality during the third quarter of 2014. When a basic version is ready, we will begin to beta test the actual platform among 5-10 businesses, fix any bugs and make necessary improvements. We anticipate launching the portal to all businesses legally operating under state law during the fourth quarter of 2014. As with our existing applications and websites, we plan to continuously improve the platform after launch to introduce new features, including advanced targeting options.

 

Sales and Distribution Channels

 

MassRoots has primarily gained users through organic growth: users telling their friends to join the network. This is supported by the number of endorsements MassRoots receives on Instagram and Twitter, viewable by searching “#MassRoots”.

MassRoots also retains the owners of several widely-followed Instagram, Facebook and Twitter accounts as independent contractors. MassRoots compensates the owners of these pages on a monthly or per-post basis to promote the use of the MassRoots network among their followers.

 

The MassRoots app is distributed free of charge through the iOS App Store and the Google Play Marketplace. Prospective users can search for MassRoots on these platforms, read user-reviews and make a decision on whether to download and utilize the MassRoots app.

 

The MassRoots network is also accessible on through desktop and mobile web browsers by navigating to www.MassRoots.com.

 

Fundraising

 

In October 2013, MassRoots raised $150,000 from three accredited investors in the Original Offering. The Original Offering closed on January 1, 2014. With these funds, the MassRoots team launched our iOS, Android and mobile web versions of the platform and achieved significant growth. In late March 2014, MassRoots closed the March 2014 Offering, a $475,000 round of funding led by Dutchess. We plan on using approximately $250,000 of the proceeds to build new feature sets and further scale our network and the remaining $225,000 towards public-company related expenditures, including costs related to filing our registration statement, of which this prospectus forms a part of.

 

Market Conditions

 

MassRoots is poised to take advantage of two rapidly growing industries: cannabis and mobile technology.

Cannabis Market Growth and Current Trends

Since the MassRoots app first launched in July 2013, there have been a series of events that have help further shape the development of the cannabis and mobile technology industries:

 

Press coverage on cannabis has helped build public support for the legislation movement. On August 11, 2013, Dr. Sanjay Gupta, CNN’s Chief Medical Correspondent, released a high-profile documentary supporting the medical benefits of cannabis, in certain cases reversing his previous opposition. In the months since then, several national news outlets have run similar positive stories on medical cannabis legalization for adult use, and in March 2014, Dr. Sanjay Gupta released another positive documentary.

 

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On August 29, 2013, Deputy Attorney General James Cole issued a memo (“The Cole Memo”) in response to certain states passing measures to legalize the medical and adult-use of cannabis. The Cole Memo does not alter the Department of Justice's authority to enforce Federal law, including Federal laws relating to marijuana, regardless of state law, but does recommend that U.S. Attorneys to focus their time and resources on certain priorities, rather than businesses legally operating under state law. These guidelines focus on ensuring that cannabis does not cross state lines, keeping dispensaries away from schools and public facilities, strict-enforcement of state laws by regulatory agencies, among other priorities.

 

On January 1, 2014, the first sales of cannabis for adult-use permissible under state law took place in Colorado. This event resulted in significant media coverage for the industry. .

 

On February 14, 2014, the Departments of Justice and Treasury issued a joint memo allowing banks and financial institutions to accept deposits from dispensaries operating legally under state law. In most cases, dispensaries had been forced to operate on a cash basis, presenting significant security and accounting issues. This was a major step in legitimizing and accepting the cannabis industry on a national level.

 

In Colorado, the first state to implement a regulated adult-use cannabis market, government officials are now projecting $98 million excise tax revenue during 2014, exceeding original expectations by 40%. Furthermore, a March 2014 University of Texas study found that medical marijuana legalization at the state level does not cause an increase in crime and may potentially lower homicide and assault rates in states where permitted.

Public Support for Legalization Increasing

As of March 1, 2014, 20 states and the District of Columbia have legalized the medical-use of cannabis and two states have legalized recreational adult-use. A Gallup poll conducted in November 2013 found that 58% of the American people supported legalizing the adult-use of cannabis, an increase of 22% from 2006 alone. This is the first time in American history the majority of registered voters support the full legalization of cannabis for adult-use. Moreover, of 67% participants aged 35 and below voted in support of recreational adult-use, setting the trend for years to come.

A 2013 ArcView Market Research report predicts an additional 14 states will legalize the adult-use of cannabis and two states will legalize medical-use within the next five years. If public support for cannabis legalization continues to increase, we believe it is likely that Federal policies towards marijuana will be reformed.

The combination of additional states legalizing adult-use under state law, expansion of medical-use provisions in states where it is currently permitted under state law and increased public awareness is projected to cause marijuana sales permitted under state law to grow from $1.43 billion in 2013 to $10.2 billion in 2018, according to ArcView Market Research.

Market Conditions that Could Limit Our Business

Cannabis is a Schedule I Controlled Substance under Federal law and, as such, there are several factors that could limit our market and our business. They include, but are not limited to:

The Federal government and many private employers prohibit drug use of any kind, including cannabis, even where it is permissible under state law. Random drug screenings and potential enforcement of these employment provisions significantly reduce the size of the potential cannabis market;
Enforcement of Federal law prohibiting cannabis occurs randomly and often without notice. This could scare many potential investors away from cannabis-related investments and makes it difficult to make accurate market predictions;
There is no guarantee that additional states will pass measures to legalize cannabis under state law. In many states, public support of legalization initiatives is within the margin of error of pass or fail. This is especially true when a supermajority is needed to pass measures, like in Florida where a state constitutional amendment permitting medical cannabis has been proposed, but requires 60% approval to pass. Changes in voters' attitudes and turnout have the potential to slow or stop the cannabis legalization movement and potentially reverse recent cannabis legalization victories; and
There has been some resistance and negativity as a result of recent cannabis legalization at the state level, especially as it relates to drugged driving. The lack of clearly defined and enforced laws at the state level has the potential to sway public opinion against marijuana legalization.

Technology Industry

Mobile Devices Dominate the Industry

Over the past five years, mobile devices have redefined the technology industry. Smartphones and tablets, particularly iPhones, iPads and Android devices, are now owned by two-thirds of consumers in the United States, according to a February 2014 Nielsen Research Report. Smartphone sales worldwide increased 38.4% worldwide in 2013 according to a January 2014 IDC’s Worldwide Quarterly Mobile Phone tracker report. Additionally, 195 million mobile tablets were sold in 2013, an increase of 67.9% year over year, according to a March 2014 Gartner Research Report.

When the rapidly-growing smartphone and tablet market size is combined with the development fast, reliable and relatively inexpensive data plans from wireless carriers, it becomes clear why mobile applications “Apps” have surged in popularity and value over recent years.

The Rise of Mobile-First Networking

The core services of three of the largest Internet and social networking companies, Facebook, Twitter and Google, are currently experiencing decelerating growth. The primary reason is these companies’ core services were initially intended for desktop users, as at the time these companies were launched, the smartphone market share was negligible and the smartphones themselves were primarily used for business purposes (Blackberries, Palm Pilots). While Facebook and Twitter have found some degree of success adapting their platforms to mobile devices, they are still losing market share, especially among younger users, as desktop and laptop sales continue to decline.

Meanwhile, the popularity, market share and value of mobile-first networks are surging, especially if focused on a niche market. As a result of these market trends, Google, Facebook and Twitter routinely enter multi-billion dollar acquisitions of rapidly-growing, mobile-first networks. For example:

Additionally, there has been rapid growth in other mobile user driven niche networks, such as: Whisper (anonymous confessions) recently raised $30 million at a reported $200 million valuation; Vine (short videos) was acquired pre-launch by Twitter for $30 million; and Badoo (adventurers) has a reported valuation of $2 billion.

The Intersection of Mobile, Niche-Networking and Cannabis

MassRoots’ top priority will remain expanding our user-base and increasing engagement on the network. In addition to strengthening MassRoots’ standing within the cannabis community, public markets have placed significant value on rapidly expanding networks, as seen by the market capitalizations and price-to-earnings ratios (where applicable) in the social networking industry. As a mobile-first network focused on the cannabis industry where permitted under state law, MassRoots is poised to take advantage of the increasing popularity of mobile devices, the emergence of a multi-billion dollar cannabis industry and the decelerating growth of Twitter and Facebook.

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Employees and Consultants

 

MassRoots has four full-time employees, two independent contractors related to development of the MassRoots Apps and websites and an estimated 15 independent contractors related to marketing.

 

Amount Spent on Research and Development

 

MassRoots invests a significant portion of its operating budget in developing new mobile communications tools, location-based services and in cross-platform compatibility software. We expect to spend approximately $250,000 during fiscal year ended December 31, 2014 on development-related payroll and expenses. We spent approximately $33,863 on research and development for the period of April 24, 2013 (inception) to December 31, 2013 .

 

Insurance

 

We do not maintain any insurance and do not intend to maintain insurance in the future. Because we do not have any insurance, if we are made a party of a legal action, we may not have sufficient funds to defend the litigation. If that occurs a judgment could be rendered against us that could cause us to cease operations.

 

Location

 

Our offices are located at MassRoots, Inc., 6525 Gunpark Drive, Ste. 370 #150, Boulder, CO 80301. We lease our offices at this location from Opus Virtual Offices on a month-by-month basis pursuant to a written lease. These officers are a virtual office and our officers communicate electronically as needed. Opus Virtual Offices provides conference rooms, mail forwarding and call answering at this location for $99 per month. As of March 31, 2014, we have paid $99 for our Opus Virtual Offices.

 

Government Regulation

 

Marijuana is a categorized as a Schedule I controlled substance by the Drug Enforcement Agency and the United States Department of Justice and is illegal to grow, possess and consume under Federal law. However, since 1995, 20 states and the District of Columbia have passed state laws that permit doctors to prescribe cannabis for medical-use and two states, Colorado and Washington, have enacted laws that legalize the adult-use of cannabis for any reason. This has created an unpredictable business-environment for dispensaries and collectives that legally operate under state-laws but in violation of Federal law. On August 29, 2013, United States Deputy Attorney General James Cole issued the Cole Memo to United States Attorneys guiding them to prioritize enforcement of Federal law away from the cannabis industry operating as permitted under state law, so long as:

 

cannabis is not being distributed to minors and dispensaries are not located around schools and public buildings;
the proceeds from sales are not going to gangs, cartels or criminal enterprises;
cannabis grown in states where it is legal is not being diverted to other states;
cannabis-related businesses are not being used as a cover for sales of other illegal drugs or illegal activity;
there is not any violence or use of fire-arms in the cultivation and sale of marijuana;
there is strict enforcement of drugged-driving laws and adequate prevention of adverse health consequences; and
cannabis is not grown, used, or possessed on Federal properties.

The Cole Memo is meant only as a guide for United States Attorneys and does not alter in any way the Department of Justice’s Federal authority to enforce Federal law, including Federal laws relating to cannabis, regardless of state law. We believe and have implemented procedures and policies to ensure we are operating in compliance with the "Cole Memo". However, we cannot provide assurance that our actions are in full compliance with the Cole Memo or any other laws or regulations. Per MassRoots’ Terms and Conditions:

 

Users must agree that they are located in a state where medical-use or adult-use of cannabis is legal;
Users must be of legal age to consume cannabis in their particular state (18 or 21 years old, depending on the state);
Users may only post content that is in compliance with their state’s laws;
Users may not solicit or distribute cannabis through MassRoots unless they are a licensed dispensary; we also do not currently facilitate in-app messaging, forcing all conversations to take place in a public environment;
Posting of any other drugs or substances, including prescription pain pills, is prohibited and will result in account termination;
Posting of any violence or threat of violence is prohibited and will result in account termination;
Posting of any drugged-driving content is prohibited and will result in account termination; and
Posting of any copyright-protected content is prohibited and will result in account termination.

We have implemented an aggressive content and account review program to ensure compliance with our terms and conditions. Users have the ability to report any status or account that is in violation of our terms and we encourage users to do so as any illegal content jeopardizes the network for all our users. When a status or account is reported, the post is automatically removed from the network until further review. A MassRoots employee then reviews the content within 24 hours and either approves it as within our terms and conditions or permanently deletes it and bans the user account. As of April 10, 2014, over 750 statuses have been reported to MassRoots resulting in the removal of over 500 posts and the termination of approximately 350 users.

 

MassRoots primarily relies on user reports to detect violations of our terms and conditions and illegal activity. We believe it would be impractical for us to independently verify the legality activity posted on the website. However, we are implementing several features to automatically detect violations of our terms of use. For example, any post on our network which uses the hashtags, "coke," "cocaine," "acid," and several other terms regarding illegal drugs are automatically removed from the network until a MassRoots employee reviews the content for its compliance with our Terms and Conditions. In addition, when a user includes a number less than 21 in the description field of their profile, it will be automatically reviewed to ensure they are not under-age. Over the coming year, our development team will be investing significant time in developing proactive solutions to prevent illegal activity on our network.

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Patents and Trademarks

 

On March 31, 2014, we applied for a trademark of the “MassRoots, Inc.” name in the United States.

 

Competitors, Methods of Completion, Competitive Business Conditions

 

MassRoots does not currently face significant direct competition in the “social network for the cannabis community” sector. No other network in the space currently has more than 5,000 monthly active users or significant outside funding. We view our most serious completion as Budfolio, a similar concept to MassRoots in that users post what type of cannabis they consume and can interact with other users. However, the network had less than 1,300 users as of March 2014 has not received any outside funding, and, we believe, lacks the engaging user-experience of MassRoots.

 

MassRoots competes with Facebook, Instagram and Twitter, and other social networks for users’ engagement; many of these competing social networks have substantially more financial resources, a better user-experience and a significantly larger user-base than MassRoots. Our differentiator is that MassRoots is solely dedicated to cannabis-related content, information most users do not feel comfortable sharing on these other networks as it may jeopardize their personal and professional reputations. Additionally, MassRoots is developing specialized features for the cannabis industry (such as a strain tagger) that competing networks likely will not spend the time and resources to develop given that only a small portion of their user-base consumes cannabis. This density of cannabis consumers and content is what makes MassRoots attractive to cannabis consumers and serves as our main competitive advantage.

 

Network effects have come to dominate consumer habits, which can provide protection to networks such as MassRoots. Google+ failed to obtain a dominant market share in desktop-based social networking because it wasn’t introduced until Facebook had already conquered the market. Similarly, when Facebook introduced Poke as a competitor to SnapChat in late 2012, it failed to overtake SnapChat due to the market dominance already achieved by SnapChat. Even if a well-financed competitor to MassRoots were to emerge, they would not only have to convince users on why their platform is superior, but also get them to switch away from the network their friends are already using. Every user that MassRoots gains, every interaction that takes place on our network and every day that we grow, the barrier to entry to competitors becomes higher.

 

While it is true that some networks, such as Friendster and MySpace, failed after building significant user-bases, we believe a primary reason for their failure was technical: their platforms underwent routine maintenance that took the network offline for hours at a time and they did not focus on the underlying user-experience, and overwhelmed the users with advertisements. This created opportunities for well-financed competitors to emerge. We believe that by employing a similar strategy to other successful social networks and maintaining a focus on the user experience, this, combined with strong network effects of our large user-base, will allow us to create and maintain significant long-term shareholder value.

 

MassRoots competes with other cannabis networks such as WeedMaps, Leafly and THC Finder for advertisers’ dollars. WeedMaps and THC Finder are platforms that allow users to find and review dispensaries. Leafly is primary a strain-guide that allows users to find information on strains, add a review and find it a dispensary closest to the user. In most situations, cannabis consumers are not looking to change dispensaries often. All of these services – WeedMaps, Leafly and THC Finder – lack the daily, weekly and monthly recurring usage that drives long-term value for advertisers. We believe that MassRoots’ recurring usage and the ability to target advertisements to users based on their previous posts will present a superior value proposition to advertisers.

 

Legal Proceedings

 

We are not currently a party to any legal proceedings, and we are not aware of any pending or potential legal actions.

 

Sources and Availability of Raw Materials

 

We do not use raw materials in our business

 

Backlog of Orders

 

We have no backlog of orders.

 

Seasonal Aspect of our Business

 

None of our products are affected by seasonal factors.

 

Status of any Publicly Announced New Product or Service

 

We do not have any publicly announced new product or service.

 

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PROPERTIES

Our executive and administrative headquarters are currently located at 6525 Gunpark Drive, Ste. 370 #150, Boulder, CO 80301. This is a virtual office space leased from Opus Virtual Offices on a month-by-month basis pursuant to a written lease. Opus Virtual Offices provides conference rooms, mail forwarding and call answering at this location for $99 per month ($1,188 on an annual basis).

We do not own any properties or land.

We believe that our facilities are adequate for our current needs and that, if required, we will be able to locate suitable new office space and obtain a suitable replacement for our executive and administrative headquarters.

 

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS

Directors and Executive Officers

The names and ages of our Directors and Executive Officers are set forth below. Our By-Laws provide for not less than one and not more than nine Directors. All Directors are elected annually by the stockholders to serve until the next annual meeting of the stockholders and until their successors are duly elected and qualified.

 

Name   Age   Position and Term
Isaac Dietrich   22   Director and Chairman of the Board (Since 2013), Chief Executive Officer (Since 2013)
         
Tripp Keber   45   Director (Since 2014)
         
Stewart Fortier 1   23   Director (Since 2014), Chief Technology Officer (Since 2013)
         
Ean Seeb   38   Director (Since 2014)
         
Tyler Knight   22   Director (Since 2014), Chief Marketing Officer (Since 2013)
         
Hyler Fortier 1   21   Chief Operations Officer (Since 2013)
         
Jesus Quintero   52   Chief Financial Officer (Since 2014)
         

1 Stewart Fortier and Hyler Fortier are siblings.

 

Isaac Dietrich, Chief Executive Officer, Chairman of the Board and Director - Isaac Dietrich is the founder, CEO, and Chairman of the Board of MassRoots, each since our inception. He is responsible for executing our strategic business development. In June 2012, Mr. Dietrich co - founded RoboCent, Inc., a self - service call platform that reached $300,000 in revenue in its first 18 month, and currently serves as President and majority shareholder. He also founded Tidewater Campaign Solutions, LLC, a Virginia Beach-based political strategy firm that was retained by more than 30 political campaigns and political action committees from January 2010 to December 2012.

 

In April 2012, Mr. Dietrich was a finalist for Peter Thiel’s 20 Under 20 Fellowship and was featured in the CNBC documentary “Transforming Tomorrow.” We believe Mr. Dietrich has the business experience in both scalable technology companies and political strategy to successfully lead the development and growth of the Company.

 

Tripp Keber, Director – Tripp Keber has served as a Director of MassRoots since 2014. Mr. Keber also is a co-founder and Chief Executive Officer of Dixie Elixirs & Edibles, a Colorado licensed medical marijuana infused products manufacturer. He is a founding director of the National Cannabis Industry Association, and, since 2013, has served as a director of the Marijuana Policy Project. He is also an advisory board member of the Medical Marijuana Industry Group in Colorado. In his current role as CEO of Dixie, Mr. Keber is responsible for the overall strategy, licensing, marketing, branding and expansion efforts related to the Dixie brand, both domestically and internationally. Mr. Keber has been featured on CBS’s 60 Minutes and CNBC.

 

Prior to joining Dixie, Mr. Keber served as Chief Operating Officer for Bella Terra Resort Development Company, and EVP of Business Development for Sagebrush Realty Development. He has a BS in Political Science from Villanova University and currently resides in both Aspen and Denver, CO with his family. He is involved in several charitable organizations located within his community and assists in the research and development of cannabis support for veterans suffering from PTSD. As an experienced leader in the legal cannabis industry, we believe that Mr. Keber will use his experience and industry knowledge to help guide our leadership team.

 

Ean Seeb, Director – Ean Seeb has served as a Director of MassRoots since 2014. Mr. Seeb is also the co-owner and manager of Denver Relief LLC, a Colorado medical cannabis operation. As a founding partner of Denver Relief Consulting LLC and seasoned cannabis dispensary operator, Mr. Seeb has significant experience navigating complex legislation and regulatory demands unique to legal cannabis operations. He serves as Chair of the National Cannabis Industry Association and holds leadership positions with charitable organizations focused on a range of social causes, from civil rights to sustainable volunteer farming. Ean has been actively involved with non-profit groups for over two decades. His years of humanitarian experience lead Ean to conceptualize and develop a cannabis-centric service organization called the Denver Relief GREEN TEAM in 2009. He holds a B.S. degree in Business Administration with an emphasis in Computer Information Systems from University of Northern Colorado. We believe that Mr. Seeb will use his experience and industry knowledge to help guide our leadership team.

 

Stewart Fortier, Chief Technology Officer, Director - Stewart Fortier is a co - founder and Director of MassRoots, and has served as Chief Technology Officer since our inception. Mr. Fortier is responsible for the development of our iOS application and technical strategy. He is a self-taught software developer with an interest in both entrepreneurship and technology. Prior to joining MassRoots, Mr. Fortier worked for a real estate development company in Washington, D.C., where he was responsible for the underwriting of commercial and multifamily acquisitions. Previously, Mr. Fortier served as a technical adviser to RoboCent, Inc. from June 2012 to April 2013.

 

Mr. Fortier holds a Bachelor of Arts in Economics and Religious Studies from the University of Virginia. We believe Mr. Fortier has the technical and business experience and skill to be successful in both his Chief Technology Officer and Director roles.

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Tyler Knight, Director and Chief Marketing Officer - Tyler Knight is a co - founder, Director and Chief Marketing Officer of MassRoots, responsible for user-acquisition and key marketing channel relations. Prior to joining the MassRoots team, Mr. Knight served as Chief Operations Officer for RoboCent, Inc. from January 2013 to April 2013, playing a key role in acquiring more than 250 clients and growing the scalable call platform to $300,000 in revenue in its first 18 months. He also worked on several political campaigns from January 2010 to December 2012, including serving as Deputy Field Director on Ben Loyola’s 2011 campaign for state Senate. Prior to joining MassRoots, Mr. Knight studied marketing at Old Dominion University.

 

Hyler Fortier, Chief Operations Officer - Hyler Fortier is a co - founder of MassRoots and its Chief Operations Officer, since inception. Mrs. Fortier is responsible for our user interface design, marketing graphics and company presentation materials. Previously, she served in the same position at RoboCent Inc. from June 2012 to April 2013. Ms. Fortier graduated from James Madison University’s School of Business with a Marketing degree in May 2014. She has extensive knowledge of graphic design, video rendering and user - interface software, especially as they can be applied to enhance user-engagement and retention. She is also active in JMU s Society of Entrepreneurs, often speaking at clubs and events about the need for women to hold more executive positions in business.

 

Jesus Quintero, Chief Financial Officer - Jesus Quintero joined MassRoots as its Chief Financial Officer in May 2014. Since January 2013, Mr. Quintero has also served as Brazil Interactive Media’s Chief Financial Officer. He has previously served as a financial consultant to several multi-million dollar businesses in Florida. Mr. Quintero has extensive experience in public company reporting and SEC/SOX compliance, and held senior finance positions with Avnet, Inc., Latin Node, Inc., Globetel Communications Corp. and Telefonica of Spain. His prior experience also includes tenure with PricewaterhouseCoopers and Deloitte & Touche. Mr. Quintero earned a B.S. in Accounting from St. John’s University and is a certified public accountant. He is fluent in English and Spanish, and conversant in Brazilian Portuguese.

 

Legal Proceedings

 

We know of no pending proceedings to which any director, member of senior management, or affiliate is either a party adverse to us, or our subsidiaries, or has a material interest adverse to us or our subsidiaries.

 

None of our executive officers or directors have (i) been involved in any bankruptcy proceedings within the last five years, (ii) been convicted in or has pending any criminal proceedings (other than traffic violations and other minor offenses), (iii) been subject to any order, judgment or decree enjoining, barring, suspending or otherwise limiting involvement in any type of business, securities or banking activity or (iv) been found to have violated any Federal, state or provincial securities or commodities law and such finding has not been reversed, suspended or vacated.

 

Corporate Governance

 

Board of Directors is composed of five members: Isaac Dietrich, who serves as Chairman of the Board, Ean Seeb, Tripp Keber, Stewart Fortier and Tyler Knight . Messrs. Dietrich and Fortier are not “independent” as the term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Exchange Act, as amended.

 

We do not have any standing audit, nominating and compensation committees of the Board of Directors, or committees performing similar functions. We do not currently have a Code of Ethics applicable to our principal executive, financial or accounting officer. All Board actions have been taken by Written Action rather than formal meetings.

 

EXECUTIVE COMPENSATION

Summary Compensation Table

The table below summarizes all compensation awarded to, earned by, or paid to our Chief Executive Officer and our two most highly compensated executive officers who occupied such position at the end of our latest fiscal year for all services rendered in all capacities to us for the year beginning on the Company’s inception of April 24, 2013 and ended December 31, 2013.

 

Name &
Principal
Position
  Year   Salary
$
  Bonus
$
  Stock
Awards
$
  Option
Awards (1)
$
  Non-Equity
Incentive Plan
Compensation
$
  Non-Qualified
Deferred
Compensation
Earnings
$
  All Other
Compensation
$
  Total
$
 
Isaac Dietrich
Chief Executive Officer
  2013   $8,750   -   $112,505 (2)   $363,811   -   -   -   $485,066  
                                       
Hyler Fortier,
Chief Operations Officer
  2013   $5,000   -   $31,870 (3)   $95,606   -   -   -   $132,476  
                                       

Stewart Fortier,

Chief Technology Officer

  2013   $10,513   -   $25,496 (4)   $76,485   -   -   -   $112,510  
                                       

 

(1) On April 24, 2013, 42.81, 11.25, and 9.00 stock options (13,042,695, 3,427,478, and 2,741,982 shares post-Exchange) were issued as part of the employment agreements with Isaac Dietrich, Hyler Fortier and Stewart Fortier, respectively. Each stock option allows the holder to purchase the same number of share of the Company’s common stock at $1.00 per share per each individual option. The options vested through January 1, 2017, and contained an acceleration clause which was triggered upon the closure of the Original Financing on January 1, 2014 that caused all options to vest immediately, at which point all options were exercised. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 1.73% risk-free interest, 0% dividend yield, 200% volatility, and expected life of 7 years.
(2) On April 24, 2013, the Company approved the issuance of 15.25 shares of common stock (4,569,970 shares post-Exchange) to Isaac Dietrich, our Chief Executive Officer and Chairman, to repay $17,053 short term borrowing related to Mr. Dietrich’s payment of general Company expenses during the Company’s first months since inception and to compensate him for his services. Service expense of $112,505 was recognized due to the fair value of the shares in excess of the value of the short term borrowing.
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(3) On April 24, 2013, the Company approved the issuance of 3.75 shares of common stock (1,142,493 shares post-Exchange) to Hyler Fortier in exchange for her services. The market value of the issued shares is $31,870 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued and subsequently issued on January 1, 2014.
(4) On April 24, 2013, the Company approved the issuance of 3.00 shares of common stock (913,994 shares post-Exchange) to Stewart Fortier in exchange for his services. The market value of the issued shares is $25,496 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued and subsequently issued on January 1, 2014.

 

Outstanding Equity Awards at December 31, 2013 Fiscal Year End

 

Name   Number of
Securities
underlying
unexercised
options
exercisable
    Number of
Securities
underlying
unexercised
options
unexercisable
    Option
exercise or
base price per
share
($/Share)
    Option
Expiration Date
 
Isaac Dietrich
Chief Executive Officer
    13,042,695       -       $1       N/A  
                                 
Hyler Fortier,
Chief Operations Officer
    3,427,478       -       $1       N/A  
                                 

Stewart Fortier,

Chief Technology Officer

    2,741,982       -       $1       N/A  
                                 

 

 

Narrative Disclosure to Summary Compensation and Option Tables

 

On April 24, 2013, we entered into an agreement with Isaac Dietrich, our Chief Executive Officer and Chairman, to provide services to us. For his services for a term of four years and in repayment of $17,053 of short term borrowing, Mr. Dietrich received compensation of $1 per month, and was provided a stock award of 15.25 shares (4,569,970 shares post-Exchange) and stock options which allowed Mr. Dietrich to purchase 42.81 shares (13,042,695 shares post-Exchange) of the Company’s common stock at $1.00 per share per each individual option. The options vested through January 1, 2017, and contained an acceleration clause which was triggered upon the closure of the Original Financing on January 1, 2014 that caused all options to vest immediately, at which point all options were exercised. The agreement was amended on October 1, 2013 to require us to pay $3,500 monthly to Mr. Dietrich.

 

On April 24, 2013, we entered into an agreement with Hyler Fortier to provide services to us. The agreement has a term of four years and required us to pay $1 monthly to Ms. Fortier for her services, provided a stock award of 3.75 shares (1,142,493 shares post-Exchange) and provided stock options which allowed Ms. Fortier to purchase 11.25 (3,427,478 shares post-Exchange) shares of the Company’s common stock at $1.00 per share per each individual option. The options vested through January 1, 2017, and contained an acceleration clause which was triggered upon the closure of the Original Financing on January 1, 2014 that caused all options to vest immediately at which point all options were exercised. The agreement was amended on October 1, 2013 to require us to pay $2,000 monthly to Ms. Fortier.

 

On April 24, 2013, we entered into an agreement with Stewart Fortier to provide services to us. The agreement has a term of four years and required us to pay $20/hour to Mr. Fortier for his services, provided a stock award of 3.0 shares (913,994 shares post-Exchange) and stock options which allowed Ms. Fortier to purchase 9.00 shares (2,741,982 shares post-Exchange) of the Company’s common stock at $1.00 per share per each individual option. The options vested through January 1, 2017, and contained an acceleration clause which was triggered upon the closure of the Original Financing on January 1, 2014 that caused all options to vest immediately, at which point all options were exercised. The agreement was amended on October 1, 2013 to require us to pay $30/hr to Mr. Fortier.

 

At no time during the last fiscal year with respect to any person listed in the Table above was there:

 

any outstanding option or other equity-based award re-priced or otherwise materially modified (such as by extension of exercise periods, the change of vesting or forfeiture conditions, the change or elimination of applicable performance criteria, or the change of the bases upon which returns are determined);
any waiver or modification of any specified performance target, goal or condition to payout with respect to any amount included in non-stock incentive plan compensation or payouts;
any non-equity incentive plan award made to a named executive officer;
any nonqualified deferred compensation plans including nonqualified defined contribution plans; or
any payment for any item to be included under All Other Compensation (column (i)) in the Summary Compensation Table.

 

Amended Employment Agreements

On April 1, 2014, MassRoots amended its employment contract with Isaac Dietrich. For his services as Chief Executive Officer, Mr. Dietrich shall be compensated five thousand dollars ($5,000) per month. Upon the successful execution of all of our outstanding forty-cent ($0.40) warrants, Mr. Dietrich’s salary will increase to seven thousand five hundred dollars ($7,500) per month. The employment contract is “at-will” and may be terminated by either party with or without cause with one (1) month’s written notice. No retirement plan, health insurance or employee benefits program was awarded to Mr. Dietrich and he serves at the direction of the Board of Directors.

 

On April 1, 2014, MassRoots amended its employment contract with Stewart Fortier. For his services as Chief Technology Officer, Mr. Fortier shall be compensated six thousand five hundred dollars ($6,500) per month. Upon the successful execution of all of our outstanding forty-cent ($0.40) warrants, Mr. Fortier’s salary will increase to ten thousand dollars ($10,000) per month. The employment contract is “at-will” and may be terminated by either party with or without cause with one (1) month’s written notice. No retirement plan, health insurance or employee benefits program was awarded to Mr. Fortier and he serves at the direction of the Chief Executive Officer and Board of Directors.

 

On April 1, 2014, MassRoots amended its employment contract with Tyler Knight. For his services as Chief Marketing Officer, Mr. Knight shall be compensated three thousand five hundred dollars ($3,500) per month. Upon the successful execution of all of our outstanding forty-cent ($0.40) warrants, Mr. Knight’s salary will increase to five thousand dollars ($5,000) per month. The employment contract is “at-will” and may be terminated by either party with or without cause with one (1) month’s written notice. No retirement plan, health insurance or employee benefits program was awarded to Mr. Knight and he serves at the direction of the Chief Executive Officer and Board of Directors.

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On April 1, 2014, MassRoots amended its employment contract with Hyler Fortier. For her services as Chief Operations Officer, Ms. Fortier shall be compensated two thousand dollars ($2,000) per month. Upon Ms. Fortier’s successful graduation from James Madison University with a Bachelor’s Degree in Marketing on May 15, 2014, Ms. Fortier’s salary increased to three thousand five hundred dollars ($3,500) per month. Upon the successful execution of all of our outstanding forty-cent ($0.40) warrants, Ms. Fortier’s salary will increase to five thousand dollars ($5,000) per month. The employment contract is “at-will” and may be terminated by either party with or without cause with one (1) month’s written notice. No retirement plan, health insurance or employee benefits program was awarded to Ms. Fortier and she serves at the direction of the Chief Executive Officer and Board of Directors.

 

Consulting Agreement

On May 1, 2014, MassRoots executed an agreement with Jesus Quintero for Mr. Quintero to serve as the Company’s Chief Financial Officer and provide it with financial consulting services. This agreement creates an independent contractor relationship and has a term of one year. For this service, Mr. Quintero is paid $2,000 per month and was issued a stock award of 100,000 shares of our common stock on June 6, 2014. No retirement plan, health insurance or employee benefits program was awarded to Mr. Quintero and he serves at the direction of the Chief Executive Officer and Board of Directors. This Agreement may be terminated by either party, with cause, upon ten (10) days prior written notice to the other party. If terminated, Mr. Quintero would receive only the compensation earned, but unpaid under the agreement.

2014 Equity Incentive Plan

In June 2014, our shareholders approved our 2014 Equity Incentive Plan (“2014 Plan”). Our 2014 Plan provides for the grant of incentive stock options to our employees and our parent and subsidiary corporations' employees, and for the grant of nonstatutory stock options, stock bonus awards, restricted stock awards, performance stock awards and other forms of stock compensation to our employees, including officers, consultants and directors. Our 2014 Plan also provides that the grant of performance stock awards may be paid out in cash as determined by the Committee (as defined herein).

Authorized Shares.     A total of 4,000,000 shares of our common stock are reserved for issuance pursuant to the 2014 Plan. Shares issued under our 2014 Plan may be authorized but unissued or reacquired shares of our common stock. Shares subject to stock awards granted under our 2014 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, will not reduce the number of shares available for issuance under our 2014 Plan. Additionally, shares issued pursuant to stock awards under our 2014 Plan that we repurchase or that are forfeited, as well as shares reacquired by us as consideration for the exercise or purchase price of a stock award, will become available for future grant under our 2014 Plan.

Administration.     Our Board of Directors, or a duly authorized committee thereof (collectively, the “Committee”), has the authority to administer our 2014 Plan. Our Board may also delegate to one or more of our officers the authority to designate employees other than Directors and officers to receive specified stock, which, in respect to those awards, said officer or officers shall then have all that the Committee would have.

Subject to the terms of our 2014 Plan, the Committee has the authority to determine the terms of awards, including recipients, the exercise price or strike price of stock awards, if any, the number of shares subject to each stock award, the fair market value of a share of our common stock, the vesting schedule applicable to the awards, together with any vesting acceleration, the form of consideration, if any, payable upon exercise or settlement of the stock award and the terms and conditions of the award agreements for use under our 2014 Plan. The Committee has the power to modify outstanding awards under our 2014 Plan, subject to the terms of the 2014 Plan and applicable law. Subject to the terms of our 2014 Plan, the Committee has the authority to reprice any outstanding option or stock appreciation right, cancel and re-grant any outstanding option or stock appreciation right in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under generally accepted accounting principles, with the consent of any adversely affected participant.

Stock Options. Stock options may be granted under the 2014 Plan. The exercise price of options granted under our 2014 Plan must at least be equal to the fair market value of our common stock on the date of grant. The term of an incentive stock option may not exceed 10 years, except that with respect to any participant who owns more than 10% of the voting power of all classes of our outstanding stock, the term must not exceed 5 years and the exercise price must equal at least 110% of the fair market value on the grant date. The Committee will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the Committee, as well as other types of consideration permitted by applicable law. No single participant may receive more than 25% of the total options awarded in any single year. Subject to the provisions of our 2014 Plan, the Committee determines the other terms of options.

Performance Shares . Performance shares may be granted under our 2014 Plan. Performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The Committee will establish organizational or individual performance goals or other vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance shares to be paid out to participants. After the grant of a performance share, the Committee, in its sole discretion, may reduce or waive any performance criteria or other vesting provisions for such performance shares. The Committee, in its sole discretion, may pay earned performance units or performance shares in the form of cash, in shares or in some combination thereof, per the terms of the agreement approved by the Committee and delivered to the participant. This agreement will state all terms and condition of the agreements.

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Restricted Stock. The terms and conditions of any restricted stock awards granted to a participant will be set forth in an award agreement and, subject to the provisions in the 2014 Plan, will be determined by the Committee. Under a restricted stock award, we issue shares of our common stock to the recipient of the award, subject to vesting conditions and transfer restrictions that lapse over time or upon achievement of performance conditions. The Committee will determine the vesting schedule and performance objectives, if any, applicable to each restricted stock award. Unless the Committee determines otherwise, the recipient may vote and receive dividends on shares of restricted stock issued under our 2014 Plan.

Other Share-Based Awards and Cash Awards. The Committee may make other forms of equity-based awards under our 2014 Plan, including, for example, deferred shares, stock bonus awards and dividend equivalent awards. In addition, our 2013 Plan authorizes us to make annual and other cash incentive awards based on achieving performance goals that are pre-established by our compensation committee.

Change in Control.     If the Company is merged or consolidated with another entity or sells or otherwise disposes of substantially all of its assets to another company while awards or options remain outstanding under the 2014 Plan, unless provisions are made in connection with such transaction for the continuance of the 2014 Plan and/or the assumption or substitution of such awards or options with new options or stock awards covering the stock of the successor company, or parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, then all outstanding options and stock awards which have not been continued, assumed or for which a substituted award has not been granted shall, whether or not vested or then exercisable, unless otherwise specified in the relevant agreements, terminate immediately as of the effective date of any such merger, consolidation or sale.

Change in Capitalization. If the Company shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of the common stock outstanding, without receiving consideration therefore in money, services or property, then awards amounts, type, limitations, and other relevant consideration shall be appropriately and proportionately adjusted. The Committee shall make such adjustments, and its determinations shall be final, binding and conclusive.

Plan Amendment or Termination.     Our Board has the authority to amend, suspend, or terminate our 2014 Plan, provided that such action does not materially impair the existing rights of any participant without such participant's written consent. The 2014 Plan will terminate ten (10) years after the earlier of (i) the date the 2014 Plan is adopted by the Board, or (ii) the date the 2014 Plan is approved by the stockholders, except that awards that are granted under the 2014 Plan prior to its termination will continue to be administered under the terms of the 2014 Plan until the awards terminate, expire or are exercised.

Director Compensation

 

No director received any compensation for their service as a director for the year-ended December 31, 2013.

 

Our interested directors do not receive additional compensation for their service as directors.  

 

On June 6, 2014, each of Ean Seeb and Tripp Keber, our independent directors, received the following pursuant to our 2014 Employee Incentive Plan for their service as a director: (i) a stock award of 250,000 shares of our Common Stock (the “Stock Award”) and (ii) options to purchase up to 750,000 shares of our common stock (each an “Option”) which vest as follows:

 

Beginning on October 1, 2014, 250,000 Options shall begin to vest over the period of one year on a monthly basis, such that 20,833 Options shall vest on the first of each month, except for every third month when 20,834 Options shall vest;
Beginning on the later of (i) the date that Company attains 830,000 Users (“Users” are defined for the purposes of the Options as the number of unique registrations for MassRoots Inc.’s network through MassRoots Inc.’s mobile application and/or website (final determination shall be by the Committee)) or (ii) October 1, 2015, 250,000 Options shall begin to vest over the period of one year on a monthly basis, such that 20,833 Options shall vest on the first of each month, except for every third month when 20,834 Options shall vest; and
Beginning on the later of (1) the date that Company attains 1,080,000 Users or (2) October 1, 2016, 250,000 Options shall vest immediately.

 

All vesting per the above schedule shall cease thirty days from the time the applicable director is dismissed from the Board, fails to win re-election by shareholders, or resigns as a director. Each of the Options and Stock Awards granted to Messrs. Keber and Seeb shall not be exercised or sold, respectively, unless (i) permitted by all Federal and State laws, including Rule 144 of the Securities Act, and (ii) all outstanding Debentures have been redeemed or converted into shares of our common stock. The shares of common stock underlying the options have not been included as securities to be registered under this prospectus.

 

Indemnification of Officers and Directors

 

Our Amended and Restated Certificate of Incorporation provides that we shall indemnify our officers and directors to the fullest extent permitted by applicable law against all liability and loss suffered and expenses (including attorneys" fees) incurred in connection with actions or proceedings brought against them by reason of their serving or having served as officers, directors or in other capacities. We shall be required to indemnify a director or officer in connection with an action or proceeding commenced by such director or officer only if the commencement of such action or proceeding by the director or officer was authorized in advance by the Board of Directors.

 

We do not currently maintain director’s and officer’s liability insurance but we may do so in the future.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the beneficial ownership of common stock by: (i) each director, (ii) each of the executive officers of the Company, (iii) all current directors and executive officers as a group, and (iv) each stockholder known to the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock.

 

Unless otherwise indicated in the footnotes to the table, all information set forth in the table is as of June 11, 2014, and the address for each director and executive officer of the Company is: c/o MassRoots, Inc., 6525 Gunpark Drive, Ste. 370 #150, Boulder, CO 80301. The addresses for the greater than 5% stockholders are set forth in the footnotes to this table.

  

 

      Common Stock  
      Number of            
      Shares            
      Beneficially       Percentage    
      Owned (1)       Outstanding (2)    
Directors and Officers                  
Isaac Dietrich     17,688,831     35.10%    
Hyler Fortier     4,569,970     9.07%    
Stewart Fortier     3,655,976     7.25%    
Tyler Knight     3,655,976     7.25%    
Ean Seeb (11)     250,000 (12)     0.50%    
Tripp Keber (3)     250,000 (13)     0.50%    
                 
                   

All directors and named executive

officers as a group (6 persons)

    30,070,753     59.66%    
       
5% Stockholders                  
Douglas Leighton (4)     11,581,269 (5)     22.98% (6)    
Michael Novielli (7)     8,811,500 (8)     17.48% (6)    
Dutchess Opportunity Fund II, LP (9)     8,061,500 (10)     16.00%    
                 

 

(1) The Company believes that each stockholder has sole voting and investment power with respect to the shares of common stock listed, except as otherwise noted. The number of shares beneficially owned by each stockholder is determined under rules of the SEC, and the information is not necessarily indicative of ownership for any other purpose. Under these rules, beneficial ownership includes (i) any shares as to which the person has sole or shared voting power or investment power and (ii) any shares which the individual has the right to acquire within 60 days after June 11, 2014 through the exercise of any stock option, warrant, conversion of preferred stock or other right, but such shares are deemed to be outstanding only for the purposes of computing the percentage ownership of the person that beneficially owns such shares and not for any other person shown in the table. The inclusion herein of any shares of common stock deemed beneficially owned does not constitute an admission by such stockholder of beneficial ownership of those shares of common stock .  
     
(2) Based on 50,400,000 shares of common stock beneficially outstanding as of June 11, 2014.  
     
(3) Tripp Keber joined the Company’s Board of Directors as of March 31, 2014.  
     
(4) Douglas Leighton resigned from the Company’s Board of Directors as of March 25, 2014. His address is as follows: 50 Commonwealth Ave., Suite 2 Boston, MA 02116.  
     
(5) The 11,581,269 shares of our common stock, aggregated without regard to the 4.99% Blocker, includes (i) 923,371 shares of our common stock held of record by Mr. Douglas Leighton; (ii) 1,846,398 shares of our common stock held of record by Bass Point Capital, LLC (of which Mr. Leighton, as Managing Member, has sole voting power and dispositive control); (iii) $109,100 in Debentures held by Dutchess (which Mr. Leighton and Michael Novelli, as Managing Members, have shared voting power and dispositive control), convertible into 1,091,000 shares of our common stock; (iv) 4,050,000 shares of our common stock issuable to Dutchess upon exercise of the $0.001 Consulting Warrants; (v) 2,920,500 shares of our common stock issuable to Dutchess upon exercise of the $0.40 Warrants; (vi) $50,000 of Debentures held by Azure Capital, LLC (of which Mr. Leighton, as Managing Partner, has sole voting power and dispositive control), convertible into 500,000 shares of our common stock; and (vii) 250,000 shares of our common stock issuable to Azure Capital, LLC upon exercise of the $0.40 Warrants.  
     
(6) Each of the convertible debentures and warrants to purchase shares of our common stock held of record and beneficially by Mr. Leighton and Mr. Novelli contain the 4.99% Blocker. As of the date noted above, Mr. Leighton and Mr. Novelli beneficially own 5.50% and 0.0%, respectively, of our issued and outstanding common stock.    
     
(7) Michael Novelli’s address is as follows: c/o Dutchess Global LLC, 1110 Rt. 55, Suite 206, LaGrangeville, NY 12540.  
     
(8) The 8,811,500 shares of our common stock, aggregated without regard to the 4.99% Blocker, includes (i) $109,100 in Debentures held by Dutchess (which Mr. Douglas Leighton and Mr. Michael Novelli, as Managing Members, have shared voting power and dispositive control), convertible into 1,091,000 shares of our common stock; (ii) 4,050,000 shares of our common stock held by Dutchess issuable upon exercise of the $0.001 Consulting Warrants; (iii) $50,000 in Debentures held by Dutchess Global Strategies Fund, LLC (which Mr. Novelli, as Managing Member, has sole voting power and dispositive control), convertible into 500,000 shares of our common stock; and (iv) 250,000 shares of our common stock issuable to Dutchess Global Strategies Fund, LLC upon exercise of the $0.40 Warrants.    
     
(9) Dutchess’ address is as follows:  Dutchess Opportunity Fund, II, LP 50 Commonwealth Ave., Suite 2 Boston, MA 02116.  
     
(10) Each of Mr. Michael Novielli and Mr. Douglas Leighton, as Managing Partners of Dutchess, has voting power and dispositive control over these shares. The 8,061,500 shares of common stock are aggregated without regard to the 4.99% Blocker and include (i) $109,100 in Debentures convertible into 1,091,000 shares of our common stock; (ii) 4,050,000 shares of our common stock issuable upon exercise of the $0.001 Consulting Warrants; and (iii) 2,920,500 shares of our common stock issuable upon exercise of the $0.40 Warrants.  

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(11) Ean Seeb joined the Company’s Board of Directors as of June 4, 2014.  
     
(12) Does not include Options to purchase 750,000 shares of our common stock which had not yet vested on June 4, 2014, were not exercisable within 60 days of June 11, 2014, and/or contained performance-based conditions.  
     
(13) Does not include Options to purchase 750,000 shares of our common stock which had not yet vested on June 4, 2014, were not exercisable within 60 days of June 11, 2014, and/or contained performance-based conditions.  
     

 

DESCRIPTION OF SECURITIES

General

The following description of our common stock is intended as a summary only and is qualified in its entirety by reference to our amended and restated certificate of incorporation and bylaws, which are filed as exhibits to the registration statement of which this prospectus forms a part.

Our authorized common stock consists of 200,000,000 shares, par value $0.001 per share, of which 38,909,000 shares were outstanding as of June 11, 2014, and 50,400,000 were beneficially outstanding as of June 6, 2014.

Voting Rights

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the stockholders. Except as otherwise required by Delaware law, the holders of our common stock possess all voting power. Pursuant to Delaware law, directors of the Company are elected at the annual meeting of the stockholders by a plurality of the votes cast at the election. According to our bylaws, in general, the affirmative vote of a majority of the shares represented at a meeting and entitled to vote on any matter, is to be the act of our stockholders. Our bylaws provide that a majority of the outstanding shares of the Company entitled to vote, represented in person or by proxy, constitutes a quorum at a meeting of our stockholders. Our bylaws also provide that any action which may be taken at any annual or special meeting of our stockholders may be taken without a meeting if a written memorandum, setting forth the action so taken, is signed by all of the holders of outstanding shares of our common stock.

 

Dividend Rights

The holders of our common stock are entitled to receive dividends as may be declared by our Board of Directors out of funds legally available for dividends. Our board of directors is not obligated to declare a dividend. Any future dividends will be subject to the discretion of our board of directors and will depend upon, among other things, future earnings, the operating and financial condition of our company, its capital requirements, general business conditions and other pertinent factors. We have not paid any dividends since our inception and we do not anticipate that dividends will be paid in the foreseeable future.

Miscellaneous Rights and Provisions

 

In the event of our liquidation, dissolution or winding up, each share of our common stock is entitled to share ratably in any assets available for distribution to holders of our common stock after satisfaction of all liabilities, subject to rights, if any, of the holders of any of our other securities.

 

Our common stock is not convertible or redeemable and has no preemptive, subscription or conversion rights. There are no conversions, redemption, sinking fund or similar provisions regarding our common stock.

 

Our common stock, after the fixed consideration thereof has been paid or performed, are not subject to assessment, and the holders of our common stock are not individually liable for the debts and liabilities of our company.

 

Our bylaws provide that our Directors may amend our bylaws by a majority vote of Directors or a majority vote of our shareholders.

 

Preferred Stock

 

As of the date of this prospectus, no shares of preferred stock are outstanding. Pursuant to our Amended and Restated Certificate of Incorporation, our Board has the authority, without further action by the stockholders, to issue from time to time up to 21 shares of preferred stock in one or more series. The only series which has been issued previously is Series A Preferred Stock, none of which is currently outstanding as of the date of this registration statement, of which this prospectus is a part of. Among other rights and privileges, holders of Series A Preferred Stock are entitled to a cumulative dividend of 7% annually, preferential payments over common stock in the case of liquidation, merger, and other events, and the ability to convert their Series A Preferred Stock to common stock on a one to one basis (taking into account any unpaid dividends). Each share of Series A Preferred Stock entitles the holder to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series A Preferred Stock held are convertible as of the record date. The holders of record of the shares of Series A Preferred Stock, exclusively and as a separate class, shall be entitled to elect 2 directors of the Company.

 

We currently have no plans to issue any shares of preferred stock.

 

Founder Lock-Out Period

 

Each of Isaac Dietrich, Stewart Fortier, Hyler Fortier, and Tyler Knight have agreed not to publicly or privately offer to sell, contract to sell or otherwise dispose of, loan, gift, donate, hypothecate, pledge or grant any rights with respect to the shares of common stock owned by each as of March 24, 2014, for a period beginning as of March 24, 2014 and ending the earlier of (1) the date occurring twelve (12) months after March 24, 2014 or (2) the date that the full outstanding balance of the Debenture has been satisfied.

 

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Leak-Out Agreement

 

Pursuant to a Leak-Out Agreement with the Company, for a period of six months after March 18, 2014 (the “Leak-Out Period”), Dutchess may not sell or otherwise dispose of the shares of our common stock underlying those warrants issued to Dutchess ("Warrant Shares") in the March 2014 Offering except (i) as consistent with the provision or (ii) with the prior written consent of the Company’s Board of Directors.

During the Leak-Out Period but beginning the sooner of: (i) the applicability of the transferability exemption pursuant to Rule 144 taking effect on the Warrant Shares, or (ii) immediately upon the effectiveness of a registration statement as declared by the U.S. Securities and Exchange Commission, in which the Warrant Shares have been registered, the Holder shall have the right to effect open market sales of the Warrant Shares as outlined below:

 

Market Price (per share) Volume Limitation
  (based of prior three days average volume)
At or below $.10 No trading permitted
Above $.10 or at or below $.15 10%
Above $.15 or at or below $.20 15%
Above $.20 or at or below $.25 20%
Above $.25 No limit

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

You should read the following discussion of our financial condition and results of operations in conjunction with financial statements and notes thereto included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors”.

Overview

 

We were incorporated in the state of Delaware on April 24, 2013, to be a mobile network for the cannabis community. We are a development-stage company and have generated only minimal revenues from business operations. Our independent registered public accounting firm has issued a going concern opinion. This means there is substantial doubt that we can continue as an on-going business unless we obtain additional capital to pay our ongoing operational costs. Accordingly, we must locate sources of capital to pay our operational costs.

 

Our operational expenditures are primarily related to development of the MassRoots platform and marketing costs associated with getting users to join our network and engage with other users. As of June 7, 2014, MassRoots has built a network of 134,000 users and facilitated 30.7 million interactions. This growth has been aided by the growing use of mobile applications and the popularity of the cannabis legalization movement amount young adults, our primary users.

 

We have not devoted significant financial resources or development time towards building advertising and revenue-generating services. While this is an unsustainable business model over the long-term, we believe it is in our shareholders’ best financial interests to grow the MassRoots network to millions of users before implementing monetization strategies. MassRoots will be dependent on invested capital to pay its operational costs until it successfully develops and implements these monetization strategies. There is no guarantee that MassRoots will reach the scale necessary to implement these monetization strategies nor is there a guarantee that they will be successful.

 

for the year-ended december 31, 2013

 

Results of Operations

 

The following table presents our revenues, expenditures, and net income for the year ended December 31, 2013 (audited).

 

         
Period Revenue Expenses Provision For Income Taxes Net Income (Loss)

Year-ended

December 31, 2013

$  470 $  (919,635) - $    (919,123)

 

 

Since inception on April 24, 2013, our business operations have been primarily focused developing our mobile applications, websites and increasing our user base.

 

We have generated only minimal revenues from our operations thus far. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including the financial risks associated with the limited capital resources currently available to us for the implementation of our business strategies (see “Risk Factors”). To become profitable and competitive, we must develop the business plan and execute the plan.

 

We are unable to provide a timeline for the generation of revenues which casts substantial doubt on the viability of our business and our ability to continue as a going concern.

 

During the year-ended December 31, 2013, we entered into a consulting agreement with Douglas Leighton on October 7, 2013 in which Mr. Leighton would receive 2.94 preferred shares (895,715 common shares post-Exchange) valued at $24,998 in exchange for his financial consulting services, including budgeting, assistance with fundraising and general strategic guidance. We also entered into agreements with its founders Isaac Dietrich, Stewart Fortier, Hyler Fortier and Tyler Knight in which they would receive common stock valued at $195,412 and options valued at $612,387 for their services, including application development, book keeping, marketing, database design, investor relations, app content marketing and several general corporate functions.

 

Fundraising

 

On October 7, 2013, we entered into agreements to issue 5.88, 5.88, and 5.89 Series A Preferred Shares (1,791,430, 1,791,430, and 1,794,516 common shares post Exchange) to Bass Point Capital, LLC, WM18 Finance LTD, and Rother Investments, LLC, respectively, in exchange for $50,000 capital investments from each. These shares were subsequently issued on the closing date of January 1, 2014.

Table of Contents 31  
 

 

Product Trends and User Growth

 

Given that consumers are shifting their digital consumption habits from desktop computers to mobile devices, our primary focus in 2013 was developing an iOS App for use on iPhones and iPads. The MassRoots management team firmly believes in lean-startup methodology, which dictates that companies should focus on developing a minimum viable product, launch it to consumers, and then gain their feedback before spending time and resources on a full product pipeline. Since that time, the MassRoots development team has added several features to the iOS App, including symbol support (such as smiley faces), double-click to like pictures, a news feed to show a user’s friends' activity on the network, as well as restructuring the application and database to handle the growing user base. The MassRoots iOS App remains MassRoots’ primary source of new users, usage and support – and holds a 4.5 star rating in the iOS App Store through several hundred reviews as of May 1, 2014.

 

Shortly after launching the iOS App, we began developing an Android app to make MassRoots available to more people on more devices. However, Android development proved to be far more costly and difficult than we had anticipated due to the 2,500+ devices that currently have the Android operating system, the complexity of our App and the financial limitations of the company. We launched a minimum viable product in late September 2013, however it was only able to run on a small percentage of Android devices. We decided in mid-October to completely redevelop our Android app with a newly retained development team. We successfully re-launched a minimum viable product on Android in late February 2014. The Android app remains roughly three months behind the iOS app in terms of functionality and user-experience.

 

Since its inception, MassRoots’ sole objective has been to grow its user-base and acquire market share. As of June 7, 2014, MassRoots has built a network of 134,000 users, facilitated 30.7 million interactions and our mobile apps are being opened 1.8 million times each month.

Liquidity and Capital Resources

 

From April 24, 2013 (inception) through December 31, 2013, we generated revenues of $470 from our business operations. Since our inception through December 31, 2013, we raised approximately $167,000 in funding.

 

Our current cash on hand as of December 31, 2013 was $81,279, which will be used to meet our approximate monthly operating costs of $35,000 for approximately 2 months. Our operating costs will increase by approximately $7,000 per month when this registration statement is declared effective because of the costs of SEC reporting.

 

Through December 31, 2013, we incurred $919,635 in operating expenses. Expense related to equity awards (common stock and options) issued for services by our executive officers was the largest category of expense in the prior year, totaling $807,841. Excluding expenses related to the equity grants, our total operating expenses for the year ended December 31, 2013 was $111,794.

 

As of December 31, 2013, we had accrued current liabilities of $1,846.

 

We have a net loss and net cash used in operations of $919,123 and $85,052, respectively, for the period from April 24, 2013 (inception) to December 31, 2013.

 

We currently have no external sources of liquidity such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.

 

We are dependent on the sale of our securities to fund our operations, and will remain so until we generate sufficient revenues to pay for our operating costs. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans and/or financial guarantees.

 

If we are unable to raise the funds we will seek alternative financing through means such as borrowings from institutions or private individuals. There can be no assurance that we will be able to raise the capital we need for our operations from the sale of our securities. We have not located any sources for these funds and may not be able to do so in the future. We expect that we will seek additional financing in the future. However, we may not be able to obtain additional capital or generate sufficient revenues to fund our operations. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to cease operations. If we fail to raise funds we expect that we will be required to seek protection from creditors under applicable bankruptcy laws.

 

Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business plan, raise capital and generate revenues. See Note 6 of our financial statements.

 

Required Capital Over the Next Fiscal Year

 

We anticipate the need to raise an additional $500,000 to fund our operations through the end of the second quarter of 2015. We expect to use these cash proceeds, in addition to the capital on hand, primarily to accelerate our user growth, implement consumer-facing features to boost engagement, develop and market a self-service advertising portal for cannabis-related businesses, and remain in full legal and accounting compliance with the SEC. We cannot guarantee that we will be able to raise these required funds or generate sufficient revenue to remain operational. In connection with the March 2014 Offering, we issued the $0.40 Warrants and the $0.001 Consulting Warrants. The exercise of the $0.40 Warrants and the $0.001 Consulting Warrants would result in approximately $1,904,050 to be provided to MassRoots for general corporate expenditures. However, we cannot guarantee that the $0.40 Warrants and the $0.001 Consulting Warrants will be exercised before MassRoots runs out of operational capital.

Certain Relationships And Related Transactions

 

On April 24, 2013, the Company approved the issuance of 15.25 shares of common stock (4,569,970 shares post-Exchange) to Isaac Dietrich, our Chief Executive Officer and Chairman, to repay $17,053 short term borrowing related to Mr. Dietrich’s payment of general Company expenses during the Company’s first months since inception and to compensate him for his services. Service expense of $112,505 was recognized due to the fair value of the shares in excess of the value of the short term borrowing. These shares were recorded as common stock to be issued and subsequently issued on the closing date of January 1, 2014.

 

On April 24, 2013, the Company approved the issuance of 3.75 shares of common stock (1,142,493 shares post-Exchange) to Hyler Fortier, our Chief Operations Officer, in exchange for her services. The market value of the issued shares is $31,870 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued and subsequently issued on the Original Offering’s closing date of January 1, 2014.

 

On April 24, 2013, the Company approved the issuance of 3.00 shares of common stock (913,994 shares post-Exchange) to Stewart Fortier, our Chief Technology Officer, in exchange for his services. The market value of the issued shares is $25,496 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued and subsequently issued on the Original Offering’s closing date of January 1, 2014.

 

On April 24, 2013, the Company approved the issuance of 3.00 shares of common stock (913,994 shares post-Exchange) to Tyler Knight, our Chief Marketing Officer, in exchange for his services. The market value of the issued shares is $25,496 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued and subsequently issued on the Original Offering’s closing date of January 1, 2014.

Table of Contents 32  
 

 

On October 7, 2013, the Company entered into an agreement to issue as compensation for services provided a total of 2.94 Series A Preferred shares (895,715 common shares post-exchange) with a market value of $24,998 to Douglas Leighton, the Company’s former director, for financial consulting services. The market value of the shares approximated the fair market value of services received. These shares were recorded as Series A Preferred Stock to be issued and subsequently issued on the Original Offering’s closing date of January 1, 2014.

 

During the year ended December 31, 2013, the Company issued 72.06 stock options (21,954,137 shares post-Exchange) to directors and officers of the Company. In addition, options to purchase 42.81, 11.25, 9.0, and 9.0 shares (13,042,695, 3,427,478, 2,741,982 and 2,741,982 shares post-Exchange) of the Company’s common stock at $1.00 per share were issued to Mr. Dietrich, Ms. Fortier, Mr. Fortier, and Mr. Knight, respectively. The options vested through January 1, 2017 and contained an acceleration clause which was triggered on January 1, 2014 that caused all options to vest immediately. On January 1, 2014, each officer exercised all options held at that time.

 

FOR THE QUARTER-ENDED MARCH 31, 2014

Results of Operations

Since inception on April 24, 2013, our business operations have been primarily focused developing our mobile applications, websites and increasing our user base.

We have generated only minimal revenues from our operations thus far. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including the financial risks associated with the limited capital resources currently available to us for the implementation of our business strategies (see “Risk Factors”). To become profitable and competitive, we must develop the business plan and execute the plan.

We are unable to provide a timeline for the generation of revenues which casts substantial doubt on the viability of our business and our ability to continue as a going concern.

During the quarter-ended March 31, 2014, we entered into a consulting agreement with Dutchess in which they would provide public-company related consulting services in exchange for warrants valued at $555,598. We determined Dutchess' expertise, experience and advices were critical towards successfully becoming a public company.

Fundraising

On March 18, 2014, we entered into a Plan of Reorganization (the “Plan”) with our shareholders. The Plan provided that, in connection with the March 2014 Offering, (i) all preferred shareholders would convert their shares of stock into common stock as is outlined in our certificate of incorporation; (ii) the Company’s certificate of incorporation would be amended to allow for the issuance of 200,000,000 shares of our common stock, (iii) the Company’s current shareholders would exchange their shares of our common stock for the pro-rata percentage of our newly issued 36,000,000 shares; and (iv) a registration statement would be filed with the SEC for a total of at least 49,550,000 shares of our common stock, with the remaining 13,550,000 shares would be distributed as described below.

On March 24, 2014, we completed the March 2014 Offering, where we offered $475,000 of our securities to certain accredited and non-accredited investors consisting of (i) $269,100 of principle face amount Debentures convertible into shares of the Corporation’s common stock at $0.10 per share, together with the Debenture Warrants, exercisable into an amount of our common stock equal to fifty percent (50%) of the common stock underlying the Debentures, at $0.40 per share; and (ii) 2,059,000 shares of our common stock at $0.10 per share, together with a warrant, exercisable into an amount of our common stock equal to fifty percent (50%) of the Common Stock purchased, at $0.40 per share.

In connection with the March 2014 Offering, we entered into certain Registration Rights Agreements, whereby we agreed to use our commercially reasonable efforts to prepare and file a registration statement with the SEC within forty-five (45) days after March 24, 2014, covering all outstanding shares of common stock (including all shares of Common Stock sold in the March 2014 Offering), in addition to all shares of common stock underlying the Debentures, Debenture Warrants, and Common Stock Warrants. Additionally, as payment for consulting services provided in relation to the March 2014 Offering, we granted Dutchess the Consulting Warrants. The Company also granted certain registration rights to Dutchess covering all shares of common stock issuable upon the excise of the Consulting Warrants.

Product Trends and User Growth

Given that consumers are shifting their digital consumption habits from desktop computers to mobile devices, our primary focus in 2013 was developing an iOS App for use on iPhones and iPads. The MassRoots management team firmly believes in lean-startup methodology, which dictates that companies should focus on developing a minimum viable product, launch it to consumers, and then gain their feedback before spending time and resources on a full product pipeline. Since that time, the MassRoots development team has added several features to the iOS App, including symbol support (such as smiley faces), double-click to like pictures, a news feed to show a users’ friends' activity on the network, as well as restructuring the application and database to handle the growing user base. The MassRoots iOS App remains MassRoots’ primary source of new users, usage and support – and holds a 4.5 star rating in the iOS App Store through several hundred reviews as of May 1, 2014.

Table of Contents 33  
 

Shortly after launching the iOS App, we began developing an Android app to make MassRoots available to more people on more devices. However, Android development proved to be far more costly and difficult than we had anticipated due to the 2,500+ devices that currently have the Android operating system, the complexity of our App and the financial limitations of the company. We launched a minimum viable product in late September 2013, however it was only able to run on a small percentage of Android devices. We decided in mid-October to completely redevelop our Android app with a newly retained development team. We successfully re-launched a minimum viable product on Android in late February 2014. The Android app remains roughly three months behind the iOS app in terms of functionality and user-experience.

Since its inception, MassRoots’ sole objective has been to grow its user-base and acquire market share. As of June 7, 2014, MassRoots has built a network of 134,000 users, facilitated 30.7 million interactions and our mobile apps are being opened 1.8 million times each month.

Revenue

For the three months ended March 31, 2014, we generated revenues of $995 from our business operations.

From April 24, 2013 (inception) through March 31, 2014, we generated revenues of $1,495 from our business operations.

Operating Expenses

For the three months ended March 31, 2014, we incurred $682,770 in operating expenses. Expense related principally stock warrants issued for services. Excluding expenses related to the stock warrants, our total operating expenses for the three months ended March 31, 2014 was $127,171.

From April 24, 2013 (inception) through March 31, 2014, we incurred $1,602,364 in operating expenses. Expense related to equity awards (common stock and options) issued for services by our executive officers was the largest category of expense, totaling $1,943,944. Excluding expenses related to the equity grants, our total operating expenses cumulative since inception through March 31, 2014 was $341,140.

For the three months ended March 31, 2014 and for the period of inception (April 24, 2013) through March 31,2014, we had a net loss of $682,465 and $601,589 respectively.

We had net cash used in operations at March 31, 2014 and from April 24, 2013 (inception) to March 31, 2013 of $122,571 and $207,624, respectively. At March 31, 2014, net cash used of $122,571 was mainly attributed to our loss of $$682,465 offset by the cash provided from stock Warrants issued for services. While at from April 24, 2013 (inception) through March 31, 2014, the $207,624 cash used was attributed to loss from inception to March 31, 2014 offset by equity issuances for services.

We had net cash used in investing activities for the three months ended March 31, 2014 and April 24, 2013 (inception) thru March 31, 2014 of $6,231 and $7,753, respectively.

We had net cash used in financing activity for the three months ended March 31, 2014 and April 24, 2013 (inception) through March 31, 2014 of $375,200 and $542,253, respectively. These amounts were mainly attributed to equity issuances throughout the periods.

Cash on Hand as of March 31, 2014 and December 31, 2013

Our current cash on hand as of March 31, 2014 was $326,876, which will be used to meet our approximate monthly operating costs in the near future. Our operating costs will increase by approximately $7,000 per month when this registration statement is declared effective because of the costs of SEC reporting.

While our cash on hand as of December 31, 2013 was $81,279, which was used to meet our approximate monthly operating costs of $35,000 for the two months thereafter. Our operating costs have increased by approximately $7,000 per month up through the filing of this prospectus because of the costs of SEC reporting.

We currently have no external sources of liquidity such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.

We are dependent on the sale of our securities to fund our operations, and will remain so until we generate sufficient revenues to pay for our operating costs. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans and/or financial guarantees.

If we are unable to raise the funds we will seek alternative financing through means such as borrowings from institutions or private individuals. There can be no assurance that we will be able to raise the capital we need for our operations from the sale of our securities. We have not located any sources for these funds and may not be able to do so in the future. We expect that we will seek additional financing in the future. However, we may not be able to obtain additional capital or generate sufficient revenues to fund our operations. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to cease operations. If we fail to raise funds we expect that we will be required to seek protection from creditors under applicable bankruptcy laws.

Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business plan, raise capital and generate revenues. See Note 6 of our financial statements.

Required Capital Over the Next Fiscal Year

We anticipate the need to raise an additional $500,000 to fund our operations through the end of the second quarter of 2015. We expect to use these cash proceeds, in addition to the capital on hand, primarily to accelerate our user growth, implement consumer-facing features to boost engagement, develop and market a self-service advertising portal for cannabis-related businesses, and remain in full legal and accounting compliance with the SEC. We cannot guarantee that we will be able to raise these required funds or generate sufficient revenue to remain operational. In connection with the March 2014 Offering, we issued the $0.40 Warrants and the $0.001 Consulting Warrants. The exercise of the $0.40 Warrants and the $0.001 Consulting Warrants would result in approximately $1,904,050 to be provided to MassRoots for general corporate expenditures. However, we cannot guarantee that the $0.40 Warrants and the $0.001 Consulting Warrants will be exercised before MassRoots runs out of operational capital.

Table of Contents 34  
 

Certain Relationships And Related Transactions

On April 24, 2013, the Company approved the issuance of 15.25 shares of common stock (4,569,970 shares post-Exchange) to Isaac Dietrich, our Chief Executive Officer and Chairman, to repay $17,053 short term borrowing related to Mr. Dietrich’s payment of general Company expenses during the Company’s first months since inception and to compensate him for his services. Service expense of $112,505 was recognized due to the fair value of the shares in excess of the value of the short term borrowing. These shares were recorded as common stock to be issued and subsequently issued on the closing date of January 1, 2014.

On April 24, 2013, the Company approved the issuance of 3.75 shares of common stock (1,142,493 shares post-Exchange) to Hyler Fortier, our Chief Operations Officer, in exchange for her services. The market value of the issued shares is $31,870 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued and subsequently issued on the Original Offering’s closing date of January 1, 2014.

On April 24, 2013, the Company approved the issuance of 3.00 shares of common stock (913,994 shares post-Exchange) to Stewart Fortier, our Chief Technology Officer, in exchange for his services. The market value of the issued shares is $25,496 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued and subsequently issued on the Original Offering’s closing date of January 1, 2014.

On April 24, 2013, the Company approved the issuance of 3.00 shares of common stock (913,994 shares post-Exchange) to Tyler Knight, our Chief Marketing Officer, in exchange for his services. The market value of the issued shares is $25,496 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued and subsequently issued on the Original Offering’s closing date of January 1, 2014.

On October 7, 2013, the Company entered into an agreement to issue as compensation for services provided a total of 2.94 Series A Preferred shares (895,715 common shares post-exchange) with a market value of $24,998 to Douglas Leighton, the Company’s former director, for financial consulting services. The market value of the shares approximated the fair market value of services received. These shares were recorded as Series A Preferred Stock to be issued and subsequently issued on the Original Offering’s closing date of January 1, 2014.

During the year ended December 31, 2013, the Company issued 72.06 stock options (21,954,137 shares post-Exchange) to directors and officers of the Company. In addition, options to purchase 42.81, 11.25, 9.0, and 9.0 shares (13,042,695, 3,427,478, 2,741,982 and 2,741,982 shares post-Exchange) of the Company’s common stock at $1.00 per share were issued to Mr. Dietrich, Ms. Fortier, Mr. Fortier, and Mr. Knight, respectively. The options vested through January 1, 2017 and contained an acceleration clause which was triggered on January 1, 2014 that caused all options to vest immediately. On January 1, 2014, each officer exercised all options held at that time.

As payment for consulting services provided in relation to the March 2014 Offering, we issued Dutchess the Consulting Warrants on March 24, 2014. Dutchess is controlled by our former director, Douglas Leighton, and Michael Novielli. The Consulting Warrants may be exercised any time after their issuance date through and including the third anniversary of their issuance date. The Company also granted certain registration rights to Dutchess covering all shares of common stock issuable upon the excise of the Consulting Warrants; the filing of this registration statement, of which this prospectus is a part of, is intended to satisfy those rights.

 

 

 

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DECEMBER 31, 2013
FINANCIAL STATEMENTS

 

 

 

  Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 37
BALANCE SHEET 38
STATEMENT OF OPERATIONS 39
STATEMENT OF CASH FLOWS 40
STATEMENT OF STOCKHOLDERS’ EQUITY 41
NOTES TO THE FINANCIAL STATEMENTS 42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents 36  
 

TEXT BOX: ,TEXT BOX: ,TEXT BOX: ,TEXT BOX:  

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Shareholders of MassRoots, Inc.

 

We have audited the accompanying balance sheet of MassRoots, Inc. (the “Company”) as of December 31, 2013, and the related statements of operations, stockholders’ equity and cash flows for the period from inception (April 24, 2013) through December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013, and the results of its operations, changes in stockholders’ equity and cash flows for the period from inception (April 24, 2013) through December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 6 to the financial statements, the Company has a net loss and negative cash flows from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Bongiovanni & Associates, P.A.

 

Bongiovanni & Associates, P.A.

Certified Public Accountants

Cornelius, North Carolina

The United States of America

March 18, 2014

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Financial Statements

Balance Sheet as December 31, 2013

MASSROOTS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF DECEMBER 31, 2013
     
    December 31, 2013
     
ASSETS        
         
CURRENT ASSETS        
   Cash   $ 80,479  
   Prepaid expense     800  
      TOTAL CURRENT ASSETS     81,279  
         
FIXED ASSETS        
   Computer equipment     1,522  
   Accumulated depreciation     (228 )
      NET FIXED ASSETS     1,294  
         
TOTAL ASSETS   $ 82,573  
         
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
LONG-TERM LIABILITY        
   Accrued payroll tax   $ 1,846  
      TOTAL LIABILITIES     1,846  
         
STOCKHOLDERS' EQUITY        
Preferred series A Stock, $1 par value, 21 shares authorized; 0 shares issued and outstanding     —    
Common stock, $1 par value, 1,000 shares authorized; 0 shares issued and outstanding     —    
Common stock to be issued     13,890  
   Additional paid in capital     985,960  
   Deficit accumulated through the development stage     (919,123 )
      TOTAL STOCKHOLDERS' EQUITY     80,727  
         
         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 82,573  
         
         
         
         
         
The report on the financial statements and accompanying notes are an integral part of these financial statements.

 

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Statement of Operations for the Year Ending December 31, 2013

MASSROOTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH DECEMBER 31, 2013
     
  FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH DECEMBER 31, 2013
     
         
ADVERTISING REVENUE   $ 470  
         
COST OF GOODS SOLD     —    
         
GROSS PROFIT     470  
         
GENERAL AND ADMINISTRATIVE EXPENSES:        
Depreciation     228  
Independent contractor expense     33,863  
Legal expenses     4,675  
Payroll and related expense     28,503  
Preferred stock issued for services     24,998  
Common stock issued for services     195,412  
Options issued for services     612,387  
Other general and administrative expenses     19,528  
Total General and Administrative Expenses     919,593  
         
(LOSS) FROM OPERATIONS     (919,123 )
         
         
INCOME (LOSS) BEFORE INCOME TAXES     (919,123 )
         
PROVISION FOR INCOME TAXES     —    
         
NET (LOSS)   $ (919,123 )
         
The report on the financial statements and accompanying notes are an integral part of these financial statements.

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Statement of Cash Flows for the Year Ending December 31, 2013

MASSROOTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASHFLOWS
FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH DECEMBER 31, 2013
     
  FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH DECEMBER 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net (loss)   $ (919,123 )
Adjustments to reconcile net (loss ) to net cash (used in )        
operating activities:        
Depreciation     228  
Preferred stock issued for services     24,998  
Common stock issued for services     195,412  
Options issued for services     612,387  
Changes in operating assets and liabilities        
Prepaid expense     (800 )
Accrued payroll tax     1,846  
Net Cash (Used in) Operating Activities     (85,052 )
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Payments for equipment     (1,522 )
Net Cash (Used in) Investing Activities     (1,522 )
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Issuance of preferred stock for cash     150,000  
Proceeds from short term borrowing-related party     17,053  
         
Net Cash Provided by Financing Activities     167,053  
         
NET INCREASE IN CASH     80,479  
         
CASH AT BEGINNING OF PERIOD     —    
         
CASH AT END OF YEAR   $ 80,479  
         
         
NON-CASH FINANCING ACTIVITIES        
Repayment of short term borrowing - related party through issuance of preferred stock   $ 17,053  
The report on the financial statements and accompanying notes are an integral part of these financial statements.

 

 

Statement of Shareholder Equity from April 24, 2013 to December 31, 2013

 

MASSROOTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH DECEMBER 31, 2013
                                                                             

     

 
     

Preferred

Stock

Shares

     

Preferred

Stock

Amount

     

Common

Stock

Shares

     

Common

Stock

Amount

     

Preferred Stock

to be Issued

Shares

     

Preferred Stock

to be Issued

Amount

     

Common Stock

to be Issued

Shares

     

Common Stock

to be Issued

Amount

     

Additional

Paid-in

capital

      Retained Deficit       Total stockholders equity (deficit)  
                                                                                         
                                                                                         
Balances as of April 24, 2013     —       $ —         —       $ —         —       $ —         —       $ —       $ —       $ —       $ —    
Preferred stock issued for cash     —         —         —         —         18       18       —         —         149,982       —         150,000  
Preferred stock issued for services     —         —         —         —         3       3                   24,995       —         24,998  
Retroactive adjustment for subsequent conversion (Note 8)                             (21 )     (21 )     6,273,052       6,273       (6,252 )            
Common stock issued for repayment of short term borrowing and services     —         —         —         —         —         —         7,616,625       7,617       204,848       —         212,465  
Option issued for services     —         —         —         —         —         —         —         —         612,387       —         612,387  
Net Loss for the period ended December 31, 2013     —         —         —         —         —         —         —         —         —         (919,123 )     (919,123 )
Balances as of December 31, 2013     —         —         —         —         (0 )     (0 )     13,889,677       13,890       985,960       (919,123 )     80,727  
                                                                                         

The report on the financial statements and accompanying notes are an integral part of these financial statements.                                                

 

 

Note 1: Critical Accounting Policies and Estimates

Basis of Presentation

The financial statements include the accounts of MassRoots, Inc. under the accrual basis of accounting.

Management’s Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The financial statements above reflect all of the costs of doing business..

Deferred Taxes

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, the Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents.

Revenue Recognition

The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when services are realized or realizable and earned less estimated future doubtful accounts. The Company considers revenue realized or realizable and earned when all of the following criteria are met:

(i) persuasive evidence of an arrangement exists,
(ii) the services have been rendered and all required milestones achieved,
(iii) the sales price is fixed or determinable, and
(iv) Collectability is reasonably assured.

Cost of Sales 

The Company’s policy is to recognize cost of sales in the same manner in conjunction with revenue recognition, when the costs are incurred. Cost of sales includes the costs directly attributable to revenue recognition. Selling, general and administrative expenses are charged to expense as incurred.

Comprehensive Income (Loss)

The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the periods covered in the financial statements.

Loss Per Share

Net loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. Net loss per share is not presented because the Company has no shares issued at December 31, 2013.

Risk and Uncertainties

The Company is subject to risks common to companies in the service industry, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.

Stock-Based Compensation

The Company accounts for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.

Fair Value for Financial Assets and Financial Liabilities

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
   
Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
   
Level 3 Pricing inputs that are generally observable inputs and not corroborated by market data.

 

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The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expense and accrued payroll tax approximate their fair values because of the short maturity of these instruments.

The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value on December 31, 2013 nor gains or losses are reported in the statements of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the for the period ended December 31, 2013.

Recent Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements up to ASU 2014-05, and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

Note 2: Income Taxes

Due to the operating loss and the inability to recognize an income tax benefit there is no provision for current or deferred Federal or state income taxes for the period ended December 31, 2013.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for Federal and state income tax purposes.

The Company’s total deferred tax asset, calculated using Federal and state effective tax rates, as of December 31, 2013 is as follows:

 

Total Deferred Tax Asset  $         29,240
Valuation Allowance            (29,240)
Net Deferred Tax Asset                  -   

 

The reconciliation of income taxes computed at the Federal statutory income tax rate to total income taxes for the period from inception through December 31, 2013 is as follows:

 

    2013
Income tax computed at the Federal statutory rate   34%
State income tax, net of Federal tax benefit   0%
Total      34%
Valuation allowance   -34%
Total deferred tax asset   0%

 

Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance. The valuation allowance increased by approximately $29,240 for the period ended December 31, 2013.

As of December 31, 2013, the Company had a Federal and state net operating loss carry forward in the amount of approximately $86,000, which expires in the tax year 2033.

Note 3: Capital Stock

On March 18, 2014, the Company entered into a Plan of Reorganization with its shareholders in which the following was effected: (i) on March 21, 2014, the Company’s Certificate of Incorporation was amended to allow for the issuance of 200,000,000 shares of the Company’s common stock; (ii) on March 24, 2014, each of the Company’s preferred shareholders converted their shares into common stock on a one for one basis, and (iii) on March 24, 2014, each of the Company’s shareholders surrendered their shares of the Company’s common stock in exchange for the pro-rata distribution of 36,000,000 newly issued shares of Company’s common stock, based on the percentage of the total shares of common stock held by the shareholder immediately prior to the exchange (the “Exchange”).

All common stock and per share data for all periods presented in these financial statements have been restated to give effect to the Exchange.

The Company is currently authorized to issue 21 Series A Preferred shares at $1.00 par value per share with 1:1 conversion and voting rights. As of December 31, 2013, there were zero shares of Series A Preferred shares issued and outstanding.

On October 7, 2013, the Company entered into an agreement to issue as compensation for services provided a total of 2.94 Series A Preferred shares (895,715 common shares post-Exchange) with a market value of $24,998 to Douglas Leighton for financial consulting services. The market value of the shares approximated the fair market value of services received. These shares were recorded as Common Stock to be issued as of December 31, 2013.

On October 7, 2013, the Company entered into an agreement to issue 5.88 Series A Preferred Shares (1,791,430 common shares post-Exchange) to Bass Point Capital, LLC in exchange for a $50,000 capital investment. These shares were recorded as Common Stock to be issued as of December 31, 2013.

On October 7, 2013, the Company entered into an agreement to issue 5.88 Series A Preferred Shares (1,791,430 common shares post-Exchange) to WM18 Finance LTD in exchange for a $50,000 capital investment. These shares were recorded as Common Stock to be issued as of December 31, 2013.

On December 7, 2013, the Company entered into an agreement to issue 5.89 Series A Preferred Shares (1,794,477 common shares post-Exchange) to Rother Investments, LLC in exchange for a $50,000 capital investment. These shares were recorded as Common Stock to be issued as of December 31, 2013.

The Company is currently authorized to issue 200,000,000 common shares at $0.001 par value per share. As of December 31, 2013, there were zero shares of common stock issued and outstanding, 13,889,677 shares of common stock to be issued. Additionally, the Company has issued options to acquire 72.06 shares (21,954,160 shares post-Exchange) of common stock to employees in exchange for services.

On April 24, 2013, the Company approved the issuance of 15.25 shares (4,646,141 shares post-Exchange) of common stock to Isaac Dietrich to repay $17,053 short term borrowing from him. Service expense of $112,550 was recognized due to the fair value of the shares in excess of the value of the short term borrowing. These shares were recorded as Common Stock to be issued as of December 31, 2013.

On April 24, 2013, the Company approved the issuance of 3.75 shares (1,142,494 shares post-Exchange) of common stock to Hyler Fortier in exchange for his services. The market value of the issued shares is $31,870 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued as of December 31, 2013.

Table of Contents 43  
 

On April 24, 2013, the Company approved the issuance of 3.00 shares (913,995 shares post-Exchange) of common stock to Stewart Fortier in exchange for his services. The market value of the issued shares is $25,496 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued as of December 31, 2013.

On April 24, 2013, the Company approved the issuance of 3.00 shares (913,995 shares post-Exchange) of common stock to Tyler Knight in exchange for his services. The market value of the issued shares is $25,496 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued as of December 31, 2013.

Note 4: Stock Options

During the year ended December 31, 2013, the Company issued 72.06 stock options to directors and officers of the Company.  42.81 stock options were issued as part of the employment agreement with the Company’s President and CEO Isaac Dietrich.  The stock option allows Isaac Dietrich to purchase 42.81 shares of the Company’s common stock at $1.00 per share per each individual option. The options will vest through January 1, 2017. 9.0 stock options were issued as part of the employment agreement with the Company’s Chief Marketing Officer Tyler Knight.  The stock option allows Tyler Knight to purchase 9.0 shares of the Company’s common stock at $1.00 per share per each individual option. The options will vest through January 1, 2017.  9.0 stock options were issued as part of the employment agreement with the Company’s Chief Technology Officer Stewart Fortier.  The stock option allows Stewart Fortier to purchase 9.0 shares of the Company’s common stock at $1.00 per share per each individual option.  The options will vest through January 1, 2017. 11.25 stock options were issued as part of the employment agreement with the Company’s Chief Operations Officer Hyler Fortier.  The stock option allows Hyler Fortier to purchase 11.25 shares of the Company’s common stock at $1.00 per share per each individual option. The options will vest through January 1, 2017. The Company did not grant any registration rights with respect to any shares of common stock issuable upon exercise of the options.

During the period ended December 31, 2013, the Company recorded an expense of $612,387 equal to the estimated fair value of the options at the date of grants. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 1.73% risk-free interest, 0% dividend yield, 200% volatility, and expected life of 7 years for Isaac Dietrich’s, Tyler Knight’s, Hyler Fortier’s and Stewart Fortier’s options.

No other stock options have been issued or exercised.

Note 5: Fixed Assets

Fixed assets were comprised of the following as of December 31, 2013. Depreciation is calculated using the straight-line method over a 5 year period.

 

  December 31  
Cost:      
Computers   1,522  
Total   1,522  
Less: Accumulated depreciation   228  
Property and equipment, net $ 1,294  
       
       

 

Note 6: Going Concern and Uncertainty

The Company has suffered losses from operations since inception. In addition, the Company has yet to generate an internal cash flow from its business operations. These factors raise substantial doubt as to the ability of the Company to continue as a going concern.

Management’s plans with regard to these matters encompass the following actions: 1) obtain funding from new investors to alleviate the Company’s working deficiency, and 2) implement a plan to generate sales. The Company’s continued existence is dependent upon its ability to translate its vast user base into sales. However, the outcome of management’s plans cannot be ascertained with any degree of certainty. The accompanying financial statements do not include any adjustments that might result from the outcome of these risks and uncertainties.

Note 7: Development Stage Company

The Company is in the development stage as of December 31, 2013 and to date has had no significant operations. Recovery of the Company assets is dependent on future events, the outcome of which is indeterminable. In addition, successful completion of the Company’s development program and its transition, ultimately, to attaining profitable operations is dependent upon obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company’s cost structure.

Note 8: Subsequent Events

In accordance with the vesting agreements of Isaac Dietrich, Tyler Knight, Hyler Fortier and Stewart Fortier, upon the closure of the Series A Preferred Capital Raise on January 1, 2014, acceleration of the vesting schedules occurred. This caused full ownership interest of 58.06 (17,688,850 post-Exchange) common stock shares to be issued to Isaac Dietrich, 15.00 (4,569,975 post-Exchange) common stock shares to be issued to Hyler Fortier, 12.00 (3,655,980 post-Exchange) common stock shares to be issued to Stewart Fortier and 12.00 (3,655,980 post Exchange) common stock shares to be issued to Tyler Knight.

On March 18, 2014, the Company entered into a Plan of Reorganization with its shareholders in which the following was effected: (i) on March 21, 2014, the Company’s Certificate of Incorporation was amended to allow for the issuance of 200,000,000 shares of the Company’s common stock; (ii) on March 24, 2014, each of the Company’s preferred shareholders converted their shares into common stock on a one for one basis, and (iii) on March 24, 2014, each of the Company’s shareholders surrendered their shares of the Company’s common stock in exchange for the pro-rata distribution of 36,000,000 newly issued shares of Company’s common stock, based on the percentage of the total shares of common stock held by the shareholder immediately prior to the exchange.

The Company evaluated subsequent events through the date its financial statements were issued on March 18, 2014. The Company is in the development stage as of December 31, 2013 and to date has had no significant operations. Recovery of the Company assets is dependent on future events, the outcome of which is indeterminable. In addition, successful completion of the Company’s development program and its transition, ultimately, to attaining profitable operations is dependent upon obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company’s cost structure.

Table of Contents 44  
 

 

MARCH 31, 2014 – FINANCIAL STATEMENTS

  Page
BALANCE SHEETS 46
STATEMENT OF OPERATIONS 47
STATEMENT OF CASH FLOWS 48
STATEMENT OF STOCKHOLDERS’ EQUITY 49
NOTES TO THE FINANCIAL STATEMENTS 51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents 45  
 

 

Balance sheet for the quarter-ended March 31, 2014

MASSROOTS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
                 
      (Unaudited)       (Audited)  
      March 31, 2014       December 31, 2013  
                 
ASSETS                
                 
CURRENT ASSETS                
   Cash   $ 326,876     $ 80,479  
   Prepaid expense     1,200       800  
      TOTAL CURRENT ASSETS     328,076       81,279  
                 
FIXED ASSETS                
   Computer and office equipment     7,753       1,522  
   Accumulated depreciation     (460 )     (228 )
      NET FIXED ASSETS     7,293       1,294  
                 
TOTAL ASSETS     335,368       82,573  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
CURRENT LIABILITIES                
   Accounts payable     5,046       —    
TOTAL CURRENT LIABILITIES     5,046       —    
                 
LONG-TERM LIABILITY                
   Convertible debentures, net of $130,442 discount     138,658       —    
   Accrued payroll tax     —         1,846  
      TOTAL LIABILITIES     143,704       1,846  
                 
STOCKHOLDERS' EQUITY                
                 
Preferred series A stock, $1 par value, 21 shares authorized; 0 shares issued and outstanding     —         —    
Common stock, $0.001 par value, 200,000,000 shares authorized; 0 shares issued and outstanding     —         —    
Common stock to be issued     38,059       13,890  
Common stock - warrants     66,712       —    
   Additional paid in capital     1,792,713       985,960  
   Common stock subscription receivable     (12,272 )     —    
   Debenture subscription receivable     (87,600 )     —    
  Deficit accumulated through the development stage     (1,605,947 )     (919,123 )
      TOTAL STOCKHOLDERS' EQUITY     191,665       80,727  
                 
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 335,368     $ 82,573  
                 
The accompanying notes are an integral part of these financial statements.

Table of Contents 46  
 

Statement of Operations for the quarter-ended March 31, 2014

MASSROOTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE 3 MONTHS ENDED MARCH 31, 2014 AND FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH MARCH 31, 2014
(UNAUDITED)
         
      FOR THE 3 MONTHS ENDED MARCH 31, 2014       FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH MARCH 31, 2014  
                 
                 
ADVERTISING REVENUE   $ 995     $ 1,465  
                 
COST OF GOODS SOLD     690       690  
                 
GROSS PROFIT     305       775  
                 
GENERAL AND ADMINISTRATIVE EXPENSES:                
Amortization of discount on debentures payable     1,263       1,263  
Depreciation     233       461  
Independent contractor expense     22,067       55,930  
Legal expenses     9,200       13,875  
Payroll and related expense     32,908       61,411  
Preferred stock issued for services     —         24,998  
Common stock issued for services     —         195,412  
Options issued for services     —         612,387  
Warrants issued for services     555,598       555,598  
Other general and administrative expenses     61,501       81,029  
Total General and administrative expenses     682,770       1,602,364  
                 
(LOSS) FROM OPERATIONS     (682,465 )     (1,601,589 )
                 
                 
INCOME (LOSS) BEFORE INCOME TAXES     (682,465 )     (1,601,589 )
                 
PROVISION FOR INCOME TAXES     —         —    
                 
NET (LOSS)   $ (682,465 )   $ (1,601,589 )
                 
The accompanying notes are an integral part of these financial statements.        


Table of Contents 47  
 

Statement of Cash Flows for the quarter-ended March 31, 2014

MASSROOTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASHFLOWS
FOR THE 3 MONTHS ENDED MARCH 31, 2014 AND FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH MARCH 31, 2014
(UNAUDITED)
    FOR THE 3 MONTHS ENDED MARCH 31, 2014   FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH MARCH 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net (loss)   $ (682,465 )   $ (1,601,589 )
Adjustments to reconcile net (loss ) to net cash (used in )                
operating activities:                
Amortization of discounts on debentures payable     1,263       1,263  
Depreciation     233       461  
Preferred stock issued for services     —         24,998  
Common stock issued for services     —         195,412  
Options issued for services     —         612,387  
Warrants issued for services     555,598       555,598  
Changes in operating assets and liabilities                
Prepaid expense     (400 )     (1,200 )
Accounts payable     5,046       5,046  
Accrued payroll tax     (1,846 )        
Net Cash (Used in) Operating Activities     (122,571 )     (207,624 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Payments for equipment     (6,231 )     (7,753 )
Net Cash (Used in) Investing Activities     (6,231 )     (7,753 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Issuance of convertible Debentures for cash     181,500       181,500  
Issuance of common stock for cash     193,700       193,700  
Issuance of preferred stock for cash     —         150,000  
Proceeds from short term borrowing-related party     —         17,053  
                 
Net Cash Provided by Financing Activities     375,200       542,253  
                 
NET INCREASE IN CASH     246,398       326,876  
                 
CASH AT BEGINNING OF PERIOD     80,479       —    
                 
CASH AT END OF YEAR   $ 326,876     $ 326,876  
                 
NON-CASH FINANCING ACTIVITIES                
Repayment of short term borrowing - related party through issuance of preferred stock   $ —       $ 17,053  
                 
The accompanying notes are an integral part of these financial statements.        

 

Table of Contents 48  
 

Statement of Stockholders Equity for the quarter-ended March 31, 2014

MASSROOTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH MARCH 31, 2014
                                                                                     

     

     

         
      Preferred Shares      

Preferred

Stock

Amount

     

Common

Shares

      Common Amount      

Pref. Stock

to be Issued

Shares

     

Pref. Stock

to be Issued

Amount

     

Common

to be Issued

Shares

     

Common

to be Issued

Amount

      Common Stock Warrants      

Add.

Paid-in

capital

      Debenture Subscription Receivable       Common Stock Subscription Receivable       Retained Deficit       Total stockholders equity (deficit)  
                                                                                                                 
                                                                                                                 
Balances as of April 24, 2013     —       $ —         —       $ —         —       $ —         —       $ —               $ —                   $ —       $ —    
Preferred stock issued for cash     —         —         —         —         18       18       —         —               149,982                   —         150,000  
Preferred stock issued for services     —         —         —         —         3       3                         24,995                   —         24,998  
Retroactive adjustment for subsequent conversion.                             (21 )     (21 )     6,273,052       6,273             (6,252 )                        
Common stock issued for repayment of short term borrowing and services     —         —         —         —         —         —         7,616,625       7,617             204,848                   —         212,465  
Option issued for services     —         —         —         —         —         —         —         —               612,387                   —         612,387  
Net Loss for the period ended December 31, 2013     —         —         —         —         —         —         —         —               —                     (919,123 )     (919,123 )
Balances as of December 31, 2013     —         —         —         —         (0 )     (0 )     13,889,677       13,890             985,960                   (919,123 )     80,727  
                                                                                                                 
Accrued dividend on preferred stock                                                                               (4,358 )     (4,358 )
Conversion of dividend into common stock                                         156,293       156             4,202                         4,358  
Exercise of options                                           21,954,160       21,954             (21,882 )           (72 )           —    
Issuance of common stock for cash                                           2,059,000       2,059             203,841             (12,200 )           193,700  

 

Table of Contents 49  
 

 

MASSROOTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH MARCH 31, 2014
                                                                                     

     

     

         
      Preferred Shares      

Preferred

Stock

Amount

     

Common

Shares

      Common Amount      

Pref. Stock

to be Issued

Shares

     

Pref. Stock

to be Issued

Amount

     

Common

to be Issued

Shares

     

Common

to be Issued

Amount

      Common Stock Warrants      

Add.

Paid-in

capital

      Debenture Subscription Receivable       Common Stock Subscription Receivable       Retained Deficit       Total stockholders equity (deficit)  
Issuance of warrants for services                                                           555,598                         555,598  
Warrants issued with common stock                                                     66,712       (66,712 )                      
Debenture subscription receivable                                                                 (87,600 )                 (87,600 )
Intrinsic value from beneficial conversion feature                                                           131,705                         131,705  
Adjustment due to rounding error                                         (130 )                                         —    
Net Loss for the period ended March 31, 2014                                                               $           (682,465 )     (682,465 )
Balances as of March 31, 2014     —       $ —         —       $ —         —       $ —         38,059,000     $ 38,059     $ 66,712     $ 1,792,713       (87,600 )   $ (12,272 )   $ (1,605,947 )   $ 191,665  
                                                                                                                 

 

The accompanying notes are an integral part of these financial statements.                

Table of Contents 50  
 

                                                       

Notes to the Financial Statements – March 31, 2014

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

MassRoots, Inc. (the “Company”) is a digital hub for the cannabis community. Through its mobile applications, websites and other digital properties, MassRoots enables its users to share their experiences, connect with like-minded people and discover quality content on the web. The Company was incorporated in the State of Delaware on April 24, 2013.

MassRoots’ primary focus during fiscal year 2014 was to build out its digital infrastructure to support tens of thousands of simultaneous users and facilitate millions of interactions; as of March 31, 2013, MassRoots had 25,000 monthly active users.

 

MassRoots’ primary source of revenue is advertising from businesses, brands and non-profits. Its secondary source of income is merchandise sales.

 

Basis of Presentation

The financial statements include the accounts of MassRoots, Inc. under the accrual basis of accounting.

 

Management’s Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The financial statements above reflect all of the costs of doing business.

 

Deferred Taxes

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

 

Cash and Cash Equivalents - For purposes of the Statement of Cash Flows, the Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents.

 

Revenue Recognition – The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when services are realized or realizable and earned less estimated future doubtful accounts. The Company considers revenue realized or realizable and earned when all of the following criteria are met:

 

(i) persuasive evidence of an arrangement exists,

 

(ii) the services have been rendered and all required milestones achieved,

 

(iii) the sales price is fixed or determinable, and

 

(iv) Collectability is reasonably assured.

 

MassRoots primarily generates revenue by charging businesses to advertise on the network. MassRoots has the ability to target advertisements directly to a clients’ target audience, based on their location, on their mobile devices. All advertising services take between a few hours to up to one month to complete, unless otherwise noted.

 

MassRoots’ secondary source of income is merchandise sales. The objective with the sales is not to generate large profit margins, but to help offset the cost of marketing. Each t-shirt, sticker and jar MassRoots sells will likely lead to more downloads and active users.

 

 

Cost of Sales  - The Company’s policy is to recognize cost of sales in the same manner in conjunction with revenue recognition, when the costs are incurred. Cost of sales includes the costs directly attributable to revenue recognition. Selling, general and administrative expenses are charged to expense as incurred.

 

Comprehensive Income (Loss) - The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the periods covered in the financial statements.

 

Loss Per Share - Net loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. Net loss per share is not presented because the Company has no shares issued at March 31, 2014.

 

Risk and Uncertainties - The Company is subject to risks common to companies in the service industry, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.

 

Convertible Debentures - If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense, over the life of the debt using the effective interest method.

 

Stock-Based Compensation - The Company accounts for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.

Table of Contents 51  
 

 

Fair Value for Financial Assets and Financial Liabilities- The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
   
Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
   
Level 3 Pricing inputs that are generally observable inputs and not corroborated by market data.

 

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expense and accrued payroll tax approximate their fair values because of the short maturity of these instruments.

 

The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value on March 31, 2014, nor gains or losses are reported in the statements of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the period ended March 31, 2014.

 

Recent Accounting Pronouncements

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements up to ASU 2014-05, and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

 

 

NOTE 2 - INCOME TAXES

 

Due to the operating loss and the inability to recognize an income tax benefit there is no provision for current or deferred federal or state income taxes for the three months ended March 31, 2014.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes.

 

The Company’s total deferred tax asset, calculated using federal and state effective tax rates, as of March 31, 2014 is as follows:

 

Total Deferred Tax Asset  $         72,000
Valuation Allowance            (72,000)
Net Deferred Tax Asset                  -   

 

The reconciliation of income taxes computed at the federal statutory income tax rate to total income taxes for the period ended March 31, 2014 is as follows:

 

    2014
Income tax computed at the federal statutory rate   34%
State income tax, net of federal tax benefit   0%
Total    34%
Valuation allowance   -34%
Total deferred tax asset   0%

 

Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance. The valuation allowance increased by approximately $43,000 for the three months ended March 31, 2014.

 

As of March 31, 2014, the Company had a federal and state net operating loss carry forward in the amount of approximately $212,000, which expires in the tax year 2034.

 

NOTE 3 - CAPITAL STOCK

 

On March 18, 2014, the Company entered into a Plan of Reorganization with its shareholders in which the following was effected: (i) on March 21, 2014, the Company’s Certificate of Incorporation was amended to allow for the issuance of 200,000,000 shares of the Company’s common stock; (ii) on March 24, 2014, each of the Company’s preferred shareholders converted their shares into common stock on a one for one basis, and (iii) on March 24, 2014, each of the Company’s shareholders surrendered their shares of the Company’s common stock in exchange for the pro-rata distribution of 36,000,000 newly issued shares of Company’s common stock, based on the percentage of the total shares of common stock held by the shareholder immediately prior to the exchange (the “Exchange”).

 

The Company is currently authorized to issue 21 Series A preferred shares at $1.00 par value per share with 1:1 conversion and voting rights. As of March 31, 2014, there were zero shares of Series A preferred share issued and outstanding.

 

The Company is currently authorized to issue 200,000,000 common shares at $0.001 par value per share. As of March 31, 2014, there were zero shares of common stock issued and outstanding, 38,059,000 shares of common stock to be issued. Additionally, the Company has issued options to acquire 72.06 shares (21,954,160 shares post-exchange) of common stock to employees in exchange for services.

Table of Contents 52  
 

 

On January 1, 2014, the directors and officers exercised all of then outstanding 72.06 stock options and acquired 72.06 shares of common stock at $1 per share. These 72.06 shares of common stock were exchanged for 21,954,160 shares of common stock during the Exchange. As of March 31, 2014, the Company has not received $72.06 and it was recorded as common stock subscription receivable.

 

On March 18, 2014, immediately prior to the exchange, the Company converted $4,358 accrued dividend from Series A preferred shares into 0.513 share of common stock, which was exchanged for 156,293 shares of common stock during the Exchange.

 

On March 24, 2014, the Company issued 2,059,000 shares of common stock in exchange for $205,900 cash. As of March 31, 2014, $12,200 has not been received by the Company and was recorded as common stock subscription receivable.

 

NOTE 4 – STOCK WARRANTS

 

On March 24, 2014, the Company issued warrants to a third party for the purchase of 4,050,000 and 2,375,000 shares of common stock, at an exercise price of $0.001 and $0.4 per share, respectively. The warrants may be exercised any time after issuance through and including the third (3 rd ) anniversary of its original issuance. The Company recorded an expense of $555,598 equal to the estimated fair value of the warrants at the date of grants. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 0.75% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 3 years

 

On March 24, 2014, in connection to the issuance of convertible debentures of $269,100 to certain investors, which are convertible into shares of the Company’s common stock at $0.1 per share, the Company granted to the same investors three−year warrants to purchase an aggregate of 1,345,500 shares of the Company’s common stock at $0.4 per share. The warrants may be exercised any time after the issuance through and including the third (3 rd ) anniversary of its original issuance. See Note 5 for further discussion.

 

On March 24, 2014, in connection to the issuance of 2,059,000 shares of common stock, the Company granted to the same investors three−year warrants to purchase an aggregate of 1,029,500 shares of the Company’s common stock at $0.4 per share. The warrants may be exercised any time after the issuance through and including the third (3 rd ) anniversary of its original issuance. The warrants have a fair market value of $66,712. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 0.75% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 3 years

 

 

Stock warrants outstanding and exercisable on March 31, 2014 are as follows:

  Exercise Price per Share   Shares Under warrants   Remaining Life in Years
Outstanding        
  $0.001   4,050,000   3
  $0.4                                   4,750,000   3
           
Exercisable        
  $0.001   4,050,000   3
  $0.4                                   4,750,000   3

 

 

No other stock warrants have been issued or exercised during the three months ended March 31, 2014.

  

NOTE 5 – CONVERTIBLE DEBENTURES

 

On March 24, 2014, the Company issued several convertible debentures to certain accredited investors. The total amount of the debentures is $269,100 and matures on March 24, 2016 with zero percent interest rate. The debentures are convertible into shares of the Company’s common stock at $0.1 per share. In addition, the Company granted to the same investors three−year warrants to purchase an aggregate of 1,345,500 shares of the Company’s common stock at $0.4 per share. As of March 31, 2014, $87,600 funds from the debentures have not been received by the Company and was recorded as debenture subscription receivable.

 

The debentures were discounted in the amount of $131,705 due to the intrinsic value of the beneficial conversion option and relative fair value of the warrants. As of March 31, 2014, the aggregate carrying value of the debentures was $138,658, net of debt discounts of $132,968. The Company recorded amortization of debt discount in amount of $1,263 during the three months ended March 31, 2014.

 

NOTE 6 - FIXED ASSETS

 

Fixed assets were comprised of the following as of March 31, 2014 and December 31, 2013, respectively. Depreciation is calculated using the straight-line method over a 5 year period.

 

  March 31, 2014 December 31, 2013  
Cost:        
Computers   5,571 1,522  
Office equipment   2,182    
Total   7,753 1,522  
Less: Accumulated depreciation   460 228  
Property and equipment, net $ 7,293 1,294  
         
         

 

 

NOTE 7 – GOING CONCERN AND UNCERTAINTY

 

The Company has suffered losses from operations since inception. In addition, the Company has yet to generate an internal cash flow from its business operations. These factors raise substantial doubt as to the ability of the Company to continue as a going concern.

 

Management’s plans with regard to these matters encompass the following actions: 1) obtain funding from new investors to alleviate the Company’s working deficiency, and 2) implement a plan to generate sales. The Company’s continued existence is dependent upon its ability to translate its vast user base into sales. However, the outcome of management’s plans cannot be ascertained with any degree of certainty. The accompanying financial statements do not include any adjustments that might result from the outcome of these risks and uncertainties.

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NOTE 8 - DEVELOPMENT STAGE COMPANY

 

The Company is in the development stage as of March 31, 2014 and to date has had no significant operations. Recovery of the Company assets is dependent on future events, the outcome of which is indeterminable. In addition, successful completion of the Company’s development program and its transition, ultimately, to attaining profitable operations is dependent upon obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company’s cost structure.

 

 

NOTE 9 - SUBSEQUENT EVENTS

 

On June 6, 2014, MassRoots established the 2014 Employee Incentive Plan (the “Plan”), which gave the Board of Directors the authority to allocate 4,000,000 shares of common stock to current and future MassRoots employees, directors, and consultants.

 

On June 6, 2014, pursuant to the Plan, the Board of Directors granted Vincent "Tripp" Keber, III and Ean Seeb 250,000 shares and options to purchase 750,000 shares at a $0.10 strike price over a period of three years. Under the terms of the agreement, 250,000 options will begin vesting monthly for a period of one year on October 1, 2014; 250,000 options will begin vesting monthly the later of the company obtaining 830,000 users or October 1, 2015; 250,000 options will vest on the later of the Company obtaining 1,080,000 users or October 1, 2016.

 

On June 6, 2014, pursuant to the Plan, the Board of Directors granted Sebastian Stant 250,000 shares and options to purchase 550,000 shares at a $0.10 strike price for his services as the Company's Lead Web Developer. Under the terms of the agreement, 250,000 options will vest upon the company obtaining 250,000 users; 150,000 options will vest upon the company obtaining 500,000 users; and 150,000 options will vest upon the company obtaining 750,000 users.

 

On June 6, 2014, pursuant to the Plan, the Board of Directors granted Jesus Quintero 100,000 shares for his services as the Company's Chief Financial Officer.

 

The Company evaluated subsequent events through the date its financial statements were issued on June 9, 2014.

 

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LEGAL MATTERS

 

The validity of the securities offered by this prospectus will be passed upon for us by Thompson Hine LLP. 

 

EXPERTS

The financial statements of MassRoots, Inc. as of December 31, 2013 and March 31, 2014 have been included herein and in this prospectus in reliance upon the reports of Bongiovanni & Associates, P A, certified public accountants, for the periods as of December 31, 2013 and March 31, 2014 and upon the authority of said firm as experts in accounting and auditing. The audit report covering the December 31, 2013 and March 31, 2014 financial statements contains an explanatory paragraph that states that MassRoots, Inc. has suffered net losses since inception from operations and this raises substantial doubt about the Company’s ability to continue as a going concern.

 

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-1 under the Securities Act with the SEC with respect to the shares of common stock we are offering by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information pertaining to us and our common stock, you should refer to the registration statement and the exhibits and schedules filed with the registration statement. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document.

We are required to file annual, quarterly and current reports and other information with the SEC. You can read and copy any of this information at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 on official business days during the hours of 10:00 a.m. to 3:00 p.m. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. This information is also available from the SEC’s website at http://www.sec.gov. We will also gladly send any filing to you upon your written request to Isaac Dietrich, our Chief Executive Officer, at 6525 Gunpark Drive, Ste. 370 #150, Boulder, CO 80301.

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This prospectus is part of a registration statement we filed with the SEC. You should rely only on the information or representations contained in this prospectus. We have not authorized anyone to provide information other than that provided in this prospectus. We are not making an offer of these securities in any jurisdiction or state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of the document.

 

 

 

MASSROOTS, INC.

 

 

50,400,000 Shares of Common Stock,

 

 

 

 

 

 

PROSPECTUS

 

 

 

 

 

June 13, 2014

 

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PART II – INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth expenses (estimated except for the SEC registration fees) in connection with the offering described in the registration statement:

 

SEC registration fees $649
Costs of printing $50
Legal fees and expenses $30,000
Accountants fees and expenses $11,500
Miscellaneous    $500
TOTAL $42,699

 

Item 14. Indemnification of Directors and Officers.

The Amended and Restated Certificate of Incorporation of MassRoots, Inc. (the “Company”) provides that:

 

·        The Company shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (an "Indemnified Person") who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that such person, or a person for whom such person is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys" fees) reasonably incurred by such Indemnified Person in such Proceeding. Notwithstanding the preceding sentence, the Corporation shall be required to indemnify an Indemnified Person in connection with a Proceeding (or part thereof) commenced by such Indemnified Person only if the commencement of such Proceeding (or part thereof) by the Indemnified Person was authorized in advance by the Board of Directors.

·        The Corporation shall pay the expenses (including attorneys' fees) incurred by an Indemnified Person in defending any Proceeding in advance of its final disposition, provided, however that, to the extent required by law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the Indemnified Person to repay all amounts advanced if it should be ultimately determined that the Indemnified Person is not entitled to be indemnified under this Article or otherwise.

·       If a claim for indemnification or advancement of expenses under this Article is not paid in full within thirty (30) days after a written claim therefor by the Indemnified Person has been received by the Corporation, the Indemnified Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the Indemnified Person is not entitled to the requested indemnification or advancement of expenses under applicable law.

Any indemnification as outlined above is not exclusive of any other rights to indemnification afforded by Delaware law.

 

Item 15. Recent Sales of Unregistered Securities.

Each of the below transactions were exempt from the registration requirements of the Securities Act in reliance upon Rule 701 promulgated under the Securities Act, Section 4(a)(2) of the Securities Act or Regulation D promulgated under the Securities Act.

Since the Company’s inception on April 24, 2013 through March 18, 2014, the Company issued and/or sold the following unregistered securities:

On April 24, 2013, the Company approved the issuance of 15.25 shares of common stock (4,569,970 shares post-Exchange, as defined herein) to the Company’s CEO and Chairman, Isaac Dietrich, to repay $17,053 short term borrowing from him and for services provided. In addition, 42.81 stock options were issued as part of the employment agreement with the Mr. Dietrich. The stock option allows Mr. Dietrich to purchase 42.81 shares of the Company’s common stock (13,042,695 shares post-Exchange) at $1.00 per share per each individual option. The options will vest through January 1, 2017. Each option issued contained an acceleration clause which was triggered upon the closure of the financing on January 1, 2014 that caused all options to vest immediately. On January 1, 2014, Mr. Dietrich exercised all options held at that time.
On April 24, 2013, the Company approved the issuance of 3.75 shares of common stock (1,142,493 shares post-Exchange) to the Company’s Chief Operations Officer, Hyler Fortier, in exchange for her services. 11.25 stock options were also issued as part of the employment agreement with Ms. Fortier. The stock options allow Ms. Fortier to purchase 11.25 shares of the Company’s common stock (3,427,478 shares post-Exchange) at $1.00 per share per each individual option. The options will vest through January 1, 2017. Each option issued contained an acceleration clause which was triggered upon the closure of the financing on January 1, 2014 that caused all options to vest immediately. On January 1, 2014, Ms. Fortier exercised all options held at that time.
On April 24, 2013, the Company approved the issuance of 3.00 shares of common stock (913,994 shares post-Exchange) to the Company’s Chief Technology Officer, Stewart Fortier, in exchange for his services. 9.0 stock options were issued as part of the employment agreement with Mr. Fortier. The stock options allow Mr. Fortier to purchase 9.0 shares of the Company’s common stock (2,741,982 shares post-Exchange) at $1.00 per share per each individual option. The options will vest through January 1, 2017. Each option issued contained an acceleration clause which was triggered upon the closure of the financing on January 1, 2014 that caused all options to vest immediately. On January 1, 2014, Mr. Fortier exercised all options held at that time.
On April 24, 2013, the Company approved the issuance of 3.00 shares of common stock (913,994 shares post-Exchange) to Tyler Knight in exchange for his services. 9.0 stock options were also issued as part of the employment agreement with Mr. Knight. The stock options allow Tyler Knight to purchase 9.0 shares of the Company’s common stock (2,741,982 shares post-Exchange) at $1.00 per share per each individual option. The options will vest through January 1, 2017. Each option issued contained an acceleration clause which was triggered upon the closure of the financing on January 1, 2014 that caused all options to vest immediately. On January 1, 2014, Mr. Knight exercised all options held at that time.
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On October 7, 2013, the Company entered into an agreement to issue as compensation for services provided a total of 2.94 Series A Preferred shares (895,715 common shares shares post-Exchange) with a market value of $24,998 to Douglas Leighton for financial consulting services. These shares were issued on January 1, 2014.
On October 7, 2013,we entered into agreements to issue 5.88, 5.88, 5.89 Series A Preferred Shares (1,791,430, 1,791,430 and 1,794,516 common shares post Exchange) to Bass Point Capital, LLC, WM18 Finance LTD, and Rother Investments, LLC, respectively, in exchange for $50,000 capital investments from each. These shares were subsequently issued on the closing date of January 1, 2014.
On March 18, 2014, as part of a Plan of Reorganization, (i) all preferred shareholders converted their shares of stock into common stock as is outlined in our certificate of incorporation; (ii) the Company’s certificate of incorporation was amended to allow for the issuance of 200,000,000 shares of our common stock, (iii) the Company’s current shareholders exchanged their shares of our common stock for the pro-rata percentage of 36,000,000 shares of our common stock (the “Exchange”).

 

From March 18, 2014 through March 31, 2014, the Company issued and/or sold the following unregistered securities:

 

On March 18, 2014, as payment for consulting services, we granted Dutchess Opportunity Fund, II LP a warrant exercisable into 4,050,000 shares of our common stock at $0.001 per share, and a warrant exercisable into 2,375,000 shares of our common stock at $0.40 per share.

 

On March 24, 2014, we completed an offering of $475,000 of our securities to certain accredited and non-accredited investors consisting of (i) $269,100 of convertible debentures, convertible into shares of the Company’s common stock at $0.10 per share, together with warrants, exercisable into an amount of our common stock equal to fifty percent (50%) of the common stock underlying the convertible debentures, at $0.40 per share; and (ii) 2,059,000 shares of our common stock at $0.10 per share, with a warrant, exercisable into an amount of our common stock equal to fifty percent (50%) of the common stock purchased, at $0.40 per share.

 

On June 6, 2014, each of Ean Seeb, Tripp Keber, and Sebastian Stant received a stock award of 250,000 shares of our common stock, while Jesus Quintero received a stock award of 100,000 shares of our common stock as compensation for their service. Each of Ean Seeb, Tripp Keber, and Sebastian Stant also received unvested 750,000, 750,000, and 550,000 options, respectively, to purchase shares of our common stock pursuant to our 2014 Equity Incentive Plan which have not yet vested, will not vest within 60 days, and/or contain performance based conditions. Shares of common stock underlying such options are not covered under this registration statement.

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and the Registrant believes each transaction was exempt from the registration requirements of the Securities Act as stated above. All recipients of the foregoing transactions either received adequate information about the Registrant or had access, through their relationships with the Registrant, to such information. Furthermore, the Registrant affixed appropriate legends to the share certificates and instruments issued in each foregoing transaction setting forth that the securities had not been registered and the applicable restrictions on transfer.

 

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Item 16. Exhibits and Financial Statement Schedules.

The following exhibits are filed with this registration statement:

No. Description
2.1 Plan of Reorganization, dated March 18, 2014*
3.1 Amended and Restated Certificate of Incorporation of the Company*
3.2 Amendment to Amended and Restated Certificate of Incorporation of the Company*
3.3 Bylaws of the Company*
4.1 Form of Common Stock Certificate *
4.2 Form of Common Stock Warrant*
4.3 Form of Debenture Agreement*
4.4 Form of Debenture Warrant*
4.5 Consulting Warrant, for 2,375,000 shares at $0.40 per share*   
4.6 Consulting Warrant, for 4,050,000 shares at $0.001 per share*   
5.1 Opinion of Thompson Hine LLP regarding the legality of the securities being registered*
10.1 Employment Agreement by and between the Company and Isaac Dietrich, dated April 1, 2014*
10.2 Employment Agreement by and between the Company and Hyler Fortier, dated April 1, 2014*
10.3 Employment Agreement by and between the Company and Stewart Fortier, dated April 1, 2014*
10.4 Employment Agreement by and between the Company and Tyler Knight, dated April 1, 2014*
10.5 Opus Virtual Office Agreement, dated March 14, 2014, by and between Opus Virtual Office  and the Company *
10.6 oDesk User Agreement, effective October 25, 2013*
10.7 Parse Services Hosting Agreement, dated December 18, 2013, by and between Parse, LLC and the Company*
10.8 Consulting Agreement, dated March 18, 2014, by and between Dutchess Opportunity Fund, II, LP and the Company*
10.9 Form of Security Agreement*
10.10 Form of Subscription Agreement*
10.11 Form of Debenture Registration Rights Agreement*
10.12 2014 Stock Incentive Plan and forms of stock option agreement and stock award agreement thereunder. +
10.13 Leak Out Agreement by and between the Company and Dutchess Opportunity Fund, II, LP*
10.14 Consulting Agreement, dated May 1, 2014, by and between JDE Development LLC and the Company*
23.1 Consent of Bongiovanni & Associates, P.A.*
23.2 Consent of Thompson Hine, LLP (included in Exhibit 5.1 to this registration statement on Form S-1) *

*Filed hereby with this registration statement.

Item 17. Undertakings.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: 
i. To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission (the “Commission”) pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 
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(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. 
(5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boulder, State of Colorado, on June 13, 2014.

MASSROOTS, INC.

 

   
By:

/s/ Isaac Dietrich     
Isaac Dietrich

Chief Executive Officer

 

 

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signatures   Title   Date
         
/s/ Isaac Dietrich   Principal Executive Officer and Chairman of the Board of Directors   June 13, 2014
Isaac Dietrich              
         
/s/ Tripp Keber   Director   June 13, 2014
Tripp Keber        
         
/s/ Tyler Knight   Director, Chief Marketing Officer   June 12, 2014
Tyler Knight        
         
/s/ Stewart Fortier   Director, Chief Technology Officer   June 13, 2014
Stewart Fortier        
         
/s/ Jesus Quintero   Chief Financial Officer (Principle Financial Officer)   June 13, 2014
Jesus Quintero        
         
/s/ Hyler Fortier   Chief Operations Officer   June 13, 2014
Hyler Fortier        
         

 

 

 

 

Exhibit 2.1

 

Agreement and Plan of Reorganization

 

This Agreement and Plan of Reorganization (hereinafter the "Agreement") is entered into effective as of this March 18, 2014, by and among MassRoots, Inc. a Delaware corporation (hereinafter "MassRoots"), and the owners of the outstanding shares of common stock and preferred stock of MassRoots (each individually a "MassRoots Shareholder" and collectively the “MassRoots Shareholders”) and Dutchess Opportunity Fund, II, LP, a Delaware limited partnership ( “Dutchess”). (MassRoots, the MassRoots Shareholders and Dutchess each a “Party” and collectively the “Parties”).

 

WHEREAS, the MassRoots Shareholders own all of the issued and outstanding common stock and preferred stock of MassRoots (the "MassRoots Common Stock" and “MassRoots Preferred Stock”) and desires to become a publicly traded entity through a self-registration process by preparing and filing a registration statement on Form S-1 (a “Registration Statement”) with the United States Securities and Exchange Commission (“SEC”); and

 

WHEREAS, Subsequent to the filing of the Registration Statement, MassRoots shall take appropriate steps to file, through a Market Maker, the Form 15(c)-211 with the Financial Industry Regulatory Authority (“FINRA”); and

 

WHEREAS, Dutchess has unique experience, knowledge and skills regarding investing in public companies; and,

 

WHEREAS, MassRoots desires to obtain the benefits of Dutchess' experience and know-how, and accordingly, the Company has offered to engage Dutchess to render services to MassRoots for the IPO and financing; and,

 

NOW THEREFORE, for the mutual consideration of the mutual promises, covenants and undertakings set forth herein and other good and valuable consideration, the legal sufficiency of which is hereby acknowledged, with the intent to be obligated legally and equitably, the parties agree as follows:

 

1. Plan of Reorganization.

 

It is hereby agreed that all of the issued and outstanding capital stock, whether common stock or preferred stock, of MassRoots shall be included in the Registration Statement. It is the intention of the parties hereto that this entire transaction qualify as a corporate reorganization under Section 368(a)(1)(B) and/or Section 351 of the Internal Revenue Code of 1986, as amended, and related or other applicable sections thereunder. To accomplish the transactions contemplated by this Agreement and the filing of the Registration Statement, the Parties to this Agreement shall execute this Agreement and the following agreements and/or documents (collectively the “Transaction Documents”):

 

(a) The Debenture Registration Rights Agreement attached hereto as Exhibit 1(a) setting forth the obligations of MassRoots to take certain actions to accomplish the transactions contemplated by this Agreement (the “Debenture Agreement”);
(b) The Debenture in the initial principal amount of up to Four Hundred Seventy Five Thousand and 00/100 ($475,000.00) attached hereto as Exhibit 1(b) (the “Debenture”);
(c) The Subscription Agreement, together with its attachments, attached hereto as Exhibit 1(c) subscribing the holders of the convertible debentures as contemplated by this Agreement (the “Subscription Agreement”);
(d) The Warrants attached hereto as Exhibit 1(d) granting the holders the right to purchase shares of MassRoots (the “Warrant”);
(e) The Consulting Agreement attached hereto as Exhibit 1(e) by and between MassRoots and Duchess (the “Consulting Agreement”);
(f) All other necessary forms, schedules, or such other documents and any and all such amendments thereto as the Parties, in their sole discretion, may deem necessary or appropriate to effectuate the intent of this Agreement.

 

2. Exchange of Shares.

 

MassRoots Shareholders agree that on the Closing Date or at the Closing as hereinafter defined, the MassRoots Common Stock and the MassRoots Preferred Stock shall be delivered to MassRoots in exchange for the IPO Shares, as defined below, as to all outstanding shares of Mass Roots current Common Stock and the MassRoots Preferred Stock, as follows:

     
 

(a) At Closing, MassRoots, with the assistance of Dutchess, shall file all necessary documents and a Registration Statement for forty-nine million, five hundred and fifty thousand (49,550,000) shares of Common Stock (“IPO Shares”). MassRoots Shareholders, as outlined on Schedule 2(a) , shall retain thirty-six million (36,000,000 shares of Common Stock in order for MassRoots’s ownership to equal seventy two and 65/100 percent (72.65%) of the total IPO Shares in such fractional amounts as set forth on Schedule 2(a).
(b) At Closing, four million seven hundred and fifty thousand (4,750,000) IPO Shares shall be allocated for the Financing for the purpose of providing for a sufficient amount of common stock to cover common stock shares sold in the Financing as well as in the event that the Debentures are converted (as defined below).
(c) At Closing, an additional two million three hundred and seventy-five thousand (2,375,000) IPO Shares shall be allocated for the Financing (as defined below) for the purpose of providing for a sufficient amount of common stock in the event that the Warrants are exercised.
(d) At Closing, an additional four million fifty thousand (4,050,000) shares shall be allocated to Dutchess pursuant to the Consulting Agreement dated March 18, 2014, for the purpose of providing for a sufficient amount of common stock in the event that the warrant issued to Dutchess with an exercise price of $0.001 pursuant to the Consulting Agreement is exercised.
(e) At Closing, an additional two million three hundred and seventy-five thousand (2,375,000) IPO Shares shall be allocated to Dutchess pursuant to the Consulting Agreement, dated March 18, 2014, for the purpose of providing for a sufficient amount of common stock in the event that the warrant issued to Dutchess with an exercise price of $0.40 pursuant to the Consulting Agreement is exercised.
(f) Each MassRoots Shareholder shall execute this Agreement and a written consent and other necessary forms, schedules, or such other documents and any and all such amendments thereto as the Parties, in their sole discretion, may deem necessary or appropriate to effectuate the intent of this Agreement and to exchange the MassRoots Shareholder’s MassRoots Common Stock and the MassRoots Preferred Stock for IPO Shares.

 

3. Pre-Closing Events.


The Closing is subject to the completion of the following:

 

(a) MassRoots shall demonstrate to the reasonable satisfaction to Dutchess that it has no material assets and no liabilities contingent or fixed.
(b) MassRoots shall be responsible for any and all expenses paid by Dutchess in advance of closing the Financing. The expenses will be reimbursed to Dutchess within two (2) days of written request by Dutchess.

 

4. Post-Closing Event.

 

(a) Dutchess, and other investors (collectively, the “Financing Investors”) in the Financing (as defined below), shall subscribe for an aggregate of up to four hundred and seventy-five thousand dollars ($475,000) of MassRoots’ Debentures (the “Financing”) on or about March 24, 2014, subject to the completion of the Company’s PCAOB audit. As part of the Financing, the Financing Investors shall receive warrants to purchase an amount of common stock equal to fifty percent (50%) of the amount of common stock issuable upon conversion of the Financing Investors’ respective Debenture. The Financing shall be with certain “accredited investors”, as defined under Regulation D promulgated under the Securities Act; a "qualified purchaser" under the Company Act and is eligible to receive "new issues" because it is not a restricted person as contemplated under the rules of the FINRA. Of the total amount of the Financing, approximately two hundred and twenty-five thousand dollars ($225,000) shall be allocated to satisfy all reasonable public company expenses (“Pre-Effective Expenses”). Pre-Effective Expenses shall include but are not limited to legal fees, accounting fees, IR costs and other expenses of the Parties, as accrued in the period from pre-closing to effectiveness of MassRoots Registration Statement (as defined below). Any funds allocated towards Pre-Effective Expenses but not expended and any remaining funds may be used for general corporate purposes or to reduce amounts due pursuant to the Debenture.
(b) The Debenture is convertible into the Company’s IPO Shares at ten cents ($0.10) per share, as more fully described in the Debenture.

     
 

(c) Within one (1) day of Closing, MassRoots will satisfy the Consulting Agreement with Dutchess dated March 17, 2014 upon the terms and conditions of the Consulting Agreement, which require the issuance of a warrant to purchase up to four million fifty thousand (4,050,000) IPO Shares with an excise price of one one thousandth of a dollar ($.001) per share and a warrant to purchase up to two million three hundred and seventy-five thousand (2,375,000) IPO Shares with an excise price of forty cents ($0.40) per share.

 

4. Exchange of Securities.

 

As of the Closing Date each of the following shall occur:

 

(a) All shares of MassRoots Common Stock issued prior to the Closing Date, shall be deemed, after Closing Date, to be part of the IPO Shares. The holders of such certificates previously evidencing shares of MassRoots Common Stock outstanding immediately prior to the Closing Date shall cease to have any rights with respect to such shares of MassRoots Common Stock except as otherwise provided herein or by law;
(b) MassRoots’s hereby represents there are no outstanding options, warrants or other right(s) to purchase shares of MassRoots’ common stock issued prior to the Closing Date.
(c) Any shares of MassRoots Common Stock or MassRoots Preferred Stock held in the treasury of MassRoots immediately prior to the Closing Date shall automatically be canceled and extinguished without any conversion thereof and no payment shall be made with respect thereto;

 

5. Delivery of Shares.

 

On or as soon as practicable after the Closing Date, MassRoots will use its best efforts to cause the MassRoots Shareholders to surrender certificates for cancellation representing their shares of MassRoots Common Stock and MassRoots Preferred Stock, against delivery of certificates representing the IPO Shares for which the shares of MassRoots Common Stock or MassRoots Preferred Stock are to be exchanged at Closing.

 

6. Representations of MassRoots Shareholders.

 

Each MassRoots Shareholder hereby represents and warrants effective this date and the Closing Date as follows:

 

(a) Except as may be noted in Schedule 2(a) the MassRoots Common Stock and/or MassRoots Preferred Stock (collectively, the “MassRoots Securities”), as applicable, owned by the MassRoots Shareholders, is free from claims, liens, or other encumbrances, and at the Closing Date said MassRoots Shareholder will have good title and the unqualified right to transfer and dispose of such MassRoots Securities;
(b) Each MassRoots Shareholder is the sole owner of his, her or its issued and outstanding MassRoots Securities as set forth in Schedule 2(a) and there are no contingent rights or vesting rights related to each respective MassRoots Shareholder’s ownership of the MassRoots Securities;
(c) Except as set forth by the Transaction Documents, each MassRoots Shareholder has no present intent to sell or dispose of the IPO Shares and is not under a binding obligation, formal commitment, or existing plan to sell or otherwise dispose of the IPO Shares;
(d) In addition to the restrictions set forth in Section 8, after the Closing Date, each MassRoots Shareholder understands that their respective IPO Shares are deemed “restricted” securities and may only be sold in accordance with all applicable federal and state securities laws.


7. Representations of MassRoots.

 

MassRoots hereby represents and warrants as follows, which warranties and representations shall also be true as of the Closing Date:

 

(a) The attached Schedule 2(a) sets out the owners of record and beneficially of the issued and outstanding MassRoots Securities.

     
 

(b) MassRoots has no outstanding or authorized capital stock, warrants, options or convertible securities other than as described in the MassRoots Financial Statements or on Schedule 7(b) attached hereto.
(c) The unaudited financial statements for the period ended December 31, 2013 (hereinafter referred to as the "MassRoots Financial Statements") are complete and accurate and fairly present the financial condition of MassRoots as of the dates thereof and the results of its operations for the periods covered. There are no material liabilities or obligations, either fixed or contingent, not disclosed in the MassRoots Financial Statements or in any exhibit thereto or notes thereto other than contracts or obligations in the ordinary course of business; and no such contracts or obligations in the ordinary course of business constitute liens or other liabilities which materially alter the financial condition of MassRoots as reflected in the MassRoots Financial Statements. MassRoots has good title to all assets shown on the MassRoots Financial Statements subject only to dispositions and other transactions in the ordinary course of business, the disclosures set forth herein and liens and encumbrances of record. The MassRoots Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied (except as may be indicated therein or in the notes thereto) and fairly present the financial position of MassRoots as of the dates thereof and the results of its operations and changes in financial position for the periods then ended.
(d) Since the date of the MassRoots Financial Statements, there has not been any material adverse changes in the financial position of MassRoots except changes arising in the ordinary course of business, which changes will in no event materially and adversely affect the financial position of MassRoots.
(e) MassRoots is not a party to any material pending litigation or, to its best knowledge, any governmental investigation or proceeding, not reflected in the MassRoots Financial Statements, or in Schedule 7(e) , and to its best knowledge, no material litigation, claims, assessments or any governmental proceedings are threatened against MassRoots.
(f) MassRoots is in good standing in its jurisdiction of incorporation, and is in good standing and duly qualified, to do business in each jurisdiction where required to be so qualified except where the failure to so qualify would have no Material Adverse Effect on MassRoots. MassRoots will provide a certificate of good standing from the State of Delaware.
(g) MassRoots has (or, by the Closing Date, will have filed) all material tax, governmental and/or related forms and reports (or extensions thereof) due or required to be filed and has (or will have) paid or made adequate provisions for all taxes or assessments which have become due as of the Closing Date.
(h) MassRoots has not materially breached any material agreement to which it is a party. MassRoots has previously given Dutchess copies or access thereto of all material contracts, commitments and/or agreements to which MassRoots is a party including all relationships or dealings with related parties or affiliates.
(i) MassRoots has no subsidiary corporations.
(j) MassRoots has made all material corporate financial records, minute books, and other corporate documents and records available for review to present management of Dutchess prior to the Closing Date, during reasonable business hours and on reasonable notice.
(k) The execution of this Agreement does not materially violate or breach any material agreement or contract to which MassRoots is a party and has been duly authorized by all appropriate and necessary corporate action under the law of the State of Delaware or other applicable law and MassRoots, to the extent required, has obtained all necessary approvals or consents required by any agreement to which MassRoots is a party.
(l) All disclosure information regarding MassRoots, which is to be set forth in disclosure documents by MassRoots, for use in connection with the IPO described herein is true, complete and accurate in all material respects.
(m) MassRoots represents that the only liabilities that exist for the company are detailed on Schedule 7(m).
(n) MassRoots is up to date with any and all local, state and federal taxes, including income and payroll taxes.

 

8. Additional Restrictions on the Sales of Shares for Certain Founding Shareholders

 

Each of Isaac Dietrich, Stewart Fortier, Hyler Fortier, and Tyler Knight (each a “Founder”, and collectively, the “Founders”), as shareholders of MassRoots, agree that, except as set forth by the Transaction Documents, each Founder may not to publicly or privately offer to sell, contract to sell or otherwise dispose of, loan, gift, donate, hypothecate, pledge or grant any rights with respect to the IPO Shares now owned or hereafter acquired by a Founder for a period beginning as of the date of this Agreement and ending the earlier of (1) the date occurring twelve (12) months after the Closing Date or (2) the date that the full outstanding balance of the Debenture Agreement with the Financing Investors has been satisfied (“Lock-Out Period”). Subsequent to the Lock-Out Period, the Founders may effectuate any disposition of the IPO Shares that occurs in accordance with all applicable federal and state securities laws.

     
 

9. Closing.

 

The Closing of the transactions contemplated herein shall take place on or about March 24, 2014 or such other date (the "Closing") as mutually determined by the parties hereto when all conditions precedent have been met and all required documents have been delivered, which Closing is expected to take place on the date of this Agreement. The "Closing Date" of the transactions described herein shall be that date on which all conditions set forth herein have been met and the IPO Shares are issued in exchange for the MassRoots Common Stock or MassRoots Preferred Stock.

 

10. Conditions Precedent to Obligations of MassRoots.

 

All obligations of MassRoots under this Agreement are subject to the fulfillment, prior to or as of the Closing and/or the Closing Date:

 

(a) MassRoots is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation;
(b) This Agreement has been duly authorized, executed and delivered by MassRoots and is a valid and binding obligation of MassRoots enforceable in accordance with its terms;
(c) MassRoots through its board of directors and shareholders has taken all corporate action necessary for performance under this Agreement;
(d) The documents executed and delivered by MassRoots and MassRoots Shareholders hereunder are valid and binding in accordance with their terms and vest in MassRoots Shareholders, as the case may be, all right, title and interest in and to the MassRoots Shares to be issued pursuant to the terms hereof, and the IPO Shares when issued will be duly and validly issued, fully-paid and non-assessable;
(e) MassRoots has the corporate power to execute, deliver and perform under this Agreement;

 

11. All obligations of MassRoots under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions:

 

(a) The representations and warranties by MassRoots and MassRoots Shareholders contained in this Agreement or in any certificate or document delivered pursuant to the provisions hereof shall be true in all material respects at and as of the Closing as though such representations and warranties were made at and as of such time.
(b) MassRoots shall have performed and complied with, in all material respects, all covenants, agreements, and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing;
(c) MassRoots shall deliver on behalf of the MassRoots Shareholders, a letter commonly known as an "Investment Letter," signed by each of said shareholders, acknowledging that the IPO Shares are being acquired for investment purposes.


12. Indemnification.

 

At all times after the date of this Agreement, Dutchess and MassRoots agree to indemnify and hold harmless each Party, at all times after the date of this Agreement against and in respect of any liability, damage or deficiency, all actions, suits, proceedings, demands, assessments, judgments, costs and expenses including attorney’s fees incident to any of the foregoing, resulting from any material misrepresentations made by an indemnifying party to an indemnifying party, an indemnifying party’s breach of covenant or warranty or an indemnifying party’s non-fulfillment of any agreement hereunder, or from any material misrepresentation in or omission from any certificate furnished or to be furnished hereunder.


13. Nature and Survival of Representations.

 

All representations, warranties and covenants made by any party in this Agreement shall survive the Closing and the consummation of the transactions contemplated hereby for one year from the Closing. All of the parties hereto are executing and carrying out the provisions of this Agreement in reliance solely on the representations, warranties and covenants and agreements contained in this Agreement and not upon any investigation upon which it might have made or any representation, warranty, agreement, promise or information, written or oral, made by the other party or any other person other than as specifically set forth herein.

     
 

14. Finder's Fees.

 

MassRoots represents and warrants that no party acting on their behalf has incurred any liabilities, either express or implied, to any "broker" of "finder" or similar person in connection with this Agreement or any of the transactions contemplated hereby.

 

15. Miscellaneous.

 

(a) Further Assurances

At any time, and from time to time, after the Closing Date, each party will execute such additional instruments and take such action as may be reasonably requested by the other party to confirm or perfect title to any property transferred hereunder or otherwise to carry out the intent and purposes of this Agreement.

 

(b) Waiver

 

Any failure on the part of any party hereto to comply with any of its obligations, agreements or conditions hereunder may be waived in writing by the party to whom such compliance is owed.

 

(c) Amendment

 

This Agreement may be amended only in writing as agreed to by all parties hereto.

(d) Notices

 

If to Dutchess:

50 Commonwealth Ave, Suite 2

Boston, MA 02116

 

If to MassRoots:

MassRoots, Inc.

6525 Gunpark Drive,

Boulder, CO 80301

 

(e) Headings

 

The section and subsection headings in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

 

(f) Counterparts

 

This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

(g) Governing Law

 

This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts.

 

(h) Binding Effect

 

This Agreement shall be binding upon the parties hereto and inure to the benefit of the parties, their respective heirs, administrators, executors, successors and assigns.

     
 

(i) Entire Agreement

 

This Agreement and the attached schedules and exhibits constitute the entire agreement of the parties covering everything agreed upon or understood in the transaction. There are no oral promises, conditions, representations, understandings, interpretations or terms of any kind as conditions or inducements to the execution hereof.

 

(j) Time

 

Time is of the essence.

 

(k) Severability

 

If any part of this Agreement is deemed to be unenforceable the balance of the Agreement shall remain in full force and effect.

 

[Signatures on Following Page]

 
 

IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written.

 

MassRoots, Inc.

 

By: /s/ Isaac Dietrich

Name: Isaac Dietrich

Title: CEO

 

 

Dutchess Opportunity Fund, II, LP.

 

By: /s/ Douglas Leighton

Name: Douglas Leighton

Title: Managing Director

 

MassRoots Shareholders

 

By: /s/ Isaac Dietrich

Name: Isaac Dietrich

 

By: /s/ Hyler Fortier

Name: Hyler Fortier

 

By: /s/ Stewart Fortier

Name: Stewart Fortier

 

By: /s/ Tyler Knight

Name: Tyler Knight

 

By: /s/ Douglas Leighton

Name: Bass Point Capital, LLC

 

By: /s/ Ingmar Snijders

Name: wm18 finance, Ltd.

 

By: /s/ Keith Ubben

Name: Rother Investments, LLC

 

By: /s/ Douglas Leighton

Name: Douglas Leighton

 
 

 

Exhibit 1(a)

 

Debenture Registration Rights Agreement

 
 

 

Exhibit 1(b)

 

Debenture

 
 

 

Exhibit 1(c)


Subscription Agreement

 

 
 

 

Exhibit 1(d)

 

Warrant

 
 

 

Exhibit 1(e)


Consulting Agreement

 

 
 

 

Schedule 2(a)

 

MassRoots Shareholders

 

Shareholders Prior to Reorganization Common Preferred Total with Dividend
Bass Point Capital   6.06 6.06
WM18 Finance, Ltd.   6.02 6.02
Rother Investments   5.99 5.99
Douglas Leighton   3.03 3.03
Isaac Dietrich 58.06   58.06
Hyler Fortier 15.00   15.00
Stewart Fortier 12.00   12.00
Tyler Knight 12.00   12.00
Total 97.06   118.16
 
 

 

Schedule 7(b)

 

Massroots warrants, options or convertible securities

 

 

None.

 
 

 

Schedule 7(e)

 

Material Litigation

 

None.

 
 

 

Schedule 7(m)

 

Liabilities of MassRoots

 

     

 

Exhibit 3.1

 

CERTIFICATE OF AMENDMENT

 

TO THE

 

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

 

OF

 

MassRoots, Inc.

 

(Pursuant to Sections 242 of the General Corporation Law of the State of Delaware)

 

MassRoots, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the "General Corporation Law"),

 

DOES HEREBY CERTIFY:

 

First.   That the name of this corporation is MassRoots, Inc. (the “Corporation”).

 

Second. The Corporation’s Certificate of Incorporation was originally filed in the office of the Secretary of State of Delaware on April 26, 2013, and was subsequently amended by an Amended and Restated Certificate of Incorporation filed in the office of the Secretary of State of Delaware on December 16, 2013.

 

Third. The Corporation wishes to amend its Amended and Restated Certificate of Incorporation so as to (1) increase the total number of shares of common stock which the Corporation shall have authority to issue from one thousand (1,000) shares to two hundred million (200,000,000) shares; and (2) to adjust the par value per share of common stock which the Corporation shall have authority to issue from $1.000 par value per share of common stock to $0.001 par value per share of common stock.

 

Fourth. To accomplish the amendment referred to in Paragraph Third, above, the first paragraph of the FOURTH Article of the Amended and Restated Certificate of Incorporation is deleted in its entirety and the following is substituted in lieu thereof:

 

FOURTH : The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 200,000,000 shares of Common Stock, $0.001 par value per share ("Common Stock") and (ii) 21 shares of Preferred Stock, $1.000 par value per share ("Preferred Stock").

 

Fifth. This Certificate of Amendment and the foregoing amendment to the Amended and Restated Certificate of Incorporation of the Corporation were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

 

[SIGNATURE PAGE ON FOLLOWING PAGE]

     
 

IN WITNESS WHEREOF , the Corporation has caused this Certificate of Amendment to the Amended and Restated Certificate of Incorporation to be signed by a duly authorized officer of the Corporation on this 18th day of March, 2014.

 

MassRoots, Inc.

 

By: /s/ Isaac Dietrich

Isaac Dietrich

Chief Executive Officer

     

 

Exhibit 3.2 

 

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF

 

MassRoots, Inc.

 

(Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware)

 

MassRoots, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the "General Corporation Law"),

 

DOES HEREBY CERTIFY:

 

1. That the name of this corporation is MassRoots, Inc., and that this corporation was originally incorporated pursuant to the General Corporation Law on April 26,2013, under the name MassRoots, Inc.

 

2. That the Board of Directors has duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:

 

RESOLVED, that the Certificate of Incorporation of this corporation be amended and restated in its entirety to read as follows:

 

FIRST: The name of this corporation is MassRoots, Inc. (the "Corporation").

 

SECOND: The address of the registered office of the Corporation in the State of Delaware is 1521 Concord Pike #303, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is A Registered Agent Inc.

 

THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.

 

FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 1,000 shares of Common Stock, $1.000 par value per share ("Common Stock") and (ii) 21 shares of Preferred Stock, $1.000 par value per share ("Preferred Stock").

 

The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.

 

A. COMMON STOCK

 

1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.

 

2. Voting. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings); provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to the Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation or pursuant to the General Corporation Law.

 

B. PREFERRED STOCK

 

17.65 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated "Series A Preferred Stock" with the following rights, preferences, powers, privileges and restrictions, qualifications and limitations. Unless otherwise indicated, references to "sections" or "subsections" in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth.

     
 

1. Dividends.

 

From and after the date of the issuance of any shares of Series A Preferred Stock, dividends at the rate per annum of 7% shall accrue on such shares of Series A Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock) (the "Accruing Dividends"). Accruing Dividends shah accrue from day to day, whether or not declared, and shall be cumulative. The "Series A Original Issue Price" shall mean $8,499.79 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock.

 

2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.

 

2.1 Preferential Payments to Holder of Series A Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the greater the Series A Original Issue Price, plus any Accruing Dividends accrued but unpaid thereon such amount per share as would have been payable had all shares of Series A Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this sentence is hereinafter referred to as the "Series A Liquidation Amount"). If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they shall be entitled under this Subsection 2.1, the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

 

2.2 Payments to Holders of Common Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of an preferential amounts required to be paid to the holders of shares of Series A Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of shares of Common Stock, pro rata based on the number of shares held by each such holder.

 

2.3 Preferential Payments to Holders of Series A Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to 1 times the Series A Original Issue Price, plus any dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they shall be entitled under this Subsection 2.1, the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full

 

2.4 Distribution of Remaining Assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the holders of shares of Series A Preferred Stock the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of the shares of Series A Preferred Stock and Common Stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to Common Stock pursuant to the terms of the Certificate of incorporation immediately prior to such liquidation, dissolution or winding up of the Corporation. The aggregate amount which a holder of a share of Series A Preferred Stock is entitled to receive under Subsections 2.1 and 2.2 is hereinafter referred to as the "Series A Liquidation Amount."

     
 

2.5 Deemed Liquidation Events.

 

2.5.1 Definition. Each of the following events shall be considered a "Deemed Liquidation Event" unless the holders of at least 50% of the outstanding shares of Series A Preferred Stock elect otherwise by written notice sent to the Corporation at least 10 days prior to the effective date of any such event:

 

(a) a merger or consolidation in which
(i) the Corporation is a constituent party or
(ii) a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation, except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or arc converted into or exchanged for shares of capital stock that represent, immediately following such merger or conso1idation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation; or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; or
(b) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger, consolidation or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.

 

2.5.2 Effecting a Deemed Liquidation Event

 

(a) The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Subsection 2.3.1(a){i) unless the agreement or plan of merger or consolidation for such transaction (the ''Merger Agreement") provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2.

 

(b) In the event of a Deemed Liquidation Event referred to in Subsection 2.5.l(a)(ii) or 2.5.1(b), if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within ninety (90) days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Series A Preferred Stock no later than the ninetieth (901 ) day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause; (ii) to require the redemption of such shares of Series A Preferred Stock, and (iii) if the holders of at least [50%] of the then outstanding shares of Series A Preferred Stock so request in a written instrument delivered to the Corporation not later than one hundred twenty (120) days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation), together with any other assets of the Corporation available for distribution to its stockholders, all to the extent permitted by Delaware law governing distributions to stockholders (the "Available Proceeds,.), on the one hundred fiftieth (1501h) day after such Deemed Liquidation Event, to redeem all outstanding shares of Series A Preferred Stock at a price per share equal to the Series A Liquidation Amount. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Available Proceeds are not sufficient to redeem all outstanding shares of Series A Preferred Stock, the Corporation shall ratably redeem each holder's shares of Series A Preferred Stock to the fullest extent of such Available Proceeds, and shall redeem the remaining shares as soon as it may lawfully do so under Delaware law governing distributions to stockholders. The provisions of Section 6 shall apply, with such necessary changes in the details thereof as are necessitated by the context, to the redemption of the Series A Preferred Stock pursuant to this Subsection 2.5.2(b). Prior to the distribution or redemption provided for in this Subsection 2.5.2(b), the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event [or in the ordinary course of business].

     
 

2.5.3 Amount Deemed Paid or Distributed. The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. [The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation.

 

2.5.4 Allocation of Escrow and Contingent Consideration. In the event of a Deemed Liquidation Event pursuant to Subsection 2.5.l@)(i), if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the "Additional Consideration"), the Merger Agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the "Initial Consideration") shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event; and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Subsection 2.3.4, consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Additional Consideration.

 

3. Voting.

 

3.1 General. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class.

 

3.2 Election of Directors. The holders of record of the shares of Series A Preferred Stock, exclusively and as a separate class, shall be entitled to elect 2 directors of the Corporation (the "Series A Directors") and the holders of record of the shares of Common Stock, exclusively and as a separate class, shall be entitled to elect 2 directors of the Corporation. Any director elected as provided in the preceding sentence may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. If the holders of shares of Series A Preferred Stock or Common Stock, as the case may be, fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate class, pursuant to the first sentence of this Subsection 3.2, then any directorship not so filled shall remain vacant until such time as the holders of the Series A Preferred Stock or Common Stock, as the case may be, elect a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled by stockholders of the Corporation other than by the stockholders of the Corporation that are entitled to elect a person to fill such directorship, voting exclusively and as a separate class. The holders of record of the shares of Common Stock and of any other class or series of voting stock (including the Series A Preferred Stock), exclusively and voting together as a single class, shall be entitled to elect the balance of the total number of directors of the Corporation. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. Except as otherwise provided in this Subsection 3.2, a vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Subsection 3.2.

 

3.3 Series A Preferred Stock Protective Provisions. At any time when shares of Series A Preferred Stock is outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of incorporation) the written consent or affirmative vote of the holders of at least [50%] of the then outstanding shares of Series A Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ah initio, and of no force or effect.

     
 

3.3.1 liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any merger or consolidation or any other Deemed Liquidation Event, or consent to any of the foregoing;

 

3.3.2 amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation [in a manner that adversely affects the powers, preferences or rights of the Series A Preferred Stock;

 

3.3.3 create, or authorize the creation of, any additional class or series of capital stock[unless the same ranks junior to the Series A Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption, or increase the authorized number of shares of Series A Preferred Stock or increase the authorized number of shares of any additional class or series of capital stock unless the same ranks junior to the Series A Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption;

 

3.3.4 (i) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Series A Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Series A Preferred Stock in respect of any such right, preference, or privilege or (ii) reclassify, alter or amend any existing security of the Corporation that is junior to the Series A Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Series A Preferred Stock in respect of any such right, preference or privilege;

 

3.3.5 purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation other than (i) redemptions of or dividends or distributions on the Series A Preferred Stock as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof or (iv) as approved by the Board of Directors, including the approval of at least one Series A Director;

 

3.3.6 create, or authorize the creation of, or issue, or authorize the issuance of any debt security, or permit any subsidiary to take any such action with respect to any debt security, if the aggregate indebtedness of the Corporation and its subsidiaries for borrowed money following such action would exceed $50,000 unless such debt security has received the prior approval of the Board of Directors;

 

3.3.7 create, or hold capital stock in, any subsidiary that is not wholly owned (either directly or through one or more other subsidiaries) by the Corporation, or sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiary of the Corporation, or permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary[.][; or]

 

3.3.8 increase or decrease the authorized number of directors constituting the Board of Directors.

 

4. Optional Conversion.

 

The holders of the Series A Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):

 

4.1 Right to Convert.

 

4.1.1 Conversion Ratio. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Series A Original Issue Price by the Series A Conversion Price (as defined below) in effect at the time of conversion. The "Series A Conversion Price" shall initially be equal to $ 8,499.79. Such initial Series A Conversion Price, and the rate at which shares of Series A Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.

     
 

4.2 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series A Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.

 

4.3 Mechanics of Conversion.

 

4.3.1 Notice of Conversion. In order for a holder of Series A Preferred Stock to voluntarily convert shares of Series A Preferred Stock into shares of Common Stock, such holder shall (a) provide written notice to the Corporation's transfer agent at the office of the transfer agent for the Series A Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent) that such holder elects to convert all or any number of such holder's shares of Series A Preferred Stock and, if applicable, any event on which such conversion is contingent and (b), if such holder's shares are certificated, surrender the certificate or certificates for such shares of Series A Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Series A Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent). Such notice shall state such holder's name or the names of the nominees in which such holder wishes the shares of Common Stock to be issued. If required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such notice and, if applicable, certificates (or lost certificate affidavit and agreement) shall be the time of conversion (the "Conversion Time"), and the shares of Common Stock issuable upon conversion of the specified shares shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time (i) issue and deliver to such holder of Series A Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Series A Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (iii) pay all declared but unpaid dividends on the shares of Series A Preferred Stock converted.

 

4.3.2 Reservation of Shares. The Corporation shall at all times when the Series A Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Series A Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. Before taking any action which would cause an adjustment reducing the Series A Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Series A Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted Series A Conversion Price.

 

4.3.3 Effect of Conversion. A11 shares of Series A Preferred Stock which shal1 have been surrendered for conversion as herein provided shal1 no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 4.2 and to receive payment of any dividends declared but unpaid thereon. Any shares of Series A Preferred Stock so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series A Preferred Stock accordingly.

     
 

4.3.4 No Further Adjustment. Upon any such conversion, no adjustment to the Series A Conversion Price shall be made for any declared but unpaid dividends on the Series A Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.

 

4.3.5 Taxes. The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Series A Preferred Stock pursuant to this Section 4. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Series A Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.

 

4.4 Adjustments to Series A Conversion_ Price for Diluting Issues.

 

4.4.1 Special Definitions. For purposes of this Article Fourth, the following definitions shall apply:

 

(a) "Option" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
(b) "Series A Original Issue Date" shall mean the date on which the first share of Series A Preferred Stock was issued.
(c) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
(d) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Subsection 4.4.3 below, deemed to be issued) by the Corporation after the Series A Original Issue Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (l) and (2), collectively, "Exempted Securities"):
(i) shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Series A Preferred Stock;
(ii) shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Subsection 4.5, 4.6, 4.7 or 4.8;
(iii) shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Corporation;
(iv) shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;
(v) No Adjustment of Series A Conversion Price. No adjustment in the Series A Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from the holders of at least 25% of the then outstanding shares of Series A Preferred Stock agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.

 

4.4.2 Deemed Issue of Additional Shares of Common Stock.

 

(a) If the Corporation at any time or from time to time after the Series A Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.

     
 

(b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Series A Conversion Price pursuant to the terms of Subsection 4.4.4, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Series A Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Series A Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing the Series A Conversion Price to an amount which exceeds the lower of (i) the Series A Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Series A Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.

 

(c) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Series A Conversion Price pursuant to the terms of subsection 4.4.4 (either because the consideration per share (determined pursuant to Subsection 4.4.5) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Series A Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series A Original Issue Date), are revised after the Series A Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 4.4.3(a) shall be deemed to have been issued effective upon such increase or decrease becoming effective.

 

(d) Upon the expiration or termination of any unexercised Option or unconverted or unchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Series A Conversion Price pursuant to the terms of Subsection 4.4.4, the Series A Conversion Price shall be readjusted to such Series A Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.

 

(e) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Series A Conversion Price provided for in this Subsection 4.4.2 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Subsection 4.4.2). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and 1or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the Series A Conversion Price that would result under the terms of this Subsection 4.4.2 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Series A Conversion Price that such issuance or amendment took place at the time such calculation can first be made.

     
 

4.4.3 Adjustment of Series A Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Series A Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 4.4.3), without consideration or for a consideration per share less than the applicable Series A Conversion Price in effect immediately prior to such issue, then the Series A Conversion Price shall be reduced, issue or deemed issue of the Additional Shares of Common Stock; provided that if such issuance or deemed issuance was without consideration, then the Corporation shall be deemed to have received an aggregate of [$.001] of consideration for all such Additional Shares of Common Stock issued or deemed to be issued.

 

4.4.4 Determination of Consideration. For purposes of this Subsection 4.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

 

(a) Cash and Property: Such consideration shall:
(i) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;
(ii) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and
(iii) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors of the Corporation.
(b) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 4.4.3, relating to Options and Convertible Securities, shall be determined by dividing:
(i) The total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration} payable to the Corporation upon the exercise of such Options or the conversion or exchange of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
(ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.

 

4.4.5 Multiple Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Series A Conversion Price pursuant to the terms of Subsection 4.4.4[, and such issuance dates occur within a period of no more than [ninety (90)] days from the first such issuance to the final such issuance,] then, upon the final such issuance, the Series A Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).

     
 

4.5 Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Series A Original Issue Date effect a subdivision of the outstanding Common Stock, the Series A Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Series A Original Issue Date combine the outstanding shares of Common Stock, the Series A Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

4.6 Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series A Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of date shall have been fixed, as of the close of business on such record date, by multiplying the Series A Conversion Price then in effect by a fraction:

(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

 

Notwithstanding the foregoing (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series A Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series A Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the holders of Series A Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series A Preferred Stock bad been converted into Common Stock on the date of such event.

 

4.7 Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series A Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of Series A Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Series A Preferred Stock had been converted into Common Stock on the date of such event.

 

4.8 Adjustment for Merger or Reorganization, etc. Subject to the provisions of Subsection 2.3, if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Series A Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections 4.4, 4.6 or 4.7), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of Series A Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of Series A Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of (including provisions with respect to changes in and other adjustments of the Series A Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Series A Preferred Stock.

 

FIFTH: The fo1lowing indemnification provisions shall apply to the persons enumerated

     
 

A. Right to Indemnification of Directors and Officers. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (an "Indemnified Person") who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that such person, or a person for whom such person is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys" fees) reasonably incurred by such Indemnified Person in such Proceeding. Notwithstanding the preceding sentence, except as otherwise provided in Section 3 of this Article Tenth, the Corporation shall be required to indemnify an Indemnified Person in connection with a Proceeding (or part thereof) commenced by such Indemnified Person only if the commencement of such Proceeding (or part thereof) by the Indemnified Person was authorized in advance by the Board of Directors.

 

B. Prepayment of Expenses of Directors and Officers. The Corporation shall pay the expenses (including attorneys' fees) incurred by an Indemnified Person in defending any Proceeding in advance of its final disposition, provided that, to the extent required by law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the Indemnified Person to repay all amounts advanced if it should be ultimately determined that the Indemnified Person is not entitled to be indemnified under this Article Tenth or otherwise.

 

C. Claims by Directors and Officers. If a claim for indemnification or advancement of expenses under this Article Tenth is not paid in full within thirty (30) days after a written claim therefor by the Indemnified Person has been received by the Corporation, the Indemnified Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the Indemnified Person is not entitled to the requested indemnification or advancement of expenses under applicable law.

 

D. Indemnification of Employees and Agents. The Corporation may indemnify and advance expenses to any person who was or is made or is threatened to be made or is otherwise involved in any Proceeding by reason of the fact that such person, or a person for whom such person is the legal representative, is or was an employee or agent of the Corporation or, while an employee or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such person in connection with such Proceeding. The ultimate determination of entitlement to indemnification of persons who are non-director or officer employees or agents shall be made in such manner as is determined by the Board of Directors in its sole discretion. Notwithstanding the foregoing sentence, the Corporation shall not be required to indemnify a person in connection with a Proceeding initiated by such person if the Proceeding was not authorized in advance by the Board of Directors.

 

E. Advancement of Expenses of Employees and Agents. The Corporation may pay the expenses (including attorneys' fees) incurred by an employee or agent in defending any Proceeding in advance of its final disposition on such terms and conditions as may be determined by the Board of Directors.

 

F. Non-Exclusivity of Rights. The rights conferred on any person by this Article Tenth shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the certificate of incorporation, these by-laws, agreement, vote of stockholders or disinterested directors or otherwise.

 

G. Other Indemnification. The Corporation's obligation, if any, to indemnity any person who was or is serving at its request as a director, officer or employee of another Corporation, partnership, limited liability company, joint venture, trust, organization or other enterprise shall be reduced by any amount such person may collect as indemnification from such other Corporation, partnership, limited liability company, joint venture, trust, organization or other enterprise.

     
 

H. Insurance. The Board of Directors may, to the full extent permitted by applicable law as it presently exists, or may hereafter be amended from time to time, authorize an appropriate officer or officers to purchase and maintain at the Corporation's expense insurance: (a) to indemnify the Corporation for any obligation which it incurs as a result of the indemnification of directors, officers and employees under the provisions of this Article Tenth; and (b) to indemnity or insure directors, officers and employees against liability in instances in which they may not otherwise be indemnified by the Corporation under the provisions of this Article Tenth.

 

I. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article Tenth shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. The rights provided hereunder shall inure to the benefit of any Indemnified Person and such person's heirs, executors and administrators.

 

IN WITNESS WHEREOF, The Corporation has caused this certificate to be signed as of this 31 day of December 2013.

 

MassRoots, Inc.

/s/ Isaac Dietrich

Title: President

Name: Isaac Dietrich

     

Exhibit 3.3  

 

BYLAWS

 

OF

 

MASSROOTS INC.

 

As Amended - March 26, 2014

 

Article I. Meeting of Shareholders

 

Section 1.  Annual Meeting .  The annual meeting of the shareholders of this Corporation shall be held at the time and place designated by the Board of Directors of the Corporation.  Business transacted at the annual meeting shall include the election of directors of the Corporation.

 

Section 2.  Special Meetings .  Special meetings of the shareholders shall be held when directed by the Board of Directors, or when requested in writing by the holders of not less than 10 percent of all the shares entitled to vote at the meeting.

 

Section 3.  Place .  Meetings of shareholders may be held within or without the State of Delaware.

 

Section 4.  Notice .  Written notice (including, where applicable, any notice required by the rules of the Securities and Exchange Commission) stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 60 days before the meeting, by first class mail or electronic transmission to the extent permitted under the rules of the Securities and Exchange Commission, by or at the direction of the chief executive officer, the president, the secretary, or the officer or persons calling the meeting to each shareholder of record entitled to vote at such meeting.  Such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage prepaid thereon.

 

Section 4.1 Waiver of Notice. Whenever notice is required to be given under any provision of this chapter or the certificate of incorporation or bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or the bylaws.

 

Section 5.  Notice of Adjourned Meetings .  When a meeting is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting.  If, however, after the adjournment the Board of Directors fixes a new record date for the adjourned meeting, a notice of adjourned meeting, shall be given as provided in this section to each shareholder of record on the new record date entitled to vote at such meeting.

 

Section 6.  Closing of Transfer Books and Fixing Record Date .  For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other purpose, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, 60 days.  If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least 10 days immediately preceding such meeting.

 

In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for the determination of shareholders, such date in any case to be not more than 60 days and, in case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action requiring such determination of shareholders is to be taken.

     
 

If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the day preceding the day on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders.

 

When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting.

 

Section 7.  Shareholder Quorum and Voting .  A majority of the outstanding shares of each class or series of voting stock then entitled to vote, present in person or represented by proxy, shall constitute a quorum at a meeting of shareholders.  When a specified item of business is required to be voted on by a class or series of stock, a majority of the outstanding shares of such class or series shall constitute a quorum for the transaction of such item of business by that class or series.

 

If a quorum is present, the affirmative vote of the majority of those shares present in person or represented by proxy of each class or series of voting stock and entitled to vote on the subject matter shall be the act of the shareholders unless otherwise provided however that the directors of the Corporation shall be elected by a plurality of such shares.

 

After a quorum has been established at a shareholders’ meeting, the subsequent withdrawal of shareholders, so as to reduce the number of shareholders entitled to vote at the meeting below the number required for a quorum, shall not affect the validity of any action taken at the meeting or any adjournment thereof.

 

Section 8.  Voting of Shares .  Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders.

 

Treasury shares, shares of stock of this Corporation owned by another corporation, the majority of the voting stock of which is owned or controlled by this Corporation, and shares of stock of this Corporation, held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time.

 

A shareholder may vote either in person or by proxy executed in writing by the shareholder or his duly authorized attorney-in-fact.

 

At each election for directors every shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected at that time and for whose election he has a right to vote.

 

Shares standing in the name of another corporation, domestic or foreign, may be voted by the officer, agent, or proxy designated by the bylaws of the corporate shareholder; or, in the absence of any applicable bylaw, by such person as the Board of Directors of the corporate shareholder may designate.  Proof of such designation may be made by presentation of a certified copy of the bylaws or other instrument of the corporate shareholder.  In the absence of any such designation, or in case of conflicting designation by the corporate shareholder, the chairman of the board, president, any vice president, secretary and treasurer of the corporate shareholder shall be presumed to possess, in that order, authority to vote such shares.

 

Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name.  Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name.

 

Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed.

 

A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee or his nominee shall be entitled to vote the shares so transferred.

     
 

On and after the date on which written notice of redemption of redeemable shares has been mailed to the holders thereof and a sum sufficient to redeem such shares has been deposited with a bank or trust company with irrevocable instruction and authority to pay the redemption price to the holders thereof upon surrender of certificates therefor, such shares shall not be entitled to vote on any matter and shall not be deemed to be outstanding shares.

 

Section 9.  Proxies .  Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting of a shareholders’ duly authorized attorney-in-fact may authorize another person or persons to act for him by proxy.

 

Every proxy must be signed by the shareholder or his attorney in-fact.  No proxy shall be valid after the expiration of three years from the date thereof unless otherwise provided in the proxy.  Every proxy shall be revocable at the pleasure of the shareholder executing it, except as otherwise provided by law. 

 

The authority of the holder of a proxy to act shall not be revoked by the incompetence or death of the shareholder who executed the proxy unless, before the authority is exercised, written notice of an adjudication of such incompetence or of such death is received by the corporate officer responsible for maintaining the list of shareholders.

 

If a proxy for the same shares confers authority upon two or more persons and does not otherwise provide, a majority of them present at the meeting, or if only one is present then that one, may exercise all the powers conferred by the proxy; but if the proxy holders present at the meeting are equally divided as to the right and manner of voting in any particular case, the voting of such shares shall be prorated.

 

If a proxy expressly provides, any proxy holder may appoint in writing a substitute to act in his place.

 

Section 10.  Action by Shareholders without a Meeting .  Any action required by law, these bylaws, or the certificate of incorporation of this Corporation to be taken at any annual or special meeting of shareholders of the Corporation, or any action which may be taken at any annual or special meeting of such shareholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.  If any class of shares is entitled to vote thereon as a class, such written consent shall be required of the holders of a majority of the shares of each class of shares entitled to vote as a class thereon and of the total shares entitled to vote thereon.

 

Promptly after obtaining such authorization by written consent, notice shall be given to those shareholders who have not consented in writing.  The notice shall fairly summarize the material features of the authorized action, and, if the action be a merger or consolidation for which appraisal rights are provided under the DGCL, be given in accordance with Section 262(d)(2) of the DGCL.

 

Section 11.  Advance Notice of Shareholder Nominees and Shareholder Business.

 

To be properly brought before an annual meeting or special meeting, nominations for the election of directors or other business must be:

(a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or
(c) otherwise properly brought before the meeting by a shareholder.

     
 

For such other nominations or other business to be considered properly brought before the meeting by a shareholder, such shareholder must have given timely notice and in proper form of his intent to bring such business before such meeting.  To be timely, such shareholder’s written notice must be delivered to or mailed and received by the secretary of the Corporation not less than 90 calendar days nor more than 120 calendar days before the first anniversary of the date on which the Corporation held its annual meeting in the immediately preceding year; provided , however , that in the case of an annual meeting of shareholders that is called for a date that is not within 30 calendar days before or after the first anniversary date of the annual meeting of shareholders in the immediately preceding year, any such written proposal of nomination must be received by the Board of Directors not less than 10 calendar days after the date the Company shall have mailed notice to its shareholders of the date that the annual meeting of shareholders will be held or shall have issued a press release or otherwise publicly disseminated notice that an annual meeting of shareholders will be held and the date of the meeting.  To be in proper form, a shareholder’s notice to the secretary shall set forth:

 

i. the name and address of the shareholder who intends to make the nominations, propose the business, and, as the case may be, the name, age, address and principal occupation or employment of the person or persons to be nominated for the last five years or the nature of the business to be proposed;
ii. a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting, the number of shares of capital stock of the Corporation beneficially owned within the meaning of the Securities and Exchange Commission Rule 13d-3 and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduced the business specified in the notice;
iii. if applicable, a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder;
iv. such other information regarding each nominee or each matter of business to be proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the Board of Directors; and
v. if applicable, the consent of each nominee to serve as director of the Corporation if so elected.

The chairman of the meeting may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure.

 
 

Article II. Directors

 

Section 1.  Function .  All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, the Board of Directors.

 

Section 2.  Qualification .  Directors need not be residents of this state or shareholders of this Corporation.

 

Section 3.  Compensation.  The Board of Directors shall have authority to fix the compensation of directors.

 

Section 4.  Duties of Directors .  A director shall perform his duties as a director, including his duties as a member of any committee of the board upon which he may serve, in good faith, in a manner he reasonably believes to be in the best interests of the Corporation, and with such care as an ordinarily prudent person in a like position would use under similar circumstances.

 

In performing his duties, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by:

(a) one or more officers or employees of the Corporation whom the director reasonably believes to be reliable and competent in the matters presented,
(b) counsel, public accountants or other persons as to matters which the director reasonably believes to be within such person’s professional or expert competence, or
(c) a committee of the board upon which he does not serve, duly designated in accordance with a provision of the certificate of incorporation or the bylaws, as to matters within its designated authority, which committee the director reasonably believes to merit confidence.

 

A director shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause such reliance described above to be unwarranted.

 

A person who performs his duties in compliance with this section shall have no liability by reason of being or having been a director of the Corporation.

 

Section 5.  Presumption of Assent .  A director of the Corporation who is present at a meeting of its Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless he votes against such action or abstains from voting in respect thereto because of an asserted conflict of interest.

 

Section 6.  Number .  This Corporation shall have no less than one nor greater than 9 directors.  The number of directors may be established from time to time by resolution of the Board of Directors, but no decrease shall have the effect of shortening the terms of any incumbent director. 

 

Section 7.  Election and Term .  Each person named in the certificate of incorporation as a member of the initial Board of Directors and all other directors appointed by the Board of Directors to fill vacancies thereof shall hold office until the first annual meeting of shareholders, and until his successor shall have been elected and qualified or until his earlier resignation, removal from office or death.

 

At the first annual meeting of shareholders and at each annual meeting thereafter the shareholders shall elect directors to hold office until the next succeeding annual meeting.  Each director shall hold office for the term for which he is elected and until his successor shall have been elected and qualified or until his earlier resignation, removal from office or death.

 

Section 8.  Vacancies .  Any vacancy occurring in the Board of Directors, including any vacancy created by reason of an increase in the number of directors, may be filled by the affirmative vote of a majority of the remaining directors despite having less than a quorum of the Board of Directors.  A director elected to fill a vacancy shall hold office only until the next election of directors by the shareholders.

     
 

Section 9.  Removal of Directors . At a meeting of the shareholders called expressly for that purpose, any director or the entire Board of Directors may be removed, with or without cause, by a vote of the holders of a majority of the shares of each class or series of voting stock, present in person or by proxy, then entitled to vote at an election of directors.

 

Section 10.  Quorum and Voting .  A majority of the number of directors then serving as directors shall constitute a quorum for the transaction of business. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

 

Section 11.  Director Conflicts of Interest .  No contract or other transaction between this Corporation and one or more of its directors or officers or any other corporation, firm, association or entity in which one or more of the directors are directors or officers or are financially interested, shall be either void or voidable because of such relationship or interest or because such director or directors are present at the meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction or because his or their votes are counted for such purpose, if:

(a) The fact of such relationship or interest is disclosed or known to the Board of Directors or committee which authorizes, approves or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested directors; or
(b) The fact of such relationship or interest is disclosed or known to the shareholders entitled to vote and they authorize, approve or ratify such contract or transaction by vote or written consent; or
(c) The contract or transaction is fair as to the Corporation at the time it is authorized by the board, a committee or the shareholders.  Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction.

 

Section 12.  Place of Meeting .  Regular and special meetings by the Board of Directors may be held within or without the State of Delaware.

 

Section 13.  Time, Notice and Call of Meetings .  Notice of the time and place of meetings of the Board of Directors shall be given to each director by either personal delivery, any form of electronic notice including email or facsimile transmission, as long as the director is able to retain a copy of the notice, at least one day before the meeting.

 

Notice of a meeting of the Board of Directors need not be given to any director who signs a waiver of notice either before or after the meeting.  Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and waiver of any and all obligations to the place of the meeting, the time of the meeting, or the manner in which it has been called or convened, except when a director states, at the beginning of the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened.

 

Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

 

A majority of the directors present, whether or not a quorum exists, may adjourn any meeting of the Board of Directors to another time and place.  Notice of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless the time and place of the adjourned meeting are announced at the time of the adjournment, to the other directors.

 

Meetings of the Board of Directors may be called by the chief executive officer or president of the Corporation or by any director.

 

Members of the Board of Directors may participate in a meeting of such Board by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time.  Participation by such means shall constitute presence in person at a meeting.

     
 

Section 14.  Action Without a Meeting .  Any action required to be taken at a meeting of the directors of the Corporation, or any action which may be taken at a meeting of the directors, may be taken without a meeting if a consent in writing, setting forth the action to be taken, signed by all of the directors, is filed in the minutes of the proceedings of the Board.  Such consent shall have the same effect as a unanimous vote.

 

Section 15.  Committees .  The Board of Directors may designate from among its members such committees it deems prudent, such as, but not limited to, an executive committee, audit committee, compensation committee, finance committee and a litigation committee.

     
 

Article III. Officers

 

Section 1.  Officers .  The officers of this Corporation shall consist of a president, any vice president(s) designated by the Board of Directors, a secretary, a treasurer and such other officers as may be designated by the Board of Directors, each of whom shall be elected by the Board of Directors from time to time.  Any two or more offices may be held by the same person.  The failure to elect any of the above officers shall not affect the existence of this Corporation.

 

Section 2.  Duties .  The officers of this Corporation shall have and perform the powers and duties usually pertaining to their respective offices, the powers and duties prescribed by these bylaws, any additional powers and duties as may from time to time be prescribed by the Board of Directors and such other duties as delegated by the president including the following:

 

The chief executive officer shall have general and active management of the business and affairs of the Corporation subject to the directions of the Board of Directors, and shall preside at all meetings of the shareholders and the Board of Directors, unless there is a chairman of the Board of Directors, in which case the chairman shall preside at such meetings.

 

The president shall perform such duties as are conferred upon him by the chief executive officer of the Corporation, shall act whenever the chief executive officer shall be unavailable, and shall perform such other duties as may be prescribed by the Board of Directors.

 

The secretary shall have custody of and maintain all of the corporate records except the financial records, shall record the minutes of all meetings of the shareholders and whenever else required by the Board of Directors or the president, and shall perform such other duties as may be prescribed by the Board of Directors.

 

The treasurer shall be the legal custodian of all monies, notes, securities and other valuables that may from time to time come into the possession of the Corporation.  He shall immediately deposit all funds of the Corporation coming into his hands in some reliable bank or other depositary to be designated by the Board of Directors and shall keep this bank account in the name of the Corporation.

 

Section 3.  Removal of Officers .  Any officer or agent elected or appointed by the Board of Directors may be removed by the Board whenever in its judgment the best interests of the Corporation will be served thereby.

 

Any officer or agent elected by the shareholders may be removed only by vote of the shareholders, unless the shareholders shall have authorized the directors to remove such officer or agent.

 

Any vacancy, however, occurring, in any office may be filled by the Board of Directors, unless the bylaws shall have expressly reserved such power to the shareholders.

 

Removal of any officer shall be without prejudice to the contract rights, if any, of the person so removed; however, election or appointment of an officer or agent shall not of itself create contract rights.

 
 

Article IV. Stock Certificates

 

Section 1.  Issuance .  Every holder of shares in this Corporation shall be entitled to have a certificate, representing all shares to which he is entitled.  No certificate shall be issued for any share until such share is fully paid.

 

Section 2.  Form .  Certificates representing shares in this Corporation shall be signed by the chairperson or vice-chairperson, the president or vice president and the secretary or an assistant secretary or treasurer or assistant treasurer and may be, but are not required to be, sealed with the seal of this Corporation or a facsimile thereof.  The signature of the chairperson or vice-chairperson, the president or vice president and the secretary or assistant secretary or treasurer or assistant treasurer may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar, other than the Corporation itself or an employee of the Corporation.  In case any officer who signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issuance.

 

Every certificate representing shares issued by this Corporation shall set forth or fairly summarize upon the face or back of the certificate, or shall state that the Corporation will furnish to any shareholder upon request and without charge a full statement of, the designations, preferences, limitations and relative rights of the shares of each class or series authorized to be issued, and the variations in the relative rights and preferences between the shares of each series so far as the same have been fixed and determined, and the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series.

 

Every certificate representing shares which are restricted as to the sale, disposition, or other transfer of such shares shall state that such shares are restricted as to transfer and shall set forth or fairly summarize upon the certificate, or shall state that the Corporation will furnish to any shareholder upon request and without charge a full statement of, such restrictions.

 

Each certificate representing shares shall state upon its face:  the name of the Corporation; that the Corporation is organized under the laws of this state; the name of the person or persons to whom issued; the number and class of shares, and the designation of the series, if any, which such certificate represents; and the par value of each share represented by such certificate, or a statement that the shares are without par value.

 

Section 3.  Transfer of Stock .  Except as provided in Section 4 of this Article, the Corporation shall register a stock certificate presented to it for transfer if the certificate is properly endorsed by the holder of record or by his duly authorized attorney, and the signature of such person has been guaranteed by a commercial bank or trust company or by a member of the any securities exchanges on which the Corporation may be listed.

 

Section 4.  Off-Shore Offerings .  In all offerings of equity securities pursuant to Regulation S of the Securities Act of 1933 (the “Act”), the Corporation shall require that its stock transfer agent refuse to register any transfer of securities not made in accordance with the provisions of Regulation S, pursuant to registration under the Act or an available exemption under the Act.

 

Section 5.  Lost, Stolen or Destroyed Certificates .  The Corporation shall issue a new stock certificate in the place of any certificate previously issued if the holder of record of the certificate (a) makes proof in affidavit form that it has been lost, destroyed or wrongfully taken; (b) requests the issuance of a new certificate before the Corporation has notice that the certificate has been acquired by a purchaser for value in good faith and without notice of any adverse claim; (c) gives bond in such form as the Corporation may direct, to indemnify the Corporation, the transfer agent, and registrar against any claim that may be made on account of the alleged loss, destruction, or theft of a certificate; and (d) satisfies any other reasonable requirements imposed by the Corporation.

     
 

Article V. Books and Records

 

Section 1.  Books and Records .  This Corporation shall keep correct and complete records and books of account and shall keep minutes of the proceedings of its shareholders, Board of Directors and committees of directors.

 

This Corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders, and the number, class and series, if any, of the shares held by each.

 

Any books, records and minutes may be in written form or in any other form capable of being converted into written form within a reasonable time.

 

Any person who shall have been a holder of record of shares or of voting trust certificates therefor at least six months immediately preceding his demand or shall be the holder of record of, or the holder of record of voting trust certificates for, at least five percent of the outstanding shares of any class or series of the Corporation, upon written demand stating the purpose thereof, shall have the right to examine, in person or by agent or attorney, at any reasonable time or times, for any proper purpose its relevant books and records of accounts, minutes and records of shareholders and to make extracts therefrom.

 

Section 2.  Financial Information . Not later than three months after the close of each fiscal year, this Corporation shall prepare a balance sheet showing in reasonable detail the financial condition of the Corporation as of the close of its fiscal year, and a profit and loss statement showing the results of the operations of the Corporation during its fiscal year.

 

Upon the written request of any shareholder or holder of voting trust certificates for shares of the Corporation, the Corporation shall mail to such shareholder or holder of voting trust certificates a copy of the most recent such balance sheet and profit and loss statement.

 

The balance sheets and profit and loss statements shall be filed in the registered office of the Corporation in this state, shall be kept for at least five years, and shall be subject to inspection during business hours by any shareholder or holder of voting trust certificates, in person or by agent.

 
 

Article VI. Dividends

 

The Board of Directors of this Corporation may, from time to time, declare and the Corporation may pay dividends on its shares in cash, property or its own shares, except when the Corporation is insolvent or when the payment thereof would render the Corporation insolvent or when the declaration or payment thereof would be contrary to any restrictions contained in the certificate of incorporation, subject to the following provisions:

 

(a) Dividends in cash or property may be declared and paid, except as otherwise provided in this section, only out of the unreserved and unrestricted earned surplus of the Corporation or out of capital surplus, howsoever arising but each dividend paid out of capital surplus shall be identified as a distribution of capital surplus, and the amount per share paid from such surplus shall be disclosed to the shareholders receiving the same concurrently with the distribution.
(b) Dividends may be declared and paid in the Corporation’s own treasury shares.
(c) Dividends may be declared and paid in the Corporation’s own authorized but unissued shares out of any unreserved and unrestricted surplus of the Corporation upon the following conditions:
(1) If a dividend is payable in shares having a par value, such shares shall be issued at not less than the par value thereof and there shall be transferred to stated capital at the time such dividend is paid an amount of surplus equal to the aggregate par value of the shares to be issued as a dividend.
(2) If a dividend is payable in shares without a par value, such shares shall be issued at such stated value as shall be fixed by the Board of Directors by resolution adopted at the time such dividend is declared, and there shall be transferred to stated capital at the time such dividend is paid an amount of surplus equal to the aggregate stated value so fixed in respect of such shares; and the amount per share so transferred to stated capital shall be disclosed to the shareholders receiving such dividend concurrently with the payment thereof.
(d) No dividend payable in shares of any class shall be paid to the holders of shares of any other class unless the certificate of incorporation so provide or such payment is authorized by the affirmative vote or the written consent of the holders of at least a majority of the outstanding shares of the class in which the payment is to be made.
(e) A split-up or division of the issued shares of any class into a greater number of shares of the same class without increasing the stated capital of the Corporation shall not be construed to be a share dividend within the meaning of this section.

 

Article VII. Corporate Seal

 

The Board of Directors may provide a corporate seal which shall be circular in form and shall have inscribed thereon the following: MassRoots Inc.

 

Article VIII. Amendment

 

These bylaws may be repealed or amended, and new bylaws maybe adopted, by the Board of Directors or the shareholders in accordance with Section 109 of the DGCL.

     

Exhibit 4.1

 
 

Exhibit 4.2  

 

WARRANT

 

THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), AND MAY NOT BE TRANSFERRED UNLESS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, A "NO-ACTION" LETTER FROM THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “ COMMISSION ” OR THE “ SEC ”) WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

 

MassRoots, Inc.

 

WARRANT NO. MARCH 2014 1-__

 

Dated: March 24, 2014

 

MassRoots, Inc. , a corporation organized under the laws of the State of Delaware (the “ Company ”), hereby certifies that, for value received from ____________, a [insert state of incorporation or state of residence] (the “ Holder ”), is entitled, subject to the terms set forth below, to purchase from the Company up to a total of [50% of shares of common stock purchased under the common stock offering] shares of the common stock (equal to one half of the amount the Holder subscribed to under the Company’s Common Stock Offering of even date), $0.001 par value per share (the “ Common Stock ”), of the Company (the “ Warrant Shares ”), at an exercise price equal to 40/100 ($.40) per share (the “ Exercise Price ”). This Warrant may be exercised on a cashless basis any time after issuance through and including the third (3rd) anniversary of its original issuance as noted above (the “ Expiration Date ”), subject to the following terms and conditions:

 

1. Registration of Warrant . The Company shall, from time to time and whenever requested by the Holder, register this Warrant in conformity with records to be maintained by the Company for such purpose (the “ Warrant Register ”) in the name of the Holder. The Company shall treat the registered Holder of this Warrant as the absolute owner hereof for any and all purposes, including the exercise hereof or any distribution to the Holder, and the Company shall not be affected by notice to the contrary.

 

2. Registration of Transfers and Exchanges .

 

(a) The Company or the transfer agent shall enter or record the transfer of all or any portion of this Warrant in the Warrant Register, upon surrender of this Warrant to the Company at the office specified herein or pursuant to Section 11 hereof. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant hereinafter referred to as a “ New Warrant ”), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance of such transferee of all of the rights and obligations of a holder of a Warrant.

 

(b) This Warrant is exchangeable, upon the surrender hereof by the Holder to the office of the Company specified herein or pursuant to Section 3(b) hereof for one or more New Warrants, evidencing in the aggregate the right to purchase the number of Warrant Shares which may then be purchased hereunder. Any such New Warrant shall be dated as of the date of such exchange.

 

3. Duration and Exercise of Warrants .

 

(a) This Warrant shall be exercisable by the registered Holder on any business day before 5:00 P.M., Boston time, at any time and from time to time on or after the date hereof to and including the Expiration Date. At 5:00 P.M., Boston time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value. Prior to the Expiration Date, the Company may not call or otherwise redeem this Warrant without the prior written consent of the Holder, which consent shall be given or withheld at the sole and absolute discretion of the Holder.

     
 

(b) Subject to Section 2(b) , Section 6 and Section 10 hereof, upon: (x) surrender of this Warrant, together with the Form of Election to Purchase attached hereto duly completed and signed, to the Company at its address for notice set forth in Section 11 hereof; and (y) payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, in the manner provided hereunder, all as specified by the Holder in the Form of Election to Purchase, the Company shall promptly (but in no event later than five (5) business days after the Date of Exercise (as defined below)) issue or cause to be issued and cause to be delivered to the Holder in such name(s) as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise and free of restrictive legends unless (i) a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder is not then effective or the Warrant Shares are not freely transferable without volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act then the Warrant Shares will bear a Securities Act restrictive legend, or (ii) this Warrant shall have been issued pursuant to a written agreement between the original Holder and the Company, as required by such agreement. Any person so designated by the Holder to receive Warrant Shares shall be deemed to have become holder of record of such Warrant Shares as of the Date of Exercise of this Warrant. A “ Date of Exercise ” means the date on which the Company shall have received (I) this Warrant (or any New Warrant, as applicable), together with the Form of Election to Purchase attached hereto (or attached to such New Warrant) appropriately completed and duly signed; and (II) payment of the Exercise Price for the number of Warrant Shares so indicated by the holder hereof to be purchased.

 

(c) This Warrant shall be exercisable in its entirety or, from time to time, for a portion of the number of Warrant Shares. If less than all of the Warrant Shares which may be purchased under this Warrant are exercised at any time, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares for which no exercise has been evidenced by this Warrant. In the event the Common Stock representing the Warrant Shares is not delivered per the written instructions of the Holder within five (5) business days after the Notice of Election and Warrant is received by the Company (the “ Delivery Date ”), then the Company shall pay to Holder in cash two percent (2.0%) of the dollar value of the Warrant Shares to be issued per each day after the Delivery Date that the Warrant Shares are not delivered. The Company acknowledges that its failure to deliver the Warrant Shares by the Delivery Date will cause the Holder to suffer damages in an amount that will be difficult to ascertain. Accordingly, the parties hereto agree that it is appropriate to include in this Warrant this provision for liquidated damages. The parties hereto acknowledge and agree that the liquidated damages provision set forth in this section represents the parties’ good faith effort to quantify such damages and therefore agree that the form and amount of such liquidated damages are reasonable and will not constitute a penalty. Notwithstanding the foregoing, the payment of liquidated damages shall not relieve the Company from its obligations to deliver the Common Stock pursuant to the terms of this Warrant. The Company shall make any payments incurred under this Section 3 in immediately available funds within five (5) business days from the date of issuance of the applicable Warrant Shares. Nothing herein shall limit Holder’s right to pursue actual damages or cancel the Notice of Election for the Company’s failure to issue and deliver Common Stock to the Holder within seven (7) business days following the Delivery Date.

 

4. Piggyback Registration Rights . If the Company shall determine to prepare and file with the United States Securities and Exchange Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or any post-effective amendment to existing registration statements or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to the Holder a written notice of such determination at least five (5) days prior to the filing of any such registration statement and shall include in such registration statement all shares of common stock underlying this Warrant; provided, however, that (i) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company determines for any reason not to proceed with such registration, the Company will be relieved of its obligation to register any common stock underlying the Warrant in connection with such registration, and (ii) in case of a determination by the Company to delay registration of its securities, the Company will be permitted to delay the registration of the common stock underlying the Warrant for the same period as the delay in registering such other securities.

 

5. Payment of Taxes . Upon the exercise of this Warrant, the Company will pay all documentary stamp taxes attributable to the issuance of Warrant Shares; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

     
 

6. Replacement of Warrant . If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and indemnity, if requested, satisfactory to it. Applicants for a New Warrant under such circumstances shall comply with such other reasonable regulations and procedures and pay such other reasonable charges as the Company may prescribe.

 

7. Reservation of Warrant Shares . The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 8 hereof). The Company covenants that all Warrant Shares that shall be so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. If the Company does not have a sufficient amount of Common Stock authorized to reserve for the Warrant Shares, it shall, as soon as reasonably practicable, use its best efforts to increase the number of its authorized shares such that the Company will have a sufficient amount of Common Stock authorized to reserve for the Warrant Shares.

 

8. Certain Adjustments . The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 8 . Upon each such adjustment of the Exercise Price pursuant to this Section 8 , the Holder shall thereafter but prior to the Expiration Date be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of Warrant Shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment.

 

(a) An adjustment shall be made, if the Company, at any time while this Warrant is outstanding (i) pays a stock dividend (except scheduled dividends paid on outstanding preferred stock as of the date hereof which contain a stated dividend rate) or otherwise make distribution(s) on shares of its Common Stock or on any other class of capital stock and not the Common Stock payable in shares of Common Stock; (ii) subdivides outstanding shares of Common Stock into a larger number of shares; or (iii) combines outstanding shares of Common Stock into a smaller number of shares. If either (i), (ii) or (iii) above occurs, the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination, and shall apply to successive subdivisions and combinations.

 

(b) In case of any reclassification of the Common Stock, any consolidation or merger of the Company with or into another entity, the sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property, then the Holder shall have the right thereafter to exercise this Warrant only into the shares of stock and other securities and property receivable upon or deemed to be held by holders of Common Stock following such reclassification, consolidation, merger, sale, transfer or share exchange, and the Holder shall be entitled upon such event to receive such amount of securities or property equal to the amount of Warrant Shares such Holder would have been entitled to had such Holder exercised this Warrant immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange. The terms of any such consolidation, merger, sale, transfer or share exchange shall include such terms so as to continue to give to the Holder the right to receive the securities or property set forth in this Section 8(b) upon any exercise following any such reclassification, consolidation, merger, sale, transfer or share exchange.

     
 

(c) At any time while this Warrant is outstanding, if the Company distributes to all holders of Common Stock (and not to holders of this Warrant) evidence of its indebtedness or assets or rights or warrants to subscribe for or purchase any security (excluding those referred to in Section 8(a) , Section 8(b) and Section 8(d) hereof), then in each such case the Exercise Price shall be determined by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Exercise Price determined as of the record date mentioned above, and of which the numerator shall be such Exercise Price on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of Common Stock as determined by the Company's independent certified public accountants that regularly examines the financial statements of the Company (the “ Appraiser ”).

 

(d) If, at any time while this Warrant is outstanding, the Company shall issue or cause to be issued rights or warrants to acquire or otherwise sell or distribute shares of Common Stock for a consideration per share less than the lower of the Exercise Price then in effect and the then fair market value of the Common Stock, then, forthwith upon such issue or sale, the Exercise Price shall be reduced to the price (calculated to the nearest one hundredth of a cent) determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately prior to such issuance, and (ii) the number of shares of Common Stock which the aggregate consideration received (or to be received, assuming exercise or conversion in full of such rights, warrants and convertible securities) for the issuance of such additional shares of Common Stock would purchase at the Exercise Price, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately after the issuance of such additional shares. Such adjustment shall be made successively whenever such an issuance is made.

 

(e) For the purposes of this Section 8 , the following clauses shall also be applicable:

 

(i) Record Date . In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock or in securities convertible or exchangeable into shares of Common Stock, or (B) to subscribe for or purchase Common Stock or securities convertible or exchangeable into shares of Common Stock, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

(ii) Treasury Shares . The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

(f) All calculations under this Section 8 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.

 

(g) Whenever the Exercise Price is adjusted pursuant to Section 8(c) hereof, the Holder, after receipt of the determination by the Appraiser, shall have the right to select an additional appraiser (which shall be a nationally recognized accounting firm), in which case the adjustment shall be equal to the average of the adjustments recommended by each of the Appraiser and such additional appraiser appointed under this Section 8(g) . The Holder shall promptly mail or cause to be mailed to the Company, a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Such adjustment shall become effective immediately after the record date mentioned above, if:

 

(i) the Company shall declare a dividend (or any other distribution) on its Common Stock;

 

(ii) the Company shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock;

 

(iii) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights;

 

(iv) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or

     
 

(v) the Company shall authorize the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall cause to be mailed to the Holder at their last addresses as they shall appear upon the Warrant Register, at least thirty (30) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up; provided, however, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.

 

9. Payment of Exercise Price . The Holder, at its sole election, may pay the Exercise Price in one of the following manners:

 

(a) Cash Exercise . The Holder shall deliver immediately available funds; or

 

(b) Cashless Exercise . If at any time after one year from the date of issuance of this Warrant there is no effective Registration Statement registering the resale of the Warrant Shares by the Holder at such time, this Warrant may also be exercised at such time by means of a cashless exercise. In such event, the Holder shall surrender this Warrant to the Company, together with a notice of cashless exercise, and the Company shall issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y (A-B)/A

 

where:

X = the number of Warrant Shares to be issued to the Holder.

 

Y = the number of Warrant Shares with respect to which this Warrant is being exercised.

 

A = the average closing bid price of the Common Stock for the five (5) trading days immediately prior to the Date of Exercise.

 

B = the Exercise Price.

 

For purposes of Rule 144 of the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have been commenced, on the issue date.

 

(c) Notwithstanding anything in this Warrant to the contrary, the Holder is limited in the amount of this Warrant it may exercise. In no event shall the Holder be entitled to exercise any amount of this Warrant in excess of that amount upon exercise of which the sum of (1) the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) by the Holder, and (2) the number of Warrant Shares issuable upon the exercise of any Warrants then owned by Holder, would result in beneficial ownership by the Holder of more than four and ninety-nine one hundredths percent (4.99%) of the outstanding shares of Common Stock of the Company, as determined in accordance with Rule13d-1(j) of the Exchange Act. Furthermore, the Company shall not process any exercise that would result in beneficial ownership by the Holder of more than four and ninety-nine one hundredths percent (4.99%) of the outstanding shares of Common Stock of the Company.

 

10. Fractional Shares . The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant. The number of full Warrant Shares which shall be issuable upon the exercise of this Warrant shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of this Warrant so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 10 , be issuable on the exercise of this Warrant, the Company shall pay an amount in cash equal to the Exercise Price multiplied by such fraction.

     
 

11. Notices . Any and all notices or other communications or deliveries hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 5:00 p.m. Boston time on a business day, (ii) the business day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 5:00 p.m. Boston time on any date and earlier than 11:59 p.m. Boston time on such date, (iii) the business day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be:

 

If to the Company:

 

MassRoots, Inc.

6525 Gunpark Drive,

Boulder, CO 80301

 

 

If to the Holder:

[Insert Name and Address here ]

 

 

12. Warrant Agent . The Company shall serve as warrant agent under this Warrant. Upon thirty (30) days notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further action. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register.

 

13. Miscellaneous .

 

(a) This Warrant shall be binding on and inure to the benefit of the parties hereto. This Warrant may be amended only in writing signed by the Company and the Holder.

 

(b) Nothing in this Warrant shall be construed to give to any person or corporation other than the Company and the Holder any legal or equitable right, remedy or cause under this Warrant. This Warrant shall inure to the sole and exclusive benefit of the Company and the Holder.

 

(c) This Warrant shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts without regard to the principles of conflicts of law thereof.

 

(d) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.

 

(e) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

(f) The Company hereby represent and warrants to the Holder that: (i) it is voluntarily issuing this Warrant of its own freewill, (ii) it is not issuing this Warrant under economic duress, (iii) the terms of this Warrant are reasonable and fair to the Company, and (iv) the Company has had independent legal counsel of its own choosing review this Warrant, advise the Company with respect to this Warrant, and represent the Company in connection with its issuance of this Warrant.

     
 

(g) Any capitalized term used but not defined in this Warrant shall have the meaning ascribed to it in the Subscription Agreement.

 

(h) This Warrant may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Warrant. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

 

(i) This Warrant and the obligations of the Company hereunder shall not be assignable by the Company.

 

(j) Notwithstanding anything in this Warrant to the contrary, the parties hereto hereby acknowledge and agree to the following: (i) the Holder makes no representations or covenants that it will not engage in trading in the securities of the Company; (ii) the Company shall, by 8:30 a.m. Boston Time on the trading day following the date hereof, file a current report on Form 8-K disclosing the material terms of the transactions contemplated hereby and in the other Transaction Documents; (iii) the Company has not and shall not provide material non-public information to the Holder unless prior thereto the Holder Party shall have executed a written agreement regarding the confidentiality and use of such information; and (iv) the Company understands and confirms that the Holder will be relying on the acknowledgements set forth in clauses (i) through (iii) above if the Holder effects any transactions in the securities of the Company.

 

14. Disputes Under This Agreement.

 

All disputes arising under this Warrant shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, without regard to principles of conflict of laws. The parties hereto will submit all disputes arising under this Agreement to arbitration in Boston, Massachusetts before a single arbitrator of the American Arbitration Association (the “ AAA ”). The arbitrator shall be selected by application of the rules of the AAA, or by mutual agreement of the parties, except that such arbitrator shall be an attorney admitted to practice law in the Commonwealth of Massachusetts. No party hereto will challenge the jurisdiction or venue provisions provided in this Section 14 . Nothing in this Section 14 shall limit the Holder's right to obtain an injunction for a breach of this Agreement from a court of law. Any injunction obtained shall remain in full force and effect until the arbitrator, as set forth in this Section 14 fully adjudicates the dispute.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

[Signature on Following Page]

 
 

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

 

 

MassRoots, Inc.

 

By: _________________

Name: Isaac Dietrich

Title: CEO 

 
 

 

EXHIBIT A

 

FORM OF ELECTION TO PURCHASE

 

MassRoots, Inc.

 

Re: Intention to Exercise Right to Purchase Shares of Common Stock Under the Warrant

 

Gentlemen:

 

In accordance with the Warrant enclosed with this Form of Election to Purchase, the undersigned hereby irrevocably elects to purchase _________________ shares of Common Stock, $0.001 par value per share, of MassRoots, Inc.. and, if such Holder is not utilizing the cashless exercise provisions set forth in the Warrant, encloses herewith $________ in cash, certified or official bank check(s), which sum represents the aggregate Exercise Price for the number of shares of Common Stock to which this Form of Election to Purchase relates, together with any applicable taxes payable by the undersigned pursuant to the Warrant. Any capitalized terms used but not defined in this Form of Election to Purchase shall have the meaning ascribed to them in the accompanying Warrant.

 

The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of:

 

 
(Please insert SS# or FEIN #)
 
(Please print name and address)

 

If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock which the undersigned is entitled to purchase in accordance with the enclosed Warrant, the undersigned requests that a New Warrant evidencing the right to purchase the shares of Common Stock not issuable pursuant to the exercise evidenced hereby be issued in the name of and delivered to:

 

 
(Please print name and address)

 

Dated:     Name of Holder:  
         
      Signed:  
      Print Name  
      Title:  

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

     

Exhibit 4.3  

 

DEBENTURE

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “ COMMISSION ” OR THE “ SEC ”) OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

 

FACE AMOUNT:   $
DEBENTURE NUMBER:   March 2014
ISSUANCE DATE:   March 24, 2014
MATURITY DATE:   March 24, 2016

 

FOR VALUE RECEIVED, MassRoots, Inc., a Delaware corporation (the “ Company ”), hereby promises to pay_____________________, a___________________ (the “ Holder ”) by March 24, 2016 (the “ Maturity Date ”), the principal amount of [INSERT AMOUNT], and to pay the principal amount thereof, and any accrued penalties, in such amounts, at such times and on such terms and conditions as are specified herein.

 

This Debenture (this “ Debenture ”) is subject to automatic conversion at the Maturity Date, at which time the outstanding amount under this Debenture will be automatically converted based upon the formula set forth in Article 3.2(c) hereof.

 

Article 1 Interest .

 

No interest shall accrue on the Debenture.

 

Article 2 Method of Payment.

 

Section 2.1 Repayment of Debenture .

 

(a)    After the date on which the United States Securities and Exchange Commission (the “ Commission ” or the “ SEC ”) declares the registration statement (the “ Registration Statement ") covering the shares underlying the conversion of this Debenture (the “ Conversion Shares ”) effective (the “ Effective Date ”), the Holder, at its sole option, shall be entitled to elect to convert a portion of this Debenture pursuant to Article 3 hereof.

 

Nothing contained in this Article 2 shall limit the amount the Holder can elect to convert during a calendar month except as defined in Section 3.2 (i) hereof.

 

Article 3 Conversion .

 

Section 3.1                  Conversion Privilege .

 

(a)    The Holder of this Debenture shall have the right to convert (a “ Conversion ”) any and all amounts owing under this Debenture into shares of common stock of the Company, par value $0.001 per share (the “ Common Stock ”), at any time following the Closing Date (as such term is defined in that certain Debenture Registration Rights Agreement, of even date herewith, by and between the Company and the Holder (the “ Debenture Registration Rights Agreement ”)) but which is before the close of business on the Maturity Date, except as set forth in Section 3.2(c) hereof. The number of shares of Common Stock issuable upon the Conversion of this Debenture is determined pursuant to Section 3.2 hereof and rounding the result up to the nearest whole share.

     
 

(b)               This Debenture may not be converted, whether in whole or in part, except in accordance with this Article 3 .

 

(c)                In the event all or any portion of this Debenture remains outstanding on the Maturity Date, the unconverted portion of such Debenture shall automatically be converted into shares of Common Stock on such date in the manner set forth in Section 3.2 hereof.

 

Section 3.2                  Conversion Procedure .

 

(a)                Conversion Procedures . In addition to the Holder’s right to convert this Debenture as provided in Section 2.1 above, the Holder may elect to convert the unpaid Face Amount of this Debenture, in whole or in part, at any time following the Closing Date; provided, however, that in the event any Conversion occurs prior to the Effective Date, the Conversion Shares shall be subject to applicable transferability restrictions as provided under the federal securities laws, including Rule 144. Any such Conversion shall be effectuated by the Holder sending to the Company a facsimile or electronic mail version of the signed Notice of Conversion, attached hereto as Exhibit A , which evidences the Holder’s intention to convert the Debenture as indicated. The date on which the Notice of Conversion is delivered (the “ Conversion Date ”) shall be deemed to be the date on which the Holder has delivered to the Company a facsimile or electronic mail of the signed Notice of Conversion. Notwithstanding the above, any Notice of Conversion received by 5:00 P.M. Boston Time shall be deemed to have been received the previous business day, with receipt being via a confirmation of time of facsimile of the Holder.

 

(b)               Common Stock to be Issued . Upon the Holder's Conversion of any amount of this Debenture, the Company shall issue the number of shares of Common Stock equal to the Conversion. If, at the time of Conversion, the Registration Statement has been declared effective, the Company shall instruct its transfer agent to issue stock certificates without restrictive legend (other than a legend referring to such Registration Statement and prospectus delivery requirements) or stop transfer instructions. If, at the time of the Holder's Conversion, the Registration Statement has not been declared effective, the Company shall instruct the transfer agent to issue the certificates with an appropriate legend. The Company shall act as Registrar and shall maintain an appropriate ledger containing the necessary information with respect to this Debenture. The Company represents and warrants to the Holder that no instructions, other than these instructions, have been given or will be given to the transfer agent and that the Common Stock shall otherwise be freely resold, except as may be otherwise set forth herein.

 

(c)                Conversion Price . The Holder is entitled to convert the unpaid Face Amount of this Debenture, any time following a Closing Date, at ten cents ($.10) per share. No fractional shares or scrip representing fractions of shares will be issued upon Conversion, but the number of shares issuable shall be rounded up, in the event of a partial share, to the nearest whole share. The Holder shall retain all rights of Conversion during any partial trading days.

 

(d)               Maximum Interest . Nothing contained in this Debenture shall be deemed to establish or require the Company to pay interest to the Holder at a rate in excess of the maximum rate permitted by applicable law. In the event that the rate of interest required to be paid exceeds the maximum rate permitted by applicable law, the rate of interest required to be paid thereunder shall be automatically reduced to the maximum rate permitted under applicable law and such excess, if so ordered, shall be credited on any remaining balances due to the Holder. In the event that the interest rate on this Debenture is required to be adjusted pursuant to this Section 3.2(d) , then the parties hereto agree that the terms of this Debenture shall remain in full force and effect except as is necessary to make the interest rate comply with applicable law.

 

(e)                Opinion Letter . It shall be the Company’s responsibility to take all necessary actions and to bear all such costs to issue the Common Stock as provided herein, including the responsibility and cost for delivery of an opinion letter to the transfer agent, if so required. The person or entity in whose name the certificate of Common Stock is to be registered shall be treated as a shareholder of record on and after the Conversion Date. Upon surrender of any Debentures that are to be converted in part, the Company shall issue to the Holder a new Debenture equal to the unconverted amount. The Company hereby acknowledges that the date of consideration for this Debenture is the Issuance Date and shall use all commercially reasonable best efforts to facilitate sales under Rule 144 of the Securities Act.

     
 

(f)                Delivery of Shares .

 

(i)                Within three (3) business days after receipt of the Notice of Conversion (the “ Delivery Deadline ”), the Company shall deliver a certificate, in accordance with Section 3.2(c) hereof for the number of shares of Common Stock issuable upon a Conversion. In the event the Company does not make delivery of said certificate by the Delivery Deadline, the Company shall pay to Holder in cash, as liquidated damages, an additional fee per day equal to three percent (3%) of the dollar value of the Debentures being converted (the “Delivery Penalty”); provided, however, that the Delivery Penalty shall not be assessed against the Company in the event that the delay in delivery of the Holder’s certificate beyond the Delivery Deadline is not due to the Company’s actions. In lieu of delivering physical certificates representing the Common Stock and provided that the Company's transfer agent then is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder, the Company shall use all commercially reasonable efforts to cause its transfer agent to electronically transmit the Securities by crediting the account of the Holder's prime broker (as specified by the Holder within a reasonable period in advance of the Holder's notice) with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system. If the Company is not DWAC eligible at the time of a Conversion, the Company and the Holder agree to share equally any charges incurred on each Conversion Date associated with, but not limited to, deposit costs, legal review fees and wire fees.

 

(ii)              If the failure of the Company to deliver the Common Stock pursuant to this Article 3.2(f) is due to the unavailability of a sufficient number of authorized shares of Common Stock of the Company, then the provisions of this Article 3.2(f) shall apply as well as the provisions of Article 3.2(k) hereof shall apply.

 

(iii)            The Company shall make any payments required under this Article 3.2(f) in immediately available funds for any defaults under 3.2 (f) within two (2) of curing such default. Nothing herein shall limit the Holder’s right, at the Holder's sole discretion, to pursue actual damages or cancel the conversion for the Company’s failure to issue and deliver the certificate by the Certificate Deadline.

 

(iv)            The Company shall at all times reserve (or make alternative written arrangements for reservation or contribution of shares) and have available all Common Stock necessary to meet Conversion of the full amount of the Debentures then outstanding and due to the Holder, unless so waived by the Holder in writing. If, at any time, the Holder submits a Notice of Conversion and the Company does not have sufficient authorized but unissued shares of Common Stock (or alternative shares of Common Stock as may be contributed by Stockholders) available to effect, in full, a Conversion of the Debentures (a “ Conversion Default ”, the date of such default being referred to herein as the “ Conversion Default Date ”), the Company shall issue to the Holder all of the shares of Common Stock which are then currently available. Any Debentures or any portion thereof, which cannot be converted due to the Company's lack of sufficient authorized common stock (the “ Unconverted Debentures ”), may be deemed null and void upon written notice sent by the Holder to the Company. The Company shall provide notice of such Conversion Default (“ Notice of Conversion Default ”) to the Holder, by facsimile, within one (1) business days of such default.

 

(v)              In the event of Conversion Default, the Company will pay to the Holder an amount computed as follows (the “ Conversion Default Rate ”):

 

(N / 365) x (0.24) x (initial issuance price of outstanding and/or tendered but not converted Debentures held by the Holder)

 

Where N is equal to the number of days from the Conversion Default Date to the date that the Company authorizes a sufficient number of shares of Common Stock to effect conversion of all remaining Debentures (the “ Authorization Date ”).

 

(vi)            The Company shall send notice to Holder of outstanding Debenture that additional shares of Common Stock have been authorized, stating the Authorization Date and the amount of Holder’s accrued Conversion Default Payments (“ Authorization Notice ”). The accrued Conversion Default shall be paid in cash or shall be convertible into Common Stock at the Conversion Rate, upon written notice sent by the Holder to the Company, as follows: (i) in the event the Holder elects to take such payment in cash, cash payment shall be made to the Holder within five (5) business days, or (ii) in the event Holder elects to take such payment in stock, the Holder may convert at the Conversion Default Rate within five (5) business days until the expiration of the Conversion period.

     
 

(vii)          The Company acknowledges that its failure to maintain a sufficient number of authorized but unissued shares of Common Stock to effect in full a Conversion of the Debentures will cause the Holder to suffer irreparable harm, and that damages will be difficult to ascertain. Accordingly, the parties agree that it is appropriate to include in this Debenture a provision for liquidated damages. The parties acknowledge and agree that the liquidated damages provision set forth in this Section represents the parties’ good faith effort to quantify such damages and, as such, agree that the form and amount of such liquidated damages are reasonable and will not constitute a penalty. The payment of liquidated damages shall not relieve the Company from its obligations to deliver the Common Stock pursuant to the terms of this Debenture. Nothing herein shall limit the Holder’s right to pursue actual damages for the Company’s failure to maintain a sufficient number of authorized shares of Common Stock.

 

(viii)        If by the Delivery Deadline, any portion of the shares of the Debentures have not been delivered to the Holder and the Holder purchases, in an open market transaction or otherwise, shares of Common Stock necessary to make delivery of shares which would have been delivered if the full amount of the shares to be converted and delivered to the Holder by the Company (the “ Covering Shares ”), then the Company shall pay to the Holder, in addition to any other amounts due to the Holder pursuant to this Debenture, and not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The “ Buy In Adjustment Amount ” is the amount equal to the excess, if any, of (x) the Holder's total purchase price (including brokerage commissions, if any) for the Covering Shares, minus (y) the net proceeds (after brokerage commissions, if any) received by the Holder from the sale of the sold shares. The Company shall pay the Buy-In Adjustment Amount to the Holder in immediately available funds within five (5) business days of written demand by the Holder. By way of illustration and not in limitation of the foregoing, if the Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the Company would be required to pay to the Holder would be $1,000.

 

(g)               Prospectus and Other Documents . The Company shall furnish to the Holder one (1) prospectus and any other documents incidental to the registration of the Conversion Shares, including any amendment of or supplements thereto. Any filings submitted via EDGAR will constitute fulfillment of the Company's obligation under this Section.

 

(h)               Limitation on Issuance of Shares . If the Company’s Common Stock becomes listed on the Nasdaq SmallCap Market after the issuance of this Debenture, the Company may be limited in the number of shares of Common Stock it may issue by virtue of (A) the number of authorized shares or (B) the applicable rules and regulations of the principal securities market on which the Common Stock is listed or traded, including, but not necessarily limited to, NASDAQ Rule 4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be applicable (collectively, the “ Cap Regulations ”). Without limiting the other provisions thereof: (i) the Company will take all steps necessary to issue the Conversion Shares without violating the Cap Regulations, and (ii) if, despite taking such steps, the Company cannot issue such Conversion Shares without violating the Cap Regulations or the Holder cannot convert as a result of the Cap Regulations (each such Debenture, an “ Unconverted Debenture ”) the Holder shall have the right to elect either of the following options:

 

(i)                if permitted by the Cap Regulations, require the Company to issue shares of Common Stock in accordance with the Holder's Notice of Conversion at a conversion purchase price equal to the average of the closing bid price per share of Common Stock for any five (5) consecutive Trading Days (subject to certain equitable adjustments for certain events occurring during such period) during the sixty (60) Trading Days immediately preceding the Conversion Date; or

 

(ii)              require the Company to redeem each Unconverted Debenture for an amount (the “ Redemption Amount ”), payable in cash, equal to the sum of (i) one hundred thirty-three percent (133%) of the principal of an Unconverted Debenture.

 

(iii) The Holder may elect, without limitation, one of the above remedies with respect to a portion of such Unconverted Debenture and the other remedy with respect to other portions of the Unconverted Debenture. The Unconverted Debenture shall contain provisions substantially consistent with the above terms, with such additional provisions as may be consented to by the Holder. The provisions of this Section are not intended to limit the scope of the provisions otherwise included in the Unconverted Debenture.

     
 

(i)                 Limitation on Amount of Conversion and Ownership . Notwithstanding anything to the contrary in this Debenture, in no event shall the Holder be entitled to convert that amount of Debenture, and in no event shall the Company permit that amount of conversion, into that number of shares, which when added to the sum of the number of shares of Common Stock beneficially owned, (as such term is defined under Section 13(d) and Rule 13d-3 of the Securities Exchange Act of 1934, as may be amended, (the “ Exchange Act ”)), by the Holder, would exceed four and ninety-nine one hundredths percent (4.99%) of the number of shares of Common Stock outstanding on the Conversion Date, as determined in accordance with Rule 13d-1(j) of the Exchange Act. In the event that the number of shares of Common Stock outstanding as determined in accordance with Section 13(d) of the Exchange Act is different on any Conversion Date than it was on the Closing Date, then the number of shares of Common Stock outstanding on such Conversion Date shall govern for purposes of determining whether the Holder would be acquiring beneficial ownership of more than four and ninety-nine one hundredths percent (4.99%) of the number of shares of Common Stock outstanding on such Conversion Date. However, nothing in this Section 3.2(i) shall be read to reduce the amount of principal, liquidated damages or penalties, if any, due to the Holder.

 

(j)                 Legend . The Holder acknowledges that each certificate representing the Debentures, and the Common Stock unless registered pursuant to the Debenture Registration Rights Agreement, shall be stamped or otherwise imprinted with a legend substantially in the following form:

 

THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT.

 

(k)               Prior to Conversion of this Debenture, if at any time the Conversion of all the Debentures would result in an insufficient number of authorized shares of Common Stock being available to cover all the Conversions, then in such event, the Company will move to call and hold a shareholder’s meeting or have shareholder action with written consent of the proper number of shareholders within thirty (30) days of such event, or such greater period of time if statutorily required or reasonably necessary as regards standard brokerage house and/or SEC requirements and/or procedures, for the purpose of authorizing additional shares of Common Stock such as necessary to facilitate the Holder's Conversions. In such an event, management of the Company shall recommend to all shareholders to vote their shares in favor of increasing the authorized number of shares of Common Stock. Management of the Company shall vote all of its shares of Common Stock in favor of increasing the number of shares of authorized Common Stock to an amount equal to no less than three hundred percent (300%) of the remaining balance on this Debenture. The Company represents and warrants that under no circumstances will it deny or prevent the Holder’s right to convert the Debentures as permitted under the terms of any of the Transaction Documents (as such term is defined in that certain Debenture Registration Rights Agreement, of even date herewith, by and between the Company and the Holder). Nothing in this Section shall limit the obligation of the Company to make the payments set forth in this Article 3 . The Holder, at its sole option, may request the company to authorize and issue additional shares if the Holder feels it is necessary for Conversions in the future. In the event the Company’s shareholder’s meeting does not result in the necessary authorization, the Company shall redeem the outstanding Debentures for an amount equal to the sum of the principal of the outstanding Debentures multiplied by one hundred thirty-three percent (133%).

 

Section 3.3      Fractional Shares . The Company shall not issue fractional shares of Common Stock, or scrip representing fractions of such shares, upon the conversion of this Debenture. Instead, the Company shall round up, to the nearest whole share.

 

Section 3.4      Taxes on Conversion . The Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion of this Debenture. However, the Holder shall pay any such tax which is due because the shares are issued in a name other than its name.

 

Section 3.5         Company to Reserve Stock . The Company shall reserve and maintain the number of shares of Common Stock required pursuant to and upon the terms set forth in the Transaction Documents to permit the Conversion of this Debenture . All Conversion Shares shall, upon issuance by the Company, be validly issued, fully paid and nonassessable and free and clear from all taxes, liens, charges and encumbrances with respect to the issuance thereof.

     
 

Section 3.6      Restrictions on Sale . This Debenture and, until the effectiveness of the registration statement as provided in the Transaction Documents, the Conversion Shares have not been registered under the Securities Act and are being issued, or will be issued, as the case may be under Section 4(2) of Securities Act and Rule 506 of Regulation D promulgated under the Securities Act. This Debenture and the Conversion Shares may only be sold pursuant to registration under or an exemption from the Securities Act.

 

Section 3.7 Stock Splits, Combinations and Dividends . If the shares of Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend is paid on the Common Stock in shares of Common Stock, the Conversion Price shall be proportionately reduced in the case of a subdivision of shares or stock dividend, or proportionately increased in the case of combination of shares, in each such case, by the ratio that the total number of shares of Common Stock outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event.

 

Article 4 Mergers .

 

The Company shall not consolidate or merge into, or transfer any or all of its assets to, any person, unless such person assumes in writing the obligations of the Company under this Debenture and immediately after such transaction no Event of Default (as defined below) exists. Any reference herein to the Company shall refer to such surviving or transferee corporation and the obligations of the Company shall terminate only upon such written assumption of the Company's obligation. In the event of a merger, or other consolidation, the Company shall give notice to the Holder simultaneously with the announcement to the public markets.

 

Article 5 Security .

 

This Debenture is shall be secured by the Security Agreement of even date.

 

Article 6 Defaults and Remedies .

 

Section 6.1      Events of Default . An “ Event of Default ” occurs if any one of the following occur:

 

(a)          the Company does not make timely payment or Conversion, in whole or in part, necessary to cover the principal, or other sum due on the Maturity Date, Conversion Date, upon redemption, or otherwise described herein;

 

(b)         any of the Company’s representations or warranties contained in the Transaction Documents or this Debenture were false when made or the Company fails to comply with any of its other agreements in the Transaction Documents and such failure within ten (10) business days of notice of default; or,

 

(c)          the Company pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case; (ii) consents to the entry of an order for relief against it in an involuntary case; (iii) consents to the appointment of a Custodian (as defined below) of it or for all or substantially all of its property or (iv) makes a general assignment for the benefit of its creditors or (v) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company in an involuntary case; (B) appoints a Custodian of the Company for all or substantially all of its property or (C) orders the liquidation of the Company, and the order or decree remains unstayed and in effect for sixty (60) calendar days; or,

 

(d)         the Company’s Common Stock is suspended or no longer listed on any recognized exchange including electronic over-the-counter bulletin board (“ Principal Market ”) for in excess of three (3) consecutive Trading Days. Failure to comply with the requirements for continued listing on a Principal Market for a period of five (5) trading days; or notification from a Principal Market that the Company is not in compliance with the conditions for such continued listing on such Principal Market; or,

 

(e)          the Company is in material breach of any covenant or condition of the Transaction Documents, and such breach, if subject to cure, continues for a period of ten (10) business days; or,

 

(f)          the Registration Statement is not declared effective by the SEC within six (6) months of the Filing Date; or,

     
 

(g)         the Company’s failure to pay any taxes when due unless such taxes are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been provided on the Company’s books; provided, however, that in the event that such failure is curable, the Company shall have ten (10) business days to cure such failure; or,

 

(h)         an attachment or levy is made upon the Company’s assets having an aggregate value in excess of fifty thousand dollars ($50,000) or a judgment is rendered against the Company or the Company’s property involving a liability of more than fifty thousand dollars ($50,000) which shall not have been vacated, discharged, stayed or bonded pending appeal within ninety (90) days from the entry hereof; or,

 

(i)           any change in the Company’s condition or affairs (financial or otherwise) which in the Holder’s reasonable, good faith opinion, would have a Material Adverse Effect; provided, however, that in the event that such failure is curable, the Company shall have ten (10) business days to cure such failure; or,

 

(j)           any Lien, except for Permitted Liens, created hereunder or under any of the Transaction Documents for any reason ceases to be or is not a valid and perfected Lien having a first priority interest; or,

 

(k)         the indictment or threatened indictment of the Company, any officer of the Company under any criminal statute, or commencement or threatened commencement of criminal or civil proceeding against the Company or any officer of the Company pursuant to which statute or proceeding penalties or remedies sought or available include forfeiture of any of the property of the company.

 

Section 6.2      Remedies .

 

(a)                In the Event of Default, the Holder may elect to secure a portion of the Company's assets in Pledged Collateral (as defined in the Security Agreement). The Holder may also elect to garnish revenue from the Company in an amount that will repay the Holder on the schedules outlined in this Debenture.

 

(b)               In the Event of Default, as outlined in this Debenture, the Holder may elect to increase the Face Amount by two and one-half percent (2.5%) per month (pro-rata for partial periods) paid as liquated damages (“ Liquidated Damages ”), compounded daily. It is the intention and acknowledgement of both parties that the Liquidated Damages not be deemed as interest or a penalty under the terms of this Debenture.

 

Section 6.3            Acceleration . If an Event of Default occurs, the Holder by notice to the Company may declare the remaining principal amount of this Debenture, and any liquidated damages, to be immediately due and payable in full.

 

Section 6.4            Seniority . Except as provided in the Transaction Documents, the Company warrants that no indebtedness of the Company is senior to this Debenture in right of payment, whether with respect to damages or upon liquidation or dissolution or otherwise. The Company warrants that it has taken all necessary steps to subordinate its other obligations to the rights of the Holder hereunder.

 

Section 6.5 Cost of Collections . If an Event of Default occurs, the Company shall pay the Holder's reasonable costs of collection, including reasonable attorney's fees and costs of arbitration.

 

Article 7 Registered Debentures .

 

Section 7.1            Record Ownership . The Company or its attorney shall maintain a register of the Holder of the Debentures (the “ Register ”) showing their names and addresses and the serial numbers and principal amounts of Debentures issued to them. The Register may be maintained in electronic, magnetic or other computerized form. The Company may treat the person named as the Holder of this Debenture in the Register as the sole owner of this Debenture. The Holder of this Debenture is exclusively entitled to receive payments on this Debenture, receive notifications with respect to this Debenture, convert it into Common Stock and otherwise exercise all of the rights and powers as the absolute owner hereof.

     
 

Section 7.2            Worn or Lost Debentures . If this Debenture becomes worn, defaced or mutilated but is still substantially intact and recognizable, the Company or its agent may issue a new Debenture in lieu hereof upon its surrender. Where the Holder of this Debenture claims that the Debenture has been lost, destroyed or wrongfully taken, the Company shall issue a new Debenture in place of the Debenture if the Holder so requests by written notice to the Company.

 

Article 8 Notice .

 

Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Debenture must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided a confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

 

If to the Company: MassRoots, Inc.

6525 Gunpark Drive,

Ste 370 #150,

Boulder, CO 80301

Telephone: (757) 705-4238

 

 

If to the Holder: [Name]

   [Address]

 

Each party hereto shall provide five (5) business days prior notice to the other party hereto of any change in address, phone number or facsimile number.

 

Article 9 Time .

 

Where this Debenture authorizes or requires the payment of money or the performance of a condition or obligation on a Saturday or Sunday or a holiday on which the United States Stock Markets (“ US Markets ”) are closed (a “ Holiday ”), such payment shall be made or condition or obligation performed on the last business day preceding such Saturday, Sunday or Holiday. A “ business day ” shall mean a day on which the US Markets are open for a full day or half day of trading.

 

Article 10 No Assignment .

 

This Debenture and the obligations of the Company hereunder shall not be assignable by the Company without prior written consent of the Holder.

 

Article 11 Rules of Construction .

 

In this Debenture, unless the context otherwise requires, words in the singular number include the plural, and in the plural include the singular, and words of the masculine gender include the feminine and the neuter, and when the tense so indicates, words of the neuter gender may refer to any gender. The numbers and titles of sections contained in the Debenture are inserted for convenience of reference only, and they neither form a part of this Debenture nor are they to be used in the construction or interpretation hereof. Wherever, in this Debenture, a determination of the Company is required or allowed, such determination shall be made by a majority of the Board of Directors of the Company and if it is made in good faith, it shall be conclusive and binding upon the Company and the Holder of this Debenture. Any capitalized term used but not defined in this Debenture shall have the meaning ascribed to it in the Transaction Documents.

 

Article 12 Governing Law .

 

The validity, terms, performance and enforcement of this Debenture shall be governed and construed by the provisions hereof and in accordance with the laws of the Commonwealth of Massachusetts applicable to agreements that are negotiated, executed, delivered and performed solely in the Commonwealth of Massachusetts.

     
 

Article 13 Disputes Under Debenture .

 

All disputes arising under this Debenture shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, without regard to principles of conflict of laws. The parties to this Debenture shall submit all disputes arising under this Debenture to arbitration in Boston, Massachusetts before a single arbitrator of the American Arbitration Association (the “ AAA ”). The arbitrator shall be selected by application of the rules of the AAA, or by mutual agreement of the parties, except that such arbitrator shall be an attorney admitted to practice law in the Commonwealth of Massachusetts. No party hereto will challenge the jurisdiction or venue provisions as provided in this section. Nothing in this section shall limit the Holder's right to obtain an injunction for a breach of this Debenture from a court of law. Any injunction obtained shall remain in full force and effect until the arbitrator, as set forth in Article 13, fully adjudicates the dispute.

 

Article 15 Waiver .

 

The Holder's delay or failure at any time or times hereafter to require strict performance by the Company of any undertakings, agreements or covenants shall not waive, affect, or diminish any right of the Holder under this Debenture to demand strict compliance and performance herewith. Any waiver by the Holder of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type. None of the undertakings, agreements and covenants of the Company contained in this Debenture, and no Event of Default, shall be deemed to have been waived by the Holder, nor may this Debenture be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver, amendment, change or modification and signed by the Holder.

 

Article 16 Integration .

 

This Debenture is the final definitive agreement between the Company and the Holder with respect to the terms and conditions set forth herein, and, the terms of this Debenture may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties hereto. The execution and delivery of this Debenture is done in conjunction with the execution of the other Transaction Documents.

 

Article 17 Failure To Meet Obligations by the Company .

 

The Company acknowledges that its failure to timely meet any of its obligations hereunder, including, but without limitation, its obligations to make payments, deliver shares and, as necessary, to register and maintain sufficient number of shares, will cause the Holder to suffer irreparable harm and that the actual damage to the Holder will be difficult to ascertain. Accordingly, the parties hereto agree that it is appropriate to include in this Debenture a provision for liquidated damages. The parties acknowledge and agree that the liquidated damages provision set forth in this section represents the parties’ good faith effort to quantify such damages and, as such, agree that the form and amount of such liquidated damages are reasonable and do not constitute a penalty. The payment of liquidated damages shall not relieve the Company from its obligations to deliver the Common Stock pursuant to the terms of this Debenture.

 

Article 18 Representations and Warranties of the Company .

 

The Company hereby represents and warrants to the Holder that: (i) it is voluntarily issuing this Debenture of its own freewill, (ii) it is not issuing this Debenture under economic duress, (iii) the terms of this Debenture are reasonable and fair to the Company, and (iv) the Company has had independent legal counsel of its own choosing review this Debenture, advise the Company with respect to this Debenture, and represent the Company in connection with its issuance of this Debenture.

     
 

Article 19 Acknowledgements of the Parties .

 

Notwithstanding anything in this Agreement to the contrary, the parties hereto hereby acknowledge and agree to the following: (i) the Holder makes no representations or covenants that it will not engage in trading in the securities of the Company; (ii) the Company has not and shall not provide material non-public information to the Holder unless prior thereto the Holder shall have executed a written agreement regarding the confidentiality and use of such information; and (iii) the Company understands and confirms that the Holder will be relying on the acknowledgements set forth in clauses (i) through (iii) above if the Holder effects any transactions in the securities of the Company.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 
 

 IN WITNESS WHEREOF, the parties hereto have caused this Debenture to be duly executed on the day and year first above written.

 

 

MASSROOTS, INC.
     
  By:  
  Name: Isaac Dietrich
  Title: Chief Executive Officer
     
     
  HOLDER  
     
  By:  
  Name:  
  Title:  

 
 

 

EXHIBIT A

 

NOTICE OF CONVERSION

 

MassRoots, Inc.

 

Re: Notice of Conversion

 

Gentlemen:

 

The undersigned hereby irrevocably elects, as of ________________, to convert $________________ of its convertible debenture (the “ Debenture ”) into Common Stock of MassRoots, Inc. (the “ Company ”) according to the conditions set forth in the Debenture issued by the Company.

 

Date of Conversion_______________________________________________

 

 

Applicable Conversion Price________________________________________

 

 

Number of Shares Issuable upon this Conversion____________________

 

 

Name(Print): ________________________________________________

 

Address: ________________________________________________

 

Phone: ________________________________________________

 

HOLDER

 

By: _______________________________________

Name:

     

Exhibit 4.4  

 

WARRANT

 

THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), AND MAY NOT BE TRANSFERRED UNLESS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, A "NO-ACTION" LETTER FROM THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “ COMMISSION ” OR THE “ SEC ”) WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

 

 

MassRoots, Inc.

 

WARRANT NO. MARCH 2014 1-__

 

Dated: March 24, 2014

 

 

MassRoots, Inc. , a corporation organized under the laws of the State of Delaware (the “ Company ”), hereby certifies that, for value received from ____________, a [insert state of incorporation or state of residence] (the “ Holder ”), is entitled, subject to the terms set forth below, to purchase from the Company up to a total of [insert # of shares equal to 50% of shares exercisable under the Debenture] shares of the common stock (equal to one half of the amount the Holder subscribed to on the Form of Debenture of even date), $0.001 par value per share (the “ Common Stock ”), of the Company (the “ Warrant Shares ”), at an exercise price equal to forty cents ($0.40) per share (the “ Exercise Price ”). This Warrant may be exercised on a cashless basis any time after issuance through and including the third (3rd) anniversary of its original issuance as noted above (the “ Expiration Date ”), subject to the following terms and conditions:

 

1. Registration of Warrant . The Company shall, from time to time and whenever requested by the Holder, register this Warrant in conformity with records to be maintained by the Company for such purpose (the “ Warrant Register ”) in the name of the Holder. The Company shall treat the registered Holder of this Warrant as the absolute owner hereof for any and all purposes, including the exercise hereof or any distribution to the Holder, and the Company shall not be affected by notice to the contrary.

 

2. Registration of Transfers and Exchanges .

 

(a) The Company or the transfer agent shall enter or record the transfer of all or any portion of this Warrant in the Warrant Register, upon surrender of

 
 

this Warrant to the Company at the office specified herein or pursuant to Section 11 hereof. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant hereinafter referred to as a “ New Warrant ”), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance of such transferee of all of the rights and obligations of a holder of a Warrant.

 

(b) This Warrant is exchangeable, upon the surrender hereof by the Holder to the office of the Company specified herein or pursuant to Section 3(b) hereof for one or more New Warrants, evidencing in the aggregate the right to purchase the number of Warrant Shares which may then be purchased hereunder. Any such New Warrant shall be dated as of the date of such exchange.

 

3. Duration and Exercise of Warrants .

 

(a) This Warrant shall be exercisable by the registered Holder on any business day before 5:00 P.M., Boston time, at any time and from time to time on or after the date hereof to and including the Expiration Date. At 5:00 P.M., Boston time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value. Prior to the Expiration Date, the Company may not call or otherwise redeem this Warrant without the prior written consent of the Holder, which consent shall be given or withheld at the sole and absolute discretion of the Holder.

 

(b) Subject to Section 2(b) , Section 6 and Section 10 hereof, upon: (x) surrender of this Warrant, together with the Form of Election to Purchase attached hereto duly completed and signed, to the Company at its address for notice set forth in Section 11 hereof; and (y) payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, in the manner provided hereunder, all as specified by the Holder in the Form of Election to Purchase, the Company shall promptly (but in no event later than five (5) business days after the Date of Exercise (as defined below)) issue or cause to be issued and cause to be delivered to the Holder in such name(s) as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise and free of restrictive legends unless (i) a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder is not then effective or the Warrant Shares are not freely transferable without volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act then the Warrant Shares will bear a Securities Act restrictive legend, or (ii) this Warrant shall have been issued pursuant to a written agreement between the original Holder and the Company, as required by such agreement. Any person so designated by the Holder to receive Warrant Shares shall be deemed to have become holder of record of such Warrant Shares as of the Date of Exercise of this Warrant. A “ Date of Exercise ” means the date on which the Company shall have received (I) this Warrant (or any New Warrant, as applicable), together with the Form of Election to Purchase attached hereto (or attached to such New Warrant) appropriately completed and duly signed; and (II)

 
 

payment of the Exercise Price for the number of Warrant Shares so indicated by the holder hereof to be purchased.

 

(c) This Warrant shall be exercisable in its entirety or, from time to time, for a portion of the number of Warrant Shares. If less than all of the Warrant Shares which may be purchased under this Warrant are exercised at any time, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares for which no exercise has been evidenced by this Warrant. In the event the Common Stock representing the Warrant Shares is not delivered per the written instructions of the Holder within five (5) business days after the Notice of Election and Warrant is received by the Company (the “ Delivery Date ”), then the Company shall pay to Holder in cash two percent (2.0%) of the dollar value of the Warrant Shares to be issued per each day after the Delivery Date that the Warrant Shares are not delivered. The Company acknowledges that its failure to deliver the Warrant Shares by the Delivery Date will cause the Holder to suffer damages in an amount that will be difficult to ascertain. Accordingly, the parties hereto agree that it is appropriate to include in this Warrant this provision for liquidated damages. The parties hereto acknowledge and agree that the liquidated damages provision set forth in this section represents the parties’ good faith effort to quantify such damages and therefore agree that the form and amount of such liquidated damages are reasonable and will not constitute a penalty. Notwithstanding the foregoing, the payment of liquidated damages shall not relieve the Company from its obligations to deliver the Common Stock pursuant to the terms of this Warrant. The Company shall make any payments incurred under this Section 3 in immediately available funds within five (5) business days from the date of issuance of the applicable Warrant Shares. Nothing herein shall limit Holder’s right to pursue actual damages or cancel the Notice of Election for the Company’s failure to issue and deliver Common Stock to the Holder within seven (7) business days following the Delivery Date.

 

4. Registration Rights . The Company agrees to file a registration statement with the SEC covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder within forty five (45) days of the completion of the audit (as such term is defined in the Registration Rights Agreement between the Holder and the Company of even date herewith) (unless the Warrant Shares are otherwise freely transferable without volume restrictions pursuant to Rule 144(k) or Rule 144A promulgated under the Securities Act). The registration rights granted to the Holder pursuant to this Section shall continue until all of the Holder's Warrant Shares have been sold in accordance with an effective registration statement or upon the Expiration Date, or as otherwise provided in the Debenture Registration Rights Agreement entered into between the Company and the original Holder as of the original issuance date hereof. The Company will pay all registration expenses in connection therewith.

 

5. Payment of Taxes . Upon the exercise of this Warrant, the Company will pay all documentary stamp taxes attributable to the issuance of Warrant Shares; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the registration of any certificates for

 
 

Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

 

6. Replacement of Warrant . If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and indemnity, if requested, satisfactory to it. Applicants for a New Warrant under such circumstances shall comply with such other reasonable regulations and procedures and pay such other reasonable charges as the Company may prescribe.

 

7. Reservation of Warrant Shares . The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 8 hereof). The Company covenants that all Warrant Shares that shall be so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. If the Company does not have a sufficient amount of Common Stock authorized to reserve for the Warrant Shares, it shall, as soon as reasonably practicable, use its best efforts to increase the number of its authorized shares such that the Company will have a sufficient amount of Common Stock authorized to reserve for the Warrant Shares.

 

8. Certain Adjustments . The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 8 . Upon each such adjustment of the Exercise Price pursuant to this Section 8 , the Holder shall thereafter but prior to the Expiration Date be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of Warrant Shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment.

 

(a) An adjustment shall be made, if the Company, at any time while this Warrant is outstanding (i) pays a stock dividend (except scheduled dividends paid on outstanding preferred stock as of the date hereof which contain a stated dividend rate) or otherwise make distribution(s) on shares of its Common Stock or on any other class of capital stock and not the Common Stock payable in shares of Common Stock; (ii) subdivides outstanding shares of Common Stock into a larger number of shares; or (iii) combines outstanding shares of Common Stock into a smaller number of shares. If either (i), (ii) or (iii) above occurs, the Exercise Price shall be multiplied by a fraction of which

 
 

the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination, and shall apply to successive subdivisions and combinations.

 

(b) In case of any reclassification of the Common Stock, any consolidation or merger of the Company with or into another entity, the sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property, then the Holder shall have the right thereafter to exercise this Warrant only into the shares of stock and other securities and property receivable upon or deemed to be held by holders of Common Stock following such reclassification, consolidation, merger, sale, transfer or share exchange, and the Holder shall be entitled upon such event to receive such amount of securities or property equal to the amount of Warrant Shares such Holder would have been entitled to had such Holder exercised this Warrant immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange. The terms of any such consolidation, merger, sale, transfer or share exchange shall include such terms so as to continue to give to the Holder the right to receive the securities or property set forth in this Section 8(b) upon any exercise following any such reclassification, consolidation, merger, sale, transfer or share exchange.

 

(c) At any time while this Warrant is outstanding, if the Company distributes to all holders of Common Stock (and not to holders of this Warrant) evidence of its indebtedness or assets or rights or warrants to subscribe for or purchase any security (excluding those referred to in Section 8(a) , Section 8(b) and Section 8(d) hereof), then in each such case the Exercise Price shall be determined by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Exercise Price determined as of the record date mentioned above, and of which the numerator shall be such Exercise Price on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of Common Stock as determined by the Company's independent certified public accountants that regularly examines the financial statements of the Company (the “ Appraiser ”).

 

(d) If, at any time while this Warrant is outstanding, the Company shall issue or cause to be issued rights or warrants to acquire or otherwise sell or distribute shares of Common Stock for a consideration per share less than the lower of the Exercise Price then in effect and the then fair market value of the Common Stock, then, forthwith upon such issue or sale, the Exercise Price shall be reduced to the price (calculated to the nearest one hundredth of a cent) determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which

 
 

shall be the sum of (i) the number of shares of Common Stock outstanding immediately prior to such issuance, and (ii) the number of shares of Common Stock which the aggregate consideration received (or to be received, assuming exercise or conversion in full of such rights, warrants and convertible securities) for the issuance of such additional shares of Common Stock would purchase at the Exercise Price, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately after the issuance of such additional shares. Such adjustment shall be made successively whenever such an issuance is made.

 

(e) For the purposes of this Section 8 , the following clauses shall also be applicable:

 

(i) Record Date . In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock or in securities convertible or exchangeable into shares of Common Stock, or (B) to subscribe for or purchase Common Stock or securities convertible or exchangeable into shares of Common Stock, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

(ii) Treasury Shares . The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

(f) All calculations under this Section 8 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.

 

(g) Whenever the Exercise Price is adjusted pursuant to Section 8(c) hereof, the Holder, after receipt of the determination by the Appraiser, shall have the right to select an additional appraiser (which shall be a nationally recognized accounting firm), in which case the adjustment shall be equal to the average of the adjustments recommended by each of the Appraiser and such additional appraiser appointed under this Section 8(g) . The Holder shall promptly mail or cause to be mailed to the Company, a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Such adjustment shall become effective immediately after the record date mentioned above, if:

 

(i) the Company shall declare a dividend (or any other distribution) on its Common Stock;

(ii) the Company shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock;

 

 
 

(iii) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights;

 

(iv) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or

 

(v) the Company shall authorize the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall cause to be mailed to the Holder at their last addresses as they shall appear upon the Warrant Register, at least thirty (30) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up; provided, however, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.

 

9. Payment of Exercise Price . The Holder, at its sole election, may pay the Exercise Price in one of the following manners:

 

(a) Cash Exercise . The Holder shall deliver immediately available funds; or

(b) Cashless Exercise . If at any time after one year from the date of issuance of this Warrant there is no effective Registration Statement registering the resale of the Warrant Shares by the Holder at such time, this Warrant may also be exercised at such time by means of a cashless exercise. In such event, the Holder shall surrender this Warrant to the Company, together with a notice of cashless exercise, and the Company shall issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y (A-B)/A

 

where:

X = the number of Warrant Shares to be issued to the Holder.

 
 

 

Y = the number of Warrant Shares with respect to which this Warrant is being exercised.

 

A = the average closing bid price of the Common Stock for the five (5) trading days immediately prior to the Date of Exercise.

 

B = the Exercise Price.

 

For purposes of Rule 144 of the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have been commenced, on the issue date.

 

(c) Notwithstanding anything in this Warrant to the contrary, the Holder is limited in the amount of this Warrant it may exercise. In no event shall the Holder be entitled to exercise any amount of this Warrant in excess of that amount upon exercise of which the sum of (1) the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) by the Holder, and (2) the number of Warrant Shares issuable upon the exercise of any Warrants then owned by Holder, would result in beneficial ownership by the Holder of more than four and ninety-nine one hundredths percent (4.99%) of the outstanding shares of Common Stock of the Company, as determined in accordance with Rule13d-1(j) of the Exchange Act. Furthermore, the Company shall not process any exercise that would result in beneficial ownership by the Holder of more than four and ninety-nine one hundredths percent (4.99%) of the outstanding shares of Common Stock of the Company.

 

10. Fractional Shares . The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant. The number of full Warrant Shares which shall be issuable upon the exercise of this Warrant shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of this Warrant so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 10 , be issuable on the exercise of this Warrant, the Company shall pay an amount in cash equal to the Exercise Price multiplied by such fraction.

 

11. Notices . Any and all notices or other communications or deliveries hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 5:00 p.m. Boston time on a business day, (ii) the business day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 5:00 p.m. Boston time on any date and earlier than 11:59 p.m. Boston time on such date, (iii) the business day following the date of mailing,

 
 

if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be:

 

If to the Company:

 

MassRoots, Inc.

6525 Gunpark Drive

Ste 370 #150,

Boulder, CO 80301

 

 

If to the Holder:

[Insert Name and Address here ]

 

 

 

12. Warrant Agent . The Company shall serve as warrant agent under this Warrant. Upon thirty (30) days notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further action. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register.

 

13. Miscellaneous .

 

(a) This Warrant shall be binding on and inure to the benefit of the parties hereto. This Warrant may be amended only in writing signed by the Company and the Holder.

 

(b) Nothing in this Warrant shall be construed to give to any person or corporation other than the Company and the Holder any legal or equitable right, remedy or cause under this Warrant. This Warrant shall inure to the sole and exclusive benefit of the Company and the Holder.

 

(c) This Warrant shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts without regard to the principles of conflicts of law thereof.

 

(d) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.

 
 

 

(e) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

(f) The Company hereby represent and warrants to the Holder that: (i) it is voluntarily issuing this Warrant of its own freewill, (ii) it is not issuing this Warrant under economic duress, (iii) the terms of this Warrant are reasonable and fair to the Company, and (iv) the Company has had independent legal counsel of its own choosing review this Warrant, advise the Company with respect to this Warrant, and represent the Company in connection with its issuance of this Warrant.

 

(g) Any capitalized term used but not defined in this Warrant shall have the meaning ascribed to it in the Transaction Documents (as such term is defined in that certain Debenture Registration Rights Agreement, of even date herewith, by and between the Company and the Holder).

 

(h) This Warrant may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Warrant. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

 

(i) This Warrant and the obligations of the Company hereunder shall not be assignable by the Company.

 

(j) Notwithstanding anything in this Warrant to the contrary, the parties hereto hereby acknowledge and agree to the following: (i) the Holder makes no representations or covenants that it will not engage in trading in the securities of the Company; (ii) the Company shall, by 8:30 a.m. Boston Time on the trading day following the date hereof, file a current report on Form 8-K disclosing the material terms of the transactions contemplated hereby and in the other Transaction Documents; (iii) the Company has not and shall not provide material non-public information to the Holder unless prior thereto the Holder Party shall have executed a written agreement regarding the confidentiality and use of such information; and (iv) the Company understands and confirms that the Holder will be relying on the acknowledgements set forth in clauses (i) through (iii) above if the Holder effects any transactions in the securities of the Company.

14. Disputes Under This Agreement.

 

All disputes arising under this Warrant shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, without regard to

 
 

principles of conflict of laws. The parties hereto will submit all disputes arising under this Agreement to arbitration in Boston, Massachusetts before a single arbitrator of the American Arbitration Association (the “ AAA ”). The arbitrator shall be selected by application of the rules of the AAA, or by mutual agreement of the parties, except that such arbitrator shall be an attorney admitted to practice law in the Commonwealth of Massachusetts. No party hereto will challenge the jurisdiction or venue provisions provided in this Section 14 . Nothing in this Section 14 shall limit the Holder's right to obtain an injunction for a breach of this Agreement from a court of law. Any injunction obtained shall remain in full force and effect until the arbitrator, as set forth in this Section 14 fully adjudicates the dispute.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

[Signature on Following Page]

 
 

 

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

 

 

MassRoots, Inc.

 

By: _________________

Name: Isaac Dietrich

Title: CEO

 

 

 

 

 

 

 
 

 

EXHIBIT A

 

FORM OF ELECTION TO PURCHASE

 

MassRoots, Inc.

 

Re: Intention to Exercise Right to Purchase Shares of Common Stock Under the Warrant

 

Gentlemen:

 

In accordance with the Warrant enclosed with this Form of Election to Purchase, the undersigned hereby irrevocably elects to purchase _________________ shares of Common Stock, $0.001 par value per share, of MassRoots, Inc.. and, if such Holder is not utilizing the cashless exercise provisions set forth in the Warrant, encloses herewith $________ in cash, certified or official bank check(s), which sum represents the aggregate Exercise Price for the number of shares of Common Stock to which this Form of Election to Purchase relates, together with any applicable taxes payable by the undersigned pursuant to the Warrant. Any capitalized terms used but not defined in this Form of Election to Purchase shall have the meaning ascribed to them in the accompanying Warrant.

 

The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of:

(Please insert SS# or FEIN #)

(Please print name and address)

 

If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock which the undersigned is entitled to purchase in accordance with the enclosed Warrant, the undersigned requests that a New Warrant evidencing the right to purchase the shares of Common Stock not issuable pursuant to the exercise evidenced hereby be issued in the name of and delivered to:

(Please print name and address)

 

Dated: _____________, _____ Name of Holder:

 

Signed:

Print Name:

Title:

 

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

Exhibit 4.5  

 

WARRANT

 

THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), AND MAY NOT BE TRANSFERRED UNLESS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, A "NO-ACTION" LETTER FROM THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “ COMMISSION ” OR THE “ SEC ”) WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

 

 

MassRoots, Inc.

 

WARRANT NO. MARCH 2014 1-__

 

Dated: March 24, 2014

 

 

MassRoots, Inc. , a corporation organized under the laws of the State of Delaware (the “ Company ”), hereby certifies that, for value received from Dutchess Opportunity Fund II, LP, a Delaware limited partnership (the “ Holder ”), is entitled, subject to the terms set forth below, to purchase from the Company up to a total of 2,375,000 shares of the common stock, $0.001 par value per share (the “ Common Stock ”), of the Company (the “ Warrant Shares ”), at an exercise price equal to 40/100 ($0.40) per share (the “ Exercise Price ”). This Warrant may be exercised on a cashless basis any time after issuance through and including the third (3rd) anniversary of its original issuance as noted above (the “ Expiration Date ”), subject to the following terms and conditions:

 

1. Registration of Warrant . The Company shall, from time to time and whenever requested by the Holder, register this Warrant in conformity with records to be maintained by the Company for such purpose (the “ Warrant Register ”) in the name of the Holder. The Company shall treat the registered Holder of this Warrant as the absolute owner hereof for any and all purposes, including the exercise hereof or any distribution to the Holder, and the Company shall not be affected by notice to the contrary.

 

2. Registration of Transfers and Exchanges .

 

(a) The Company or the transfer agent shall enter or record the transfer of all or any portion of this Warrant in the Warrant Register, upon surrender of this Warrant to the Company at the office specified herein or pursuant to Section 11 hereof. Upon any such registration or transfer, a new warrant to purchase Common

 
 

Stock, in substantially the form of this Warrant (any such new warrant hereinafter referred to as a “ New Warrant ”), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance of such transferee of all of the rights and obligations of a holder of a Warrant.

 

(b) This Warrant is exchangeable, upon the surrender hereof by the Holder to the office of the Company specified herein or pursuant to Section 3(b) hereof for one or more New Warrants, evidencing in the aggregate the right to purchase the number of Warrant Shares which may then be purchased hereunder. Any such New Warrant shall be dated as of the date of such exchange.

 

3. Duration and Exercise of Warrants .

 

(a) This Warrant shall be exercisable by the registered Holder on any business day before 5:00 P.M., Boston time, at any time and from time to time on or after the date hereof to and including the Expiration Date. At 5:00 P.M., Boston time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value. Prior to the Expiration Date, the Company may not call or otherwise redeem this Warrant without the prior written consent of the Holder, which consent shall be given or withheld at the sole and absolute discretion of the Holder.

 

(b) Subject to Section 2(b) , Section 6 and Section 10 hereof, upon: (x) surrender of this Warrant, together with the Form of Election to Purchase attached hereto duly completed and signed, to the Company at its address for notice set forth in Section 11 hereof; and (y) payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, in the manner provided hereunder, all as specified by the Holder in the Form of Election to Purchase, the Company shall promptly (but in no event later than five (5) business days after the Date of Exercise (as defined below)) issue or cause to be issued and cause to be delivered to the Holder in such name(s) as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise and free of restrictive legends unless (i) a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder is not then effective or the Warrant Shares are not freely transferable without volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act then the Warrant Shares will bear a Securities Act restrictive legend, or (ii) this Warrant shall have been issued pursuant to a written agreement between the original Holder and the Company, as required by such agreement. Any person so designated by the Holder to receive Warrant Shares shall be deemed to have become holder of record of such Warrant Shares as of the Date of Exercise of this Warrant. A “ Date of Exercise ” means the date on which the Company shall have received (I) this Warrant (or any New Warrant, as applicable), together with the Form of Election to Purchase attached hereto (or attached to such New Warrant) appropriately completed and duly signed; and (II) payment of the Exercise Price for the number of Warrant Shares so indicated by the holder hereof to be purchased.

 
 

 

(c) This Warrant shall be exercisable in its entirety or, from time to time, for a portion of the number of Warrant Shares. If less than all of the Warrant Shares which may be purchased under this Warrant are exercised at any time, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares for which no exercise has been evidenced by this Warrant. In the event the Common Stock representing the Warrant Shares is not delivered per the written instructions of the Holder within five (5) business days after the Notice of Election and Warrant is received by the Company (the “ Delivery Date ”), then the Company shall pay to Holder in cash two percent (2.0%) of the dollar value of the Warrant Shares to be issued per each day after the Delivery Date that the Warrant Shares are not delivered. The Company acknowledges that its failure to deliver the Warrant Shares by the Delivery Date will cause the Holder to suffer damages in an amount that will be difficult to ascertain. Accordingly, the parties hereto agree that it is appropriate to include in this Warrant this provision for liquidated damages. The parties hereto acknowledge and agree that the liquidated damages provision set forth in this section represents the parties’ good faith effort to quantify such damages and therefore agree that the form and amount of such liquidated damages are reasonable and will not constitute a penalty. Notwithstanding the foregoing, the payment of liquidated damages shall not relieve the Company from its obligations to deliver the Common Stock pursuant to the terms of this Warrant. The Company shall make any payments incurred under this Section 3 in immediately available funds within five (5) business days from the date of issuance of the applicable Warrant Shares. Nothing herein shall limit Holder’s right to pursue actual damages or cancel the Notice of Election for the Company’s failure to issue and deliver Common Stock to the Holder within seven (7) business days following the Delivery Date.

 

4. Registration Rights . The Company agrees to file a registration statement with the SEC covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder within forty-five (45) days of the completion of the audit (as such term is defined in the Registration Rights Agreement between the Holder and the Company of even date herewith) (unless the Warrant Shares are otherwise freely transferable without volume restrictions pursuant to Rule 144(k) or Rule 144A promulgated under the Securities Act). The registration rights granted to the Holder pursuant to this Section shall continue until all of the Holder's Warrant Shares have been sold in accordance with an effective registration statement or upon the Expiration Date, or as otherwise provided in the Debenture Registration Rights Agreement entered into between the Company and the original Holder as of the original issuance date hereof. The Company will pay all registration expenses in connection therewith.

 

5. Payment of Taxes . Upon the exercise of this Warrant, the Company will pay all documentary stamp taxes attributable to the issuance of Warrant Shares; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be

 
 

responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

 

6. Replacement of Warrant . If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and indemnity, if requested, satisfactory to it. Applicants for a New Warrant under such circumstances shall comply with such other reasonable regulations and procedures and pay such other reasonable charges as the Company may prescribe.

 

7. Reservation of Warrant Shares . The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 8 hereof). The Company covenants that all Warrant Shares that shall be so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. If the Company does not have a sufficient amount of Common Stock authorized to reserve for the Warrant Shares, it shall, as soon as reasonably practicable, use its best efforts to increase the number of its authorized shares such that the Company will have a sufficient amount of Common Stock authorized to reserve for the Warrant Shares.

 

8. Certain Adjustments . The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 8 . Upon each such adjustment of the Exercise Price pursuant to this Section 8 , the Holder shall thereafter but prior to the Expiration Date be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of Warrant Shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment.

 

(a) An adjustment shall be made, if the Company, at any time while this Warrant is outstanding (i) pays a stock dividend (except scheduled dividends paid on outstanding preferred stock as of the date hereof which contain a stated dividend rate) or otherwise make distribution(s) on shares of its Common Stock or on any other class of capital stock and not the Common Stock payable in shares of Common Stock; (ii) subdivides outstanding shares of Common Stock into a larger number of shares; or (iii) combines outstanding shares of Common Stock into a smaller number of shares. If either (i), (ii) or (iii) above occurs, the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury

 
 

shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination, and shall apply to successive subdivisions and combinations.

 

(b) In case of any reclassification of the Common Stock, any consolidation or merger of the Company with or into another entity, the sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property, then the Holder shall have the right thereafter to exercise this Warrant only into the shares of stock and other securities and property receivable upon or deemed to be held by holders of Common Stock following such reclassification, consolidation, merger, sale, transfer or share exchange, and the Holder shall be entitled upon such event to receive such amount of securities or property equal to the amount of Warrant Shares such Holder would have been entitled to had such Holder exercised this Warrant immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange. The terms of any such consolidation, merger, sale, transfer or share exchange shall include such terms so as to continue to give to the Holder the right to receive the securities or property set forth in this Section 8(b) upon any exercise following any such reclassification, consolidation, merger, sale, transfer or share exchange.

 

(c) At any time while this Warrant is outstanding, if the Company distributes to all holders of Common Stock (and not to holders of this Warrant) evidence of its indebtedness or assets or rights or warrants to subscribe for or purchase any security (excluding those referred to in Section 8(a) , Section 8(b) and Section 8(d) hereof), then in each such case the Exercise Price shall be determined by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Exercise Price determined as of the record date mentioned above, and of which the numerator shall be such Exercise Price on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of Common Stock as determined by the Company's independent certified public accountants that regularly examines the financial statements of the Company (the “ Appraiser ”).

 

(d) If, at any time while this Warrant is outstanding, the Company shall issue or cause to be issued rights or warrants to acquire or otherwise sell or distribute shares of Common Stock for a consideration per share less than the lower of the Exercise Price then in effect and the then fair market value of the Common Stock, then, forthwith upon such issue or sale, the Exercise Price shall be reduced to the price (calculated to the nearest one hundredth of a cent) determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately

 
 

prior to such issuance, and (ii) the number of shares of Common Stock which the aggregate consideration received (or to be received, assuming exercise or conversion in full of such rights, warrants and convertible securities) for the issuance of such additional shares of Common Stock would purchase at the Exercise Price, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately after the issuance of such additional shares. Such adjustment shall be made successively whenever such an issuance is made.

 

(e) For the purposes of this Section 8 , the following clauses shall also be applicable:

 

(i) Record Date . In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock or in securities convertible or exchangeable into shares of Common Stock, or (B) to subscribe for or purchase Common Stock or securities convertible or exchangeable into shares of Common Stock, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

(ii) Treasury Shares . The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

(f) All calculations under this Section 8 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.

 

(g) Whenever the Exercise Price is adjusted pursuant to Section 8(c) hereof, the Holder, after receipt of the determination by the Appraiser, shall have the right to select an additional appraiser (which shall be a nationally recognized accounting firm), in which case the adjustment shall be equal to the average of the adjustments recommended by each of the Appraiser and such additional appraiser appointed under this Section 8(g) . The Holder shall promptly mail or cause to be mailed to the Company, a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Such adjustment shall become effective immediately after the record date mentioned above, if:

 

(i) the Company shall declare a dividend (or any other distribution) on its Common Stock;

(ii) the Company shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock;

 

 
 

(iii) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights;

 

(iv) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or

 

(v) the Company shall authorize the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall cause to be mailed to the Holder at their last addresses as they shall appear upon the Warrant Register, at least thirty (30) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up; provided, however, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.

 

9. Payment of Exercise Price . The Holder, at its sole election, may pay the Exercise Price in one of the following manners:

 

(a) Cash Exercise . The Holder shall deliver immediately available funds; or

(b) Cashless Exercise . If at any time after one year from the date of issuance of this Warrant there is no effective Registration Statement registering the resale of the Warrant Shares by the Holder at such time, this Warrant may also be exercised at such time by means of a cashless exercise. In such event, the Holder shall surrender this Warrant to the Company, together with a notice of cashless exercise, and the Company shall issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y (A-B)/A

 

where:

X = the number of Warrant Shares to be issued to the Holder.

 
 

 

Y = the number of Warrant Shares with respect to which this Warrant is being exercised.

 

A = the average closing bid price of the Common Stock for the five (5) trading days immediately prior to the Date of Exercise.

 

B = the Exercise Price.

 

For purposes of Rule 144 of the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have been commenced, on the issue date.

 

(c) Notwithstanding anything in this Warrant to the contrary, the Holder is limited in the amount of this Warrant it may exercise. In no event shall the Holder be entitled to exercise any amount of this Warrant in excess of that amount upon exercise of which the sum of (1) the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) by the Holder, and (2) the number of Warrant Shares issuable upon the exercise of any Warrants then owned by Holder, would result in beneficial ownership by the Holder of more than four and ninety-nine one hundredths percent (4.99%) of the outstanding shares of Common Stock of the Company, as determined in accordance with Rule13d-1(j) of the Exchange Act. Furthermore, the Company shall not process any exercise that would result in beneficial ownership by the Holder of more than four and ninety-nine one hundredths percent (4.99%) of the outstanding shares of Common Stock of the Company.

 

10. Fractional Shares . The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant. The number of full Warrant Shares which shall be issuable upon the exercise of this Warrant shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of this Warrant so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 10 , be issuable on the exercise of this Warrant, the Company shall pay an amount in cash equal to the Exercise Price multiplied by such fraction.

 

11. Notices . Any and all notices or other communications or deliveries hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 5:00 p.m. Boston time on a business day, (ii) the business day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 5:00 p.m. Boston time on any date and earlier than 11:59 p.m. Boston time on such date, (iii) the business day following the date of mailing,

 
 

if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be:

 

If to the Company:

 

MassRoots, Inc.

Ste. 370 #150,

6525 Gunpark Drive,

Boulder, CO 80301

 

 

If to the Holder:

 

Dutchess Opportunity Fund, II, LP
ATTN: Michael Novielli
50 Commonwealth Ave., Suite 2
Boston, MA 02116

 

12. Warrant Agent . The Company shall serve as warrant agent under this Warrant. Upon thirty (30) days notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further action. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register.

 

13. Miscellaneous .

 

(a) This Warrant shall be binding on and inure to the benefit of the parties hereto. This Warrant may be amended only in writing signed by the Company and the Holder.

 

(b) Nothing in this Warrant shall be construed to give to any person or corporation other than the Company and the Holder any legal or equitable right, remedy or cause under this Warrant. This Warrant shall inure to the sole and exclusive benefit of the Company and the Holder.

 

(c) This Warrant shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts without regard to the principles of conflicts of law thereof.

 

 
 

(d) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.

 

(e) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

(f) The Company hereby represent and warrants to the Holder that: (i) it is voluntarily issuing this Warrant of its own freewill, (ii) it is not issuing this Warrant under economic duress, (iii) the terms of this Warrant are reasonable and fair to the Company, and (iv) the Company has had independent legal counsel of its own choosing review this Warrant, advise the Company with respect to this Warrant, and represent the Company in connection with its issuance of this Warrant.

 

(g) Any capitalized term used but not defined in this Warrant shall have the meaning ascribed to it in the Transaction Documents (as such term is defined in that certain Debenture Registration Rights Agreement, of even date herewith, by and between the Company and the Holder).

 

(h) This Warrant may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Warrant. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

 

(i) This Warrant and the obligations of the Company hereunder shall not be assignable by the Company.

 

(j) Notwithstanding anything in this Warrant to the contrary, the parties hereto hereby acknowledge and agree to the following: (i) the Holder makes no representations or covenants that it will not engage in trading in the securities of the Company; (ii) the Company shall, by 8:30 a.m. Boston Time on the trading day following the date hereof, file a current report on Form 8-K disclosing the material terms of the transactions contemplated hereby and in the other Transaction Documents; (iii) the Company has not and shall not provide material non-public information to the Holder unless prior thereto the Holder Party shall have executed a written agreement regarding the confidentiality and use of such information; and (iv) the Company understands and confirms that the Holder will be relying on the acknowledgements set forth in clauses (i) through (iii) above if the Holder effects any transactions in the securities of the Company.

 
 

14. Disputes Under This Agreement.

 

All disputes arising under this Warrant shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, without regard to principles of conflict of laws. The parties hereto will submit all disputes arising under this Agreement to arbitration in Boston, Massachusetts before a single arbitrator of the American Arbitration Association (the “ AAA ”). The arbitrator shall be selected by application of the rules of the AAA, or by mutual agreement of the parties, except that such arbitrator shall be an attorney admitted to practice law in the Commonwealth of Massachusetts. No party hereto will challenge the jurisdiction or venue provisions provided in this Section 14 . Nothing in this Section 14 shall limit the Holder's right to obtain an injunction for a breach of this Agreement from a court of law. Any injunction obtained shall remain in full force and effect until the arbitrator, as set forth in this Section 14 fully adjudicates the dispute.

 

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[Signature on Following Page]

 
 

 

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

 

 

MassRoots, Inc.

 

By: /s Isaac Dietrich

Name: Isaac Dietrich

 

 

 

 

 

 

 
 

 

EXHIBIT A

 

FORM OF ELECTION TO PURCHASE

 

MassRoots, Inc.

 

Re: Intention to Exercise Right to Purchase Shares of Common Stock Under the Warrant

 

Gentlemen:

 

In accordance with the Warrant enclosed with this Form of Election to Purchase, the undersigned hereby irrevocably elects to purchase _________________shares of Common Stock, $0.001 par value per share, of MassRoots, Inc.. and, if such Holder is not utilizing the cashless exercise provisions set forth in the Warrant, encloses herewith $________ in cash, certified or official bank check(s), which sum represents the aggregate Exercise Price for the number of shares of Common Stock to which this Form of Election to Purchase relates, together with any applicable taxes payable by the undersigned pursuant to the Warrant. Any capitalized terms used but not defined in this Form of Election to Purchase shall have the meaning ascribed to them in the accompanying Warrant.

 

The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of:

(Please insert SS# or FEIN #)

(Please print name and address)

 

If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock which the undersigned is entitled to purchase in accordance with the enclosed Warrant, the undersigned requests that a New Warrant evidencing the right to purchase the shares of Common Stock not issuable pursuant to the exercise evidenced hereby be issued in the name of and delivered to:

(Please print name and address)

 

Dated: _____________, _____ Name of Holder:

 

Signed:

Print Name:

Title:

 

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

Exhibit 4.6  

 

WARRANT

 

THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), AND MAY NOT BE TRANSFERRED UNLESS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, A "NO-ACTION" LETTER FROM THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “ COMMISSION ” OR THE “ SEC ”) WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

 

 

MassRoots, Inc.

 

WARRANT NO. MARCH 2014 1-__

 

Dated: March 24, 2014

 

 

MassRoots, Inc. , a corporation organized under the laws of the State of Delaware (the “ Company ”), hereby certifies that, for value received from Dutchess Opportunity Fund II, LP, a Delaware limited partnership (the “ Holder ”), is entitled, subject to the terms set forth below, to purchase from the Company up to a total of 4,050,000 shares of the common stock, $0.001 par value per share (the “ Common Stock ”), of the Company (the “ Warrant Shares ”), at an exercise price equal to $0.001 (one one thousandth of a dollar) per share (the “ Exercise Price ”). This Warrant may be exercised on a cashless basis anytime after issuance through and including the third (3rd) anniversary of its original issuance as noted above (the “ Expiration Date ”), subject to the following terms and conditions:

 

1. Registration of Warrant . The Company shall, from time to time and whenever requested by the Holder, register this Warrant in conformity with records to be maintained by the Company for such purpose (the “ Warrant Register ”) in the name of the Holder. The Company shall treat the registered Holder of this Warrant as the absolute owner hereof for any and all purposes, including the exercise hereof or any distribution to the Holder, and the Company shall not be affected by notice to the contrary.

 

2. Registration of Transfers and Exchanges .

 

(a) The Company or the transfer agent shall enter or record the transfer of all or any portion of this Warrant in the Warrant Register, upon surrender of this Warrant to the Company at the office specified herein or pursuant to Section 11

 
 

hereof. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant hereinafter referred to as a “ New Warrant ”), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance of such transferee of all of the rights and obligations of a holder of a Warrant.

 

(b) This Warrant is exchangeable, upon the surrender hereof by the Holder to the office of the Company specified herein or pursuant to Section 3(b) hereof for one or more New Warrants, evidencing in the aggregate the right to purchase the number of Warrant Shares which may then be purchased hereunder. Any such New Warrant shall be dated as of the date of such exchange.

 

3. Duration and Exercise of Warrants .

 

(a) This Warrant shall be exercisable by the registered Holder on any business day before 5:00 P.M., Boston time, at any time and from time to time on or after the date hereof to and including the Expiration Date. At 5:00 P.M., Boston time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value. Prior to the Expiration Date, the Company may not call or otherwise redeem this Warrant without the prior written consent of the Holder, which consent shall be given or withheld at the sole and absolute discretion of the Holder.

 

(b) Subject to Section 2(b) , Section 6 and Section 10 hereof, upon: (x) surrender of this Warrant, together with the Form of Election to Purchase attached hereto duly completed and signed, to the Company at its address for notice set forth in Section 11 hereof; and (y) payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, in the manner provided hereunder, all as specified by the Holder in the Form of Election to Purchase, the Company shall promptly (but in no event later than five (5) business days after the Date of Exercise (as defined below)) issue or cause to be issued and cause to be delivered to the Holder in such name(s) as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise and free of restrictive legends unless (i) a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder is not then effective or the Warrant Shares are not freely transferable without volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act then the Warrant Shares will bear a Securities Act restrictive legend, or (ii) this Warrant shall have been issued pursuant to a written agreement between the original Holder and the Company, as required by such agreement. Any person so designated by the Holder to receive Warrant Shares shall be deemed to have become holder of record of such Warrant Shares as of the Date of Exercise of this Warrant. A “ Date of Exercise ” means the date on which the Company shall have received (I) this Warrant (or any New Warrant, as applicable), together with the Form of Election to Purchase attached hereto (or attached to such New Warrant) appropriately completed and duly signed; and (II)

 
 

payment of the Exercise Price for the number of Warrant Shares so indicated by the holder hereof to be purchased.

 

(c) This Warrant shall be exercisable in its entirety or, from time to time, for a portion of the number of Warrant Shares. If less than all of the Warrant Shares which may be purchased under this Warrant are exercised at any time, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares for which no exercise has been evidenced by this Warrant. In the event the Common Stock representing the Warrant Shares is not delivered per the written instructions of the Holder within five (5) business days after the Notice of Election and Warrant is received by the Company (the “ Delivery Date ”), then the Company shall pay to Holder in cash two percent (2.0%) of the dollar value of the Warrant Shares to be issued per each day after the Delivery Date that the Warrant Shares are not delivered. The Company acknowledges that its failure to deliver the Warrant Shares by the Delivery Date will cause the Holder to suffer damages in an amount that will be difficult to ascertain. Accordingly, the parties hereto agree that it is appropriate to include in this Warrant this provision for liquidated damages. The parties hereto acknowledge and agree that the liquidated damages provision set forth in this section represents the parties’ good faith effort to quantify such damages and therefore agree that the form and amount of such liquidated damages are reasonable and will not constitute a penalty. Notwithstanding the foregoing, the payment of liquidated damages shall not relieve the Company from its obligations to deliver the Common Stock pursuant to the terms of this Warrant. The Company shall make any payments incurred under this Section 3 in immediately available funds within five (5) business days from the date of issuance of the applicable Warrant Shares. Nothing herein shall limit Holder’s right to pursue actual damages or cancel the Notice of Election for the Company’s failure to issue and deliver Common Stock to the Holder within seven (7) business days following the Delivery Date.

 

4. Registration Rights . The Company agrees to file a registration statement with the SEC covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder within forty-five (45) days of the completion of the audit (as such term is defined in the Registration Rights Agreement between the Holder and the Company of even date herewith) (unless the Warrant Shares are otherwise freely transferable without volume restrictions pursuant to Rule 144(k) or Rule 144A promulgated under the Securities Act). The registration rights granted to the Holder pursuant to this Section shall continue until all of the Holder's Warrant Shares have been sold in accordance with an effective registration statement or upon the Expiration Date, or as otherwise provided in the Debenture Registration Rights Agreement entered into between the Company and the original Holder as of the original issuance date hereof. The Company will pay all registration expenses in connection therewith.

 

5. Payment of Taxes . Upon the exercise of this Warrant, the Company will pay all documentary stamp taxes attributable to the issuance of Warrant Shares; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the registration of any certificates for

 
 

Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

 

6. Replacement of Warrant . If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and indemnity, if requested, satisfactory to it. Applicants for a New Warrant under such circumstances shall comply with such other reasonable regulations and procedures and pay such other reasonable charges as the Company may prescribe.

 

7. Reservation of Warrant Shares . The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 8 hereof). The Company covenants that all Warrant Shares that shall be so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. If the Company does not have a sufficient amount of Common Stock authorized to reserve for the Warrant Shares, it shall, as soon as reasonably practicable, use its best efforts to increase the number of its authorized shares such that the Company will have a sufficient amount of Common Stock authorized to reserve for the Warrant Shares.

 

8. Certain Adjustments . The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 8 . Upon each such adjustment of the Exercise Price pursuant to this Section 8 , the Holder shall thereafter but prior to the Expiration Date be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of Warrant Shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment.

 

(a) An adjustment shall be made, if the Company, at any time while this Warrant is outstanding (i) pays a stock dividend (except scheduled dividends paid on outstanding preferred stock as of the date hereof which contain a stated dividend rate) or otherwise make distribution(s) on shares of its Common Stock or on any other class of capital stock and not the Common Stock payable in shares of Common Stock; (ii) subdivides outstanding shares of Common Stock into a larger number of shares; or (iii) combines outstanding shares of Common Stock into a smaller number of shares. If either (i), (ii) or (iii) above occurs, the Exercise Price shall be multiplied by a fraction of which

 
 

the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination, and shall apply to successive subdivisions and combinations.

 

(b) In case of any reclassification of the Common Stock, any consolidation or merger of the Company with or into another entity, the sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property, then the Holder shall have the right thereafter to exercise this Warrant only into the shares of stock and other securities and property receivable upon or deemed to be held by holders of Common Stock following such reclassification, consolidation, merger, sale, transfer or share exchange, and the Holder shall be entitled upon such event to receive such amount of securities or property equal to the amount of Warrant Shares such Holder would have been entitled to had such Holder exercised this Warrant immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange. The terms of any such consolidation, merger, sale, transfer or share exchange shall include such terms so as to continue to give to the Holder the right to receive the securities or property set forth in this Section 8(b) upon any exercise following any such reclassification, consolidation, merger, sale, transfer or share exchange.

 

(c) At any time while this Warrant is outstanding, if the Company distributes to all holders of Common Stock (and not to holders of this Warrant) evidence of its indebtedness or assets or rights or warrants to subscribe for or purchase any security (excluding those referred to in Section 8(a) , Section 8(b) and Section 8(d) hereof), then in each such case the Exercise Price shall be determined by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Exercise Price determined as of the record date mentioned above, and of which the numerator shall be such Exercise Price on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of Common Stock as determined by the Company's independent certified public accountants that regularly examines the financial statements of the Company (the “ Appraiser ”).

 

(d) If, at any time while this Warrant is outstanding, the Company shall issue or cause to be issued rights or warrants to acquire or otherwise sell or distribute shares of Common Stock for a consideration per share less than the lower of the Exercise Price then in effect and the then fair market value of the Common Stock, then, forthwith upon such issue or sale, the Exercise Price shall be reduced to the price (calculated to the nearest one hundredth of a cent) determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which

 
 

shall be the sum of (i) the number of shares of Common Stock outstanding immediately prior to such issuance, and (ii) the number of shares of Common Stock which the aggregate consideration received (or to be received, assuming exercise or conversion in full of such rights, warrants and convertible securities) for the issuance of such additional shares of Common Stock would purchase at the Exercise Price, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately after the issuance of such additional shares. Such adjustment shall be made successively whenever such an issuance is made.

 

(e) For the purposes of this Section 8 , the following clauses shall also be applicable:

 

(i) Record Date . In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock or in securities convertible or exchangeable into shares of Common Stock, or (B) to subscribe for or purchase Common Stock or securities convertible or exchangeable into shares of Common Stock, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

(ii) Treasury Shares . The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

(f) All calculations under this Section 8 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.

 

(g) Whenever the Exercise Price is adjusted pursuant to Section 8(c) hereof, the Holder, after receipt of the determination by the Appraiser, shall have the right to select an additional appraiser (which shall be a nationally recognized accounting firm), in which case the adjustment shall be equal to the average of the adjustments recommended by each of the Appraiser and such additional appraiser appointed under this Section 8(g) . The Holder shall promptly mail or cause to be mailed to the Company, a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Such adjustment shall become effective immediately after the record date mentioned above, if:

 

(i) the Company shall declare a dividend (or any other distribution) on its Common Stock;

(ii) the Company shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock;

 

 
 

(iii) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights;

 

(iv) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or

 

(v) the Company shall authorize the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall cause to be mailed to the Holder at their last addresses as they shall appear upon the Warrant Register, at least thirty (30) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up; provided, however, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.

 

9. Payment of Exercise Price . The Holder, at its sole election, may pay the Exercise Price in one of the following manners:

 

(a) Cash Exercise . The Holder shall deliver immediately available funds; or

(b) Cashless Exercise . If at any time after one year from the date of issuance of this Warrant there is no effective Registration Statement registering the resale of the Warrant Shares by the Holder at such time, this Warrant may also be exercised at such time by means of a cashless exercise. In such event, the Holder shall surrender this Warrant to the Company, together with a notice of cashless exercise, and the Company shall issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y (A-B)/A

 

where:

X = the number of Warrant Shares to be issued to the Holder.

 
 

 

Y = the number of Warrant Shares with respect to which this Warrant is being exercised.

 

A = the average closing bid price of the Common Stock for the five (5) trading days immediately prior to the Date of Exercise.

 

B = the Exercise Price.

 

For purposes of Rule 144 of the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have been commenced, on the issue date.

 

(c) Notwithstanding anything in this Warrant to the contrary, the Holder is limited in the amount of this Warrant it may exercise. In no event shall the Holder be entitled to exercise any amount of this Warrant in excess of that amount upon exercise of which the sum of (1) the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) by the Holder, and (2) the number of Warrant Shares issuable upon the exercise of any Warrants then owned by Holder, would result in beneficial ownership by the Holder of more than four and ninety-nine one hundredths percent (4.99%) of the outstanding shares of Common Stock of the Company, as determined in accordance with Rule13d-1(j) of the Exchange Act. Furthermore, the Company shall not process any exercise that would result in beneficial ownership by the Holder of more than four and ninety-nine one hundredths percent (4.99%) of the outstanding shares of Common Stock of the Company.

 

10. Fractional Shares . The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant. The number of full Warrant Shares which shall be issuable upon the exercise of this Warrant shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of this Warrant so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 10 , be issuable on the exercise of this Warrant, the Company shall pay an amount in cash equal to the Exercise Price multiplied by such fraction.

 

11. Notices . Any and all notices or other communications or deliveries hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 5:00 p.m. Boston time on a business day, (ii) the business day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 5:00 p.m. Boston time on any date and earlier than 11:59 p.m. Boston time on such date, (iii) the business day following the date of mailing,

 
 

if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be:

 

If to the Company:

 

MassRoots, Inc.

Ste. 370, #150

6525 Gunpark Drive,

Boulder, CO 80301

 

If to the Holder:

 

Dutchess Opportunity Fund, II, LP
ATTN: Douglas Leighton
50 Commonwealth Ave., Suite 2
Boston, MA 02116

 

12. Warrant Agent . The Company shall serve as warrant agent under this Warrant. Upon thirty (30) days notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further action. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register.

 

13. Miscellaneous .

 

(a) This Warrant shall be binding on and inure to the benefit of the parties hereto. This Warrant may be amended only in writing signed by the Company and the Holder.

 

(b) Nothing in this Warrant shall be construed to give to any person or corporation other than the Company and the Holder any legal or equitable right, remedy or cause under this Warrant. This Warrant shall inure to the sole and exclusive benefit of the Company and the Holder.

 

(c) This Warrant shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts without regard to the principles of conflicts of law thereof.

 

 
 

(d) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.

 

(e) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

(f) The Company hereby represent and warrants to the Holder that: (i) it is voluntarily issuing this Warrant of its own freewill, (ii) it is not issuing this Warrant under economic duress, (iii) the terms of this Warrant are reasonable and fair to the Company, and (iv) the Company has had independent legal counsel of its own choosing review this Warrant, advise the Company with respect to this Warrant, and represent the Company in connection with its issuance of this Warrant.

 

(g) Any capitalized term used but not defined in this Warrant shall have the meaning ascribed to it in the Transaction Documents (as such term is defined in that certain Debenture Registration Rights Agreement, of even date herewith, by and between the Company and the Holder).

 

(h) This Warrant may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Warrant. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

 

(i) This Warrant and the obligations of the Company hereunder shall not be assignable by the Company.

 

(j) Notwithstanding anything in this Warrant to the contrary, the parties hereto hereby acknowledge and agree to the following: (i) the Holder makes no representations or covenants that it will not engage in trading in the securities of the Company; (ii) the Company shall, by 8:30 a.m. Boston Time on the trading day following the date hereof, file a current report on Form 8-K disclosing the material terms of the transactions contemplated hereby and in the other Transaction Documents; (iii) the Company has not and shall not provide material non-public information to the Holder unless prior thereto the Holder Party shall have executed a written agreement regarding the confidentiality and use of such information; and (iv) the Company understands and confirms that the Holder will be relying on the acknowledgements set forth in clauses (i) through (iii) above if the Holder effects any transactions in the securities of the Company.

 
 

14. Disputes Under This Agreement.

 

All disputes arising under this Warrant shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, without regard to principles of conflict of laws. The parties hereto will submit all disputes arising under this Agreement to arbitration in Boston, Massachusetts before a single arbitrator of the American Arbitration Association (the “ AAA ”). The arbitrator shall be selected by application of the rules of the AAA, or by mutual agreement of the parties, except that such arbitrator shall be an attorney admitted to practice law in the Commonwealth of Massachusetts. No party hereto will challenge the jurisdiction or venue provisions provided in this Section 14 . Nothing in this Section 14 shall limit the Holder's right to obtain an injunction for a breach of this Agreement from a court of law. Any injunction obtained shall remain in full force and effect until the arbitrator, as set forth in this Section 14 fully adjudicates the dispute.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

[Signature on Following Page]

 
 

 

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

 

 

MassRoots, Inc.

 

By: /s/ Isaac Dietrich

Name: Isaac Dietrich

 

 

 

 

 

 

 
 

 

EXHIBIT A

 

FORM OF ELECTION TO PURCHASE

 

MassRoots, Inc.

 

Re: Intention to Exercise Right to Purchase Shares of Common Stock Under the Warrant

 

Gentlemen:

 

In accordance with the Warrant enclosed with this Form of Election to Purchase, the undersigned hereby irrevocably elects to purchase _________________shares of Common Stock, $0.001 par value per share, of MassRoots, Inc.. and, if such Holder is not utilizing the cashless exercise provisions set forth in the Warrant, encloses herewith $________ in cash, certified or official bank check(s), which sum represents the aggregate Exercise Price for the number of shares of Common Stock to which this Form of Election to Purchase relates, together with any applicable taxes payable by the undersigned pursuant to the Warrant. Any capitalized terms used but not defined in this Form of Election to Purchase shall have the meaning ascribed to them in the accompanying Warrant.

 

The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of:

(Please insert SS# or FEIN #)

(Please print name and address)

 

If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock which the undersigned is entitled to purchase in accordance with the enclosed Warrant, the undersigned requests that a New Warrant evidencing the right to purchase the shares of Common Stock not issuable pursuant to the exercise evidenced hereby be issued in the name of and delivered to:

(Please print name and address)

 

Dated: _____________, _____ Name of Holder:

 

Signed:

Print Name:

Title:

 

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

Exhibit 5.1

 

 

June 13, 2014

 

 

MassRoots, Inc.

6525 Gunpark Drive, Ste. 370 #150

Boulder, CO 80301

Re: Form S-1 Registration Statement

 

Ladies and Gentlemen:

 

We have acted as counsel to MassRoots, Inc., a Delaware corporation (the “Company”), in connection with the preparation and filing with the Securities and Exchange Commission of a Registration Statement on Form S-1 (the “Registration Statement”) relating to the resale by selling security holders of up to 50,400,000 shares (the “Shares”) of the Company’s common stock, par value $0.001, which consists of 38,909,000 shares of the Company’s common stock issued and outstanding, 2,691,000 shares of the Company’s common stock underlying the outstanding Debentures (as defined below), and 8,800,000 shares of the Company’s common stock underlying the outstanding Warrants (as defined below).

 

This opinion is being delivered in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Act.

 

In rendering this opinion, we have examined (i) the Registration Statement and the exhibits thereto, (ii) the Company’s Amended and Restated Certificate of Incorporation, (iii) the Bylaws of the Company, (iv) certain resolutions of the board of directors of the Company, relating to the issuance and sale of the Shares, convertible debentures convertible into Shares (the “Debentures”), and warrants exercisable into Shares (the “Warrants”), and (v) certificates of officers of the Company and of public officials and other such records, instruments and documents as we have deemed advisable in order to render this opinion. In such examination, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies and the authenticity of the originals of such latter documents.

 

Based on the foregoing, we are of the opinion that the Shares held by the selling security holders as of the date hereof and covered by the Registration Statement are, and the Shares which are to be duly issued upon due conversion or exercise of the Debentures or Warrants will be, when issued upon such conversion or exercise and payment of the exercise price, if any, validly issued, fully paid and non-assessable.

 

We express no opinion as to the effect or application of any laws or regulations other than the General Corporation Law of the State of Delaware and the Federal laws of the United States, in each case as currently in effect. 

 

The information set forth herein is as of the date hereof. We assume no obligation to supplement this opinion letter if any applicable law changes after the date hereof or if we become aware of any fact that might change the opinion expressed herein after the date hereof. Our opinion is expressly limited to the matters set forth above, and we render no opinion, whether by implication or otherwise, as to any other matters relating to the Company, the Shares, the Registration Statement or the prospectus included therein.

 

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and being named in the prospectus included in the Registration Statement under the heading “Legal Matters”. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission promulgated thereunder.

 

 

Very truly yours,

 

 

/s/ Thompson Hine LLP

 

Exhibit 10.1

 

employment agreement

 

THIS EMPLOYMENT AGREEMENT, made and entered into as of April 1, 2014, by and between MassRoots, Inc. (the “Company”), and Isaac Dietrich (the “Employee”).

R E C I T A L S

WHEREAS, the Company desires to employ Employee in the capacity hereinafter stated, and Employee desires to enter into the employ of the Company in such capacity, on the terms and conditions set forth herein.

WHEREAS, the parties hereto acknowledge that Employee’s employment will be “at will”.

WHEREAS, the Company and Employee desire to set forth in writing the employment relationship that exists between the Company and Employee.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is hereby covenanted and agreed by the Company and Employee as follows:

1.                   Employment . The Company hereby employs Employee as the Chief Executive Officer of the Company (the “Position”) and Employee hereby accepts such employment, upon the terms and subject to the conditions set forth in this Agreement.

2.                   Term of Employmen t. The period of Employee’s employment under this Agreement shall begin as of the date first above written (the “Commencement Date”), and shall continue until the termination of employment pursuant to Section 7 below (the “Employment Period”).

3.                   Duties and Responsibilities . Employee shall, during the Employment Period, while Employee is employed by the Company, devote Employee’s full and undivided attention, business energies and talents to fulfilling the duties of the Position, subject to the direction and control of the Board of Directors of the Company (the “Board”) and the Chief Executive Officer of the Company (the “CEO”), currently Isaac Dietrich. Notwithstanding the foregoing, Employee’s duties are subject to change at the discretion of the Board and/or the CEO. Employee shall report to Isaac Dietrich.

4.                   Location of Employment . Employee shall work primarily out of his home, but travel will be required as requested by the Company.

5.                   Compensation . Subject to the terms and conditions of this Agreement, during the Employment Period:

(a)                 Employee shall receive an annual salary of sixty thousand ($60,000) (“Base Salary”) paid in accordance with the Company’s normal payroll practices. The Company may make such deductions, withholdings or payments from sums payable to Employee hereunder which are required by law for taxes and similar charges. The

 
 

Company will review Employee’s base salary in accordance with the Company’s normal payroll procedures.

(b)                In the event that the Company reaches 250,000 monthly active users and the Company’s $0.40 financing warrants are executed, the employee’s annual salary shall increase to ninety thousand dollars ($90,000); however, the plan may be amended, modified or terminated at any time in the sole discretion of the Company. If the plan is amended or terminated under this Section 5(b), the Company agrees that it shall establish total compensation for Employee that is substantially equivalent in the aggregate to his then current compensation.

6.                   Benefits .

(a)                 Vacation

(i)                  Employee shall be entitled to use up to 10 vacation days per year. Employee shall also be entitled to such holidays as are announced by the Company from time to time, which in general, may include federal or Colorado state holidays. As of the date hereof, such Company holidays are Christmas Eve, Christmas Day, New Year’s Day, Memorial Day, July 4th, Labor Day, Thanksgiving Day and the day after Thanksgiving Day. Up to 10 unused vacation days may be carried over, subject to the approval of your manager, from one year to the next; all other unused vacation days will be forfeited.

(ii)                Each year, Employee’s vacation days will accrue ratably over the course of the year. The Company may permit Employee to use vacation days during the year before such days have accrued. In the event Employee’s employment is terminated at a time when Employee has taken more vacation days than Employee has accrued, Employee shall reimburse the Company for each vacation day Employee has taken that hasn’t accrued at a per diem rate equal to Employee’s Base Salary divided by 365. The Company will be entitled to offset such amount against any amounts owing by the Company to Employee.

(b)                Employee, when and to the extent eligible pursuant to the terms of any such benefit plan, shall be entitled to participate in such employee benefit plans (e.g., health, dental and life insurance as well as 401k) as are offered by the Company to the Employees of the Company generally as those plans may be amended from time to time in the sole discretion of the Company. Should Employee elect to participate in any such employee benefit plan, Employee shall be responsible for any and all required employee premiums, contributions, co-insurance and costs associated with said plans.

(c)                 Employee shall be entitled to payment for unused vacation days as of the Termination Date, only if the Company is given 1 month’s advance notice of separation.

7.                   Termination of Employment .

(a)                 At will Employment . The parties hereto acknowledge that Employee’s employment hereunder is “at will”, that is, Employee may be terminated by the Company

 
 

or Employee may voluntarily resign, at any time with or without cause. Absent exigent circumstances, (i) in the event that the Company wishes to terminate Employee’s employment hereunder, the Company will provide 1 month’s notice prior to such termination and (ii) in the event that Employee wishes to terminate his employment hereunder, Employee will provide 1 month’s notice prior to such termination. Failure of either party to provide such notice shall not affect the timing or validity of the termination. However, if either party provides notice of termination, Employer may in its sole discretion, at any time during the notice period decide to terminate Employee’s employment immediately in exchange for a lump sum payment for the remainder of the 1 month notice period. The date upon which any party hereto terminates Employee’s employment shall be referred to as the “Termination Date”.

Upon the Termination Date, and except as otherwise specifically set forth herein, the Company shall have no obligation to make payments to Employee in accordance with the provisions of Section 5, or, except as otherwise required by law, to provide the benefits described in Section 6, for periods after Employee’s employment with the Company is terminated except for Base Salary accrued through the Termination Date and reimbursable expenses incurred through such date.

(b)                Death . Employee’s employment hereunder shall terminate upon the death of Employee. The Company shall have no obligation to make payments to Employee in accordance with the provisions of Section 5, or, except as otherwise required by law or the terms of any applicable benefit plan, to provide the benefits described in Section 6, for periods after the date of Employee’s death except for Base Salary earned and accrued through the date of death, payable to Employee’s beneficiary, as Employee shall have indicated in writing to the Company (or if no such beneficiary has been designated, to Employee’s estate) and Reimbursable Expenses incurred through such date.

8.                   Non-Disclosure .

(a)                 Confidential Information . “Confidential Information” means all confidential and proprietary information of the Company, its Affiliates (as defined below), its customers, its prospective customers and its suppliers (including insurance carriers), whether or not such information is protected by statute, common law, proprietary rights, or otherwise, and including, without limitation: names, addresses, contact persons and other information relating to the Company’s or any Affiliate’s customers or prospective customers and their personnel and suppliers or prospective suppliers and their personnel; current, past, potential or prospective commissions, premiums, prices, costs, profits, markets, products, services and innovations; business expansion plans, including electronic business development; internal practices and procedures; trade secrets; technologies, developments, inventions or improvements; and any other information relating to the business of the Company, its Affiliates, customers or suppliers.

(b)                Disclosure of Confidential Information . As an Employee of the Company, Employee will learn and will have access to Confidential Information. Employee acknowledges and agrees that the Company developed this Confidential Information at

 
 

significant expense, it is proprietary to the Company, and it is and shall remain the exclusive property of the Company. Employee further acknowledges and agrees that the Confidential Information is highly valuable and proprietary to the Company and that the disclosure of any such Confidential Information to third parties or the otherwise unauthorized use of the Confidential Information by Employee would cause the Company serious and irreparable harm. Accordingly, Employee agrees not to, without the express, written consent of the Company, while engaged by the Company as an Employee or after such engagement, disclose, copy, make any use of, or remove from the Company’s premises the Confidential Information except as required in the performance of Employee’s duties and responsibilities to the Company. Upon Employee’s termination as an employee of the Company, Employee shall immediately deliver to the Company any Confidential Information and all copies thereof, whether in hard copy, computerized or other form, which are in the possession or control of Employee.

(c)                 Disclosure of Customer and Advertiser Confidential Information . As an employee of the Company, Employee will also learn and will have access to Confidential Information belonging to the Company’s customers and advertisers. Employee agrees not to, without the express, written consent of the Company, either while engaged by the Company or thereafter, disclose, copy, make any use of, or remove from the Company’s premises Confidential Information of the Company’s customers or suppliers except as may be required in the performance of Employee’s duties and responsibilities as an employee of the Company.

For the purposes of this Paragraph 8 and Paragraph 9, the following terms shall have the meanings set forth below:

“Affiliate” shall mean with respect to any person, any other person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with, such first mentioned person. As used in this definition of Affiliate, the term “control” (including “controlled by”, or “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, as trustee, by contract, or otherwise.

“Business” shall mean any business which engages in the set up, scheduling, management or planning of conferences or events, and any other business in which the Company may engage during the term of Employee’s engagement.

9.                   Technology Ownership . Employee hereby assigns to the Company all inventions, discoveries, designs, trade secrets, formulae, processes, methods, techniques, mask works, improvements, developments, concepts, computer programs, databases and works which Employee may make or acquire during the term of his/her employment hereunder, whether or not during working hours and whether made solely or jointly with others, that (1) are related to the Business of the Company at the time they are made or acquired, or (2) are made using the equipment, supplies, facilities, or proprietary information of the Company, as well as all patents, patent applications, copyrights, copyright registrations and all other intellectual property rights which cover, protect or are embodied in any of the foregoing.

 
 

10.               Remedies . Employee acknowledges that the Company may be irreparably injured by a violation of Sections 7, 8 or 9 and agrees that the Company shall be entitled to an injunction restraining Employee from any actual or threatened breach of Sections 7, 8 or 9 or to any other appropriate equitable remedy without bond or other security being required. Each of the parties to this Agreement will be entitled to enforce its rights under this Agreement, to recover damages and costs (including reasonable attorney’s fees and expenses) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor.

11.               Severability; Enforceability . If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, for any reason, such term or provision shall be ineffective to the extent of such invalidity or unenforceability only, and the remaining terms and provisions of this Agreement shall continue in full force and effect. The Company and Employee desire and intend that the restrictions be given effect to the maximum extent permitted by law and equity. They therefore respectfully request that any restriction determined to be over broad in any manner shall be interpreted or reformed to give that restriction the maximum effect permissible by applicable law and equity, and Employee agrees to the enforcement of the restriction as so modified.

12.               Waiver of Breach . The waiver by either the Company or Employee of a breach of any provision of this Agreement shall not operate as or be deemed a waiver of any subsequent breach by either the Company or Employee.

13.               Successors . This Agreement shall be binding on, and inure to the benefit of, the Company and its successors and assigns, including any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business.

14.               Nonalienation . The interests of Employee under this Agreement are not subject to the claims of Employee’s creditors other than the Company, and may not otherwise be voluntarily or involuntarily assigned, alienated or encumbered except to Employee’s beneficiary or estate upon his/her death and except as otherwise required by law. Any attempted assignment in violation of this provision shall be void.

15.               Notices . Any notice given by a party under this Agreement shall be in writing and shall be deemed to be duly given (i) when personally delivered, or (ii) upon delivery by Federal Express, United States Express Mail or similar overnight courier service which provides evidence of delivery, or (iii) when delivered by facsimile transmission if a copy thereof is also delivered in person or by overnight courier.

Notice to the Company shall be sufficient if given to:

 

 

Notice to Employee will be sufficient if given to (Employee’s Home Address):

 

 

 
 

16.               Amendment . This Agreement may not be amended or canceled except by mutual agreement of the parties in writing.

17.               No Third Party Beneficiaries . Except for Section 7(b), nothing in this Agreement is intended, nor shall it be construed, to confer any rights or benefits upon any person other than the parties hereto, and no other person shall have any rights or remedies hereunder.

18.               Complete Agreement . This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein and supersedes all previous negotiations, commitments, and writings relating to the subject matter hereof.

19.               Applicable Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado, without giving effect to the conflict of laws principles thereof. The parties consent to the exclusive jurisdiction of the state and federal courts of Colorado for the purpose of any suit, action or other proceeding arising out of or otherwise related to this Agreement, and expressly waive any and all objections they may have as to venue in any such courts.

20.               Section Headings . The Section headings of this Agreement are for convenience of reference only and do not form a part hereof and do not in any way modify, interpret, or construe the intentions of the parties.

21.               Rules of Construction . Whenever the context so requires, the use of the singular shall be deemed to include the plural and vice versa.

22.               Counterparts . This Agreement may be executed in one or more counterparts (including by way of facsimile) and all such counterparts shall constitute one and the same instrument.

23.               Arbitration . If a dispute arises under this Agreement that cannot be resolved informally by the parties, a party to the dispute shall invoke the procedures set forth in this Section 24. All disputes shall be solely and finally determined by arbitration in by one arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitrator’s award shall be final and binding on the parties; provided, however, that the arbitrator shall base his/her or his/her award on applicable law and judicial precedent, shall include in such award the findings of fact and conclusions of law upon which the award is based, and shall not grant any remedy or relief that a court could not grant under applicable law. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof; provided, however, that nothing herein shall impair the Company’s right to seek equitable relief from a court of competent jurisdiction for a breach or threatened breach of Section 8, 9 or 10 hereof.

24.               Company Policies and Procedures . Employee agrees to be bound by any rules, policies, terms or conditions that the Company has enacted and/or may enact or amend after the date hereof, including without limitation any rules or policies which may be set forth in an employee handbook or manual which may be published by the Company. Said material in no way constitutes a promise or guarantee of continued employment for any length of time or alters Employee’s status as an employee “at-will.”

 
 

IN WITNESS WHEREOF, Employee and the Company have executed this Employment Agreement as of the day and year first above written.

 

   
   
   
 

By: /s/ Isaac Dietrich

Name Isaac Dietrich

Title: Chief Executive Officer

   

 

   
   
   
  By: /s/ Isaac Dietrich
Employee Signature
   

 

 

Exhibit 10.2

 

employment agreement

THIS EMPLOYMENT AGREEMENT, made and entered into as of April 1, 2014, by and between MassRoots, Inc. (the “Company”), and Hyler Fortier (the “Employee”).

R E C I T A L S

WHEREAS, the Company desires to employ Employee in the capacity hereinafter stated, and Employee desires to enter into the employ of the Company in such capacity, on the terms and conditions set forth herein.

WHEREAS, the parties hereto acknowledge that Employee’s employment will be “at will”.

WHEREAS, the Company and Employee desire to set forth in writing the employment relationship that exists between the Company and Employee.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is hereby covenanted and agreed by the Company and Employee as follows:

1.                   Employment . The Company hereby employs Employee as the Chief Operations Officer of the Company (the “Position”) and Employee hereby accepts such employment, upon the terms and subject to the conditions set forth in this Agreement.

2.                   Term of Employmen t. The period of Employee’s employment under this Agreement shall begin as of the date first above written (the “Commencement Date”), and shall continue until the termination of employment pursuant to Section 7 below (the “Employment Period”).

3.                   Duties and Responsibilities . Employee shall, during the Employment Period, while Employee is employed by the Company, devote Employee’s full and undivided attention, business energies and talents to fulfilling the duties of the Position, subject to the direction and control of the Board of Directors of the Company (the “Board”) and the Chief Executive Officer of the Company (the “CEO”), currently Isaac Dietrich. Notwithstanding the foregoing, Employee’s duties are subject to change at the discretion of the Board and/or the CEO. Employee shall report to Isaac Dietrich.

4.                   Location of Employment . Employee shall work primarily out of his home, but travel will be required as requested by the Company.

5.                   Compensation . Subject to the terms and conditions of this Agreement, during the Employment Period:

(a)                 Employee shall receive an annual salary of twenty four thousand ($24,000) (“Base Salary”) paid in accordance with the Company’s normal payroll practices. The Company may make such deductions, withholdings or payments from sums payable to Employee hereunder which are required by law for taxes and similar

 
 

charges. The Company will review Employee’s base salary in accordance with the Company’s normal payroll procedures.

(b)                Upon Hyler Fortier successfully obtaining her Bachelor’s Degree on May 15 2014, Hyler Fortier’s annual salary shall increase to thirty six thousand dollars ($36,000).

(c)                 In the event that the Company reaches 250,000 monthly active users and the Company’s $0.40 financing warrants are executed, the employee’s annual salary shall increase to sixty thousand dollars ($60,000); however, the plan may be amended, modified or terminated at any time in the sole discretion of the Company. If the plan is amended or terminated under this Section 5(b), the Company agrees that it shall establish total compensation for Employee that is substantially equivalent in the aggregate to his then current compensation.

6.                   Benefits .

(a)                 Vacation

(i)                  Employee shall be entitled to use up to 10 vacation days per year. Employee shall also be entitled to such holidays as are announced by the Company from time to time, which in general, may include federal or Colorado state holidays. As of the date hereof, such Company holidays are Christmas Eve, Christmas Day, New Year’s Day, Memorial Day, July 4th, Labor Day, Thanksgiving Day and the day after Thanksgiving Day. Up to 10 unused vacation days may be carried over, subject to the approval of your manager, from one year to the next; all other unused vacation days will be forfeited.

(ii)                Each year, Employee’s vacation days will accrue ratably over the course of the year. The Company may permit Employee to use vacation days during the year before such days have accrued. In the event Employee’s employment is terminated at a time when Employee has taken more vacation days than Employee has accrued, Employee shall reimburse the Company for each vacation day Employee has taken that hasn’t accrued at a per diem rate equal to Employee’s Base Salary divided by 365. The Company will be entitled to offset such amount against any amounts owing by the Company to Employee.

(b)                Employee, when and to the extent eligible pursuant to the terms of any such benefit plan, shall be entitled to participate in such employee benefit plans (e.g., health, dental and life insurance as well as 401k) as are offered by the Company to the Employees of the Company generally as those plans may be amended from time to time in the sole discretion of the Company. Should Employee elect to participate in any such employee benefit plan, Employee shall be responsible for any and all required employee premiums, contributions, co-insurance and costs associated with said plans.

(c)                 Employee shall be entitled to payment for unused vacation days as of the Termination Date, only if the Company is given 1 month’s advance notice of separation.

 
 

7.                   Termination of Employment .

(a)                 At will Employment . The parties hereto acknowledge that Employee’s employment hereunder is “at will”, that is, Employee may be terminated by the Company or Employee may voluntarily resign, at any time with or without cause. Absent exigent circumstances, (i) in the event that the Company wishes to terminate Employee’s employment hereunder, the Company will provide 1 month’s notice prior to such termination and (ii) in the event that Employee wishes to terminate his employment hereunder, Employee will provide 1 month’s notice prior to such termination. Failure of either party to provide such notice shall not affect the timing or validity of the termination. However, if either party provides notice of termination, Employer may in its sole discretion, at any time during the notice period decide to terminate Employee’s employment immediately in exchange for a lump sum payment for the remainder of the 1 month notice period. The date upon which any party hereto terminates Employee’s employment shall be referred to as the “Termination Date”.

Upon the Termination Date, and except as otherwise specifically set forth herein, the Company shall have no obligation to make payments to Employee in accordance with the provisions of Section 5, or, except as otherwise required by law, to provide the benefits described in Section 6, for periods after Employee’s employment with the Company is terminated except for Base Salary accrued through the Termination Date and reimbursable expenses incurred through such date.

(b)                Death . Employee’s employment hereunder shall terminate upon the death of Employee. The Company shall have no obligation to make payments to Employee in accordance with the provisions of Section 5, or, except as otherwise required by law or the terms of any applicable benefit plan, to provide the benefits described in Section 6, for periods after the date of Employee’s death except for Base Salary earned and accrued through the date of death, payable to Employee’s beneficiary, as Employee shall have indicated in writing to the Company (or if no such beneficiary has been designated, to Employee’s estate) and Reimbursable Expenses incurred through such date.

8.                   Non-Disclosure .

(a)                 Confidential Information . “Confidential Information” means all confidential and proprietary information of the Company, its Affiliates (as defined below), its customers, its prospective customers and its suppliers (including insurance carriers), whether or not such information is protected by statute, common law, proprietary rights, or otherwise, and including, without limitation: names, addresses, contact persons and other information relating to the Company’s or any Affiliate’s customers or prospective customers and their personnel and suppliers or prospective suppliers and their personnel; current, past, potential or prospective commissions, premiums, prices, costs, profits, markets, products, services and innovations; business expansion plans, including electronic business development; internal practices and procedures; trade secrets; technologies, developments, inventions or improvements; and any other information relating to the business of the Company, its Affiliates, customers or suppliers.

 
 

(b)                Disclosure of Confidential Information . As an Employee of the Company, Employee will learn and will have access to Confidential Information. Employee acknowledges and agrees that the Company developed this Confidential Information at significant expense, it is proprietary to the Company, and it is and shall remain the exclusive property of the Company. Employee further acknowledges and agrees that the Confidential Information is highly valuable and proprietary to the Company and that the disclosure of any such Confidential Information to third parties or the otherwise unauthorized use of the Confidential Information by Employee would cause the Company serious and irreparable harm. Accordingly, Employee agrees not to, without the express, written consent of the Company, while engaged by the Company as an Employee or after such engagement, disclose, copy, make any use of, or remove from the Company’s premises the Confidential Information except as required in the performance of Employee’s duties and responsibilities to the Company. Upon Employee’s termination as an employee of the Company, Employee shall immediately deliver to the Company any Confidential Information and all copies thereof, whether in hard copy, computerized or other form, which are in the possession or control of Employee.

(c)                 Disclosure of Customer and Advertiser Confidential Information . As an employee of the Company, Employee will also learn and will have access to Confidential Information belonging to the Company’s customers and advertisers. Employee agrees not to, without the express, written consent of the Company, either while engaged by the Company or thereafter, disclose, copy, make any use of, or remove from the Company’s premises Confidential Information of the Company’s customers or suppliers except as may be required in the performance of Employee’s duties and responsibilities as an employee of the Company.

For the purposes of this Paragraph 8 and Paragraph 9, the following terms shall have the meanings set forth below:

“Affiliate” shall mean with respect to any person, any other person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with, such first mentioned person. As used in this definition of Affiliate, the term “control” (including “controlled by”, or “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, as trustee, by contract, or otherwise.

“Business” shall mean any business which engages in the set up, scheduling, management or planning of conferences or events, and any other business in which the Company may engage during the term of Employee’s engagement.

9.                   Technology Ownership . Employee hereby assigns to the Company all inventions, discoveries, designs, trade secrets, formulae, processes, methods, techniques, mask works, improvements, developments, concepts, computer programs, databases and works which Employee may make or acquire during the term of his/her employment hereunder, whether or not during working hours and whether made solely or jointly with others, that (1) are related to the Business of the Company at the time they are made or acquired, or (2) are made using the equipment, supplies, facilities, or proprietary information of the Company, as well as all patents,

 
 

patent applications, copyrights, copyright registrations and all other intellectual property rights which cover, protect or are embodied in any of the foregoing.

10.               Remedies . Employee acknowledges that the Company may be irreparably injured by a violation of Sections 7, 8 or 9 and agrees that the Company shall be entitled to an injunction restraining Employee from any actual or threatened breach of Sections 7, 8 or 9 or to any other appropriate equitable remedy without bond or other security being required. Each of the parties to this Agreement will be entitled to enforce its rights under this Agreement, to recover damages and costs (including reasonable attorney’s fees and expenses) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor.

11.               Severability; Enforceability . If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, for any reason, such term or provision shall be ineffective to the extent of such invalidity or unenforceability only, and the remaining terms and provisions of this Agreement shall continue in full force and effect. The Company and Employee desire and intend that the restrictions be given effect to the maximum extent permitted by law and equity. They therefore respectfully request that any restriction determined to be over broad in any manner shall be interpreted or reformed to give that restriction the maximum effect permissible by applicable law and equity, and Employee agrees to the enforcement of the restriction as so modified.

12.               Waiver of Breach . The waiver by either the Company or Employee of a breach of any provision of this Agreement shall not operate as or be deemed a waiver of any subsequent breach by either the Company or Employee.

13.               Successors . This Agreement shall be binding on, and inure to the benefit of, the Company and its successors and assigns, including any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business.

14.               Nonalienation . The interests of Employee under this Agreement are not subject to the claims of Employee’s creditors other than the Company, and may not otherwise be voluntarily or involuntarily assigned, alienated or encumbered except to Employee’s beneficiary or estate upon his/her death and except as otherwise required by law. Any attempted assignment in violation of this provision shall be void.

15.               Notices . Any notice given by a party under this Agreement shall be in writing and shall be deemed to be duly given (i) when personally delivered, or (ii) upon delivery by Federal Express, United States Express Mail or similar overnight courier service which provides evidence of delivery, or (iii) when delivered by facsimile transmission if a copy thereof is also delivered in person or by overnight courier.

Notice to the Company shall be sufficient if given to:

 

 

Notice to Employee will be sufficient if given to (Employee’s Home Address):

 

 
 

 

16.               Amendment . This Agreement may not be amended or canceled except by mutual agreement of the parties in writing.

17.               No Third Party Beneficiaries . Except for Section 7(b), nothing in this Agreement is intended, nor shall it be construed, to confer any rights or benefits upon any person other than the parties hereto, and no other person shall have any rights or remedies hereunder.

18.               Complete Agreement . This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein and supersedes all previous negotiations, commitments, and writings relating to the subject matter hereof.

19.               Applicable Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado, without giving effect to the conflict of laws principles thereof. The parties consent to the exclusive jurisdiction of the state and federal courts of Colorado for the purpose of any suit, action or other proceeding arising out of or otherwise related to this Agreement, and expressly waive any and all objections they may have as to venue in any such courts.

20.               Section Headings . The Section headings of this Agreement are for convenience of reference only and do not form a part hereof and do not in any way modify, interpret, or construe the intentions of the parties.

21.               Rules of Construction . Whenever the context so requires, the use of the singular shall be deemed to include the plural and vice versa.

22.               Counterparts . This Agreement may be executed in one or more counterparts (including by way of facsimile) and all such counterparts shall constitute one and the same instrument.

23.               Arbitration . If a dispute arises under this Agreement that cannot be resolved informally by the parties, a party to the dispute shall invoke the procedures set forth in this Section 24. All disputes shall be solely and finally determined by arbitration in by one arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitrator’s award shall be final and binding on the parties; provided, however, that the arbitrator shall base his/her or his/her award on applicable law and judicial precedent, shall include in such award the findings of fact and conclusions of law upon which the award is based, and shall not grant any remedy or relief that a court could not grant under applicable law. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof; provided, however, that nothing herein shall impair the Company’s right to seek equitable relief from a court of competent jurisdiction for a breach or threatened breach of Section 8, 9 or 10 hereof.

24.               Company Policies and Procedures . Employee agrees to be bound by any rules, policies, terms or conditions that the Company has enacted and/or may enact or amend after the date hereof, including without limitation any rules or policies which may be set forth in an employee handbook or manual which may be published by the Company. Said material in no

 
 

way constitutes a promise or guarantee of continued employment for any length of time or alters Employee’s status as an employee “at-will.”

 
 

IN WITNESS WHEREOF, Employee and the Company have executed this Employment Agreement as of the day and year first above written.

 

   
   
   
 

By: /s/ Isaac Dietrich

Name Isaac Dietrich

Title: Chief Executive Officer

   

 

   
   
   
  By: /s/ Hyler Fortier
Employee Signature
   

 

 

Exhibit 10.3

 

employment agreement

THIS EMPLOYMENT AGREEMENT, made and entered into as of April 1, 2014, by and between MassRoots, Inc. (the “Company”), and Stewart Fortier (the “Employee”).

R E C I T A L S

WHEREAS, the Company desires to employ Employee in the capacity hereinafter stated, and Employee desires to enter into the employ of the Company in such capacity, on the terms and conditions set forth herein.

WHEREAS, the parties hereto acknowledge that Employee’s employment will be “at will”.

WHEREAS, the Company and Employee desire to set forth in writing the employment relationship that exists between the Company and Employee.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is hereby covenanted and agreed by the Company and Employee as follows:

1.                   Employment . The Company hereby employs Employee as the Chief Technology Officer of the Company (the “Position”) and Employee hereby accepts such employment, upon the terms and subject to the conditions set forth in this Agreement.

2.                   Term of Employmen t. The period of Employee’s employment under this Agreement shall begin as of the date first above written (the “Commencement Date”), and shall continue until the termination of employment pursuant to Section 7 below (the “Employment Period”).

3.                   Duties and Responsibilities . Employee shall, during the Employment Period, while Employee is employed by the Company, devote Employee’s full and undivided attention, business energies and talents to fulfilling the duties of the Position, subject to the direction and control of the Board of Directors of the Company (the “Board”) and the Chief Executive Officer of the Company (the “CEO”), currently Isaac Dietrich. Notwithstanding the foregoing, Employee’s duties are subject to change at the discretion of the Board and/or the CEO. Employee shall report to Isaac Dietrich.

4.                   Location of Employment . Employee shall work primarily out of his home, but travel will be required as requested by the Company.

5.                   Compensation . Subject to the terms and conditions of this Agreement, during the Employment Period:

(a)                 Employee shall receive an annual salary of seventy eight thousand ($78,000) (“Base Salary”) paid in accordance with the Company’s normal payroll practices. The Company may make such deductions, withholdings or payments from sums payable to Employee hereunder which are required by law for taxes and similar

 
 

charges. The Company will review Employee’s base salary in accordance with the Company’s normal payroll procedures.

(b)                In the event that the Company reaches 250,000 monthly active users and the Company’s $0.40 financing warrants are executed, the employee’s annual salary shall increase to one hundred twenty thousand dollars ($120,000); however, the plan may be amended, modified or terminated at any time in the sole discretion of the Company. If the plan is amended or terminated under this Section 5(b), the Company agrees that it shall establish total compensation for Employee that is substantially equivalent in the aggregate to his then current compensation.

6.                   Benefits .

(a)                 Vacation

(i)                  Employee shall be entitled to use up to 10 vacation days per year. Employee shall also be entitled to such holidays as are announced by the Company from time to time, which in general, may include federal or Colorado state holidays. As of the date hereof, such Company holidays are Christmas Eve, Christmas Day, New Year’s Day, Memorial Day, July 4th, Labor Day, Thanksgiving Day and the day after Thanksgiving Day. Up to 10 unused vacation days may be carried over, subject to the approval of your manager, from one year to the next; all other unused vacation days will be forfeited.

(ii)                Each year, Employee’s vacation days will accrue ratably over the course of the year. The Company may permit Employee to use vacation days during the year before such days have accrued. In the event Employee’s employment is terminated at a time when Employee has taken more vacation days than Employee has accrued, Employee shall reimburse the Company for each vacation day Employee has taken that hasn’t accrued at a per diem rate equal to Employee’s Base Salary divided by 365. The Company will be entitled to offset such amount against any amounts owing by the Company to Employee.

(b)                Employee, when and to the extent eligible pursuant to the terms of any such benefit plan, shall be entitled to participate in such employee benefit plans (e.g., health, dental and life insurance as well as 401k) as are offered by the Company to the Employees of the Company generally as those plans may be amended from time to time in the sole discretion of the Company. Should Employee elect to participate in any such employee benefit plan, Employee shall be responsible for any and all required employee premiums, contributions, co-insurance and costs associated with said plans.

(c)                 Employee shall be entitled to payment for unused vacation days as of the Termination Date, only if the Company is given 1 month’s advance notice of separation.

7.                   Termination of Employment .

(a)                 At will Employment . The parties hereto acknowledge that Employee’s employment hereunder is “at will”, that is, Employee may be terminated by the Company

 
 

or Employee may voluntarily resign, at any time with or without cause. Absent exigent circumstances, (i) in the event that the Company wishes to terminate Employee’s employment hereunder, the Company will provide 1 month’s notice prior to such termination and (ii) in the event that Employee wishes to terminate his employment hereunder, Employee will provide 1 month’s notice prior to such termination. Failure of either party to provide such notice shall not affect the timing or validity of the termination. However, if either party provides notice of termination, Employer may in its sole discretion, at any time during the notice period decide to terminate Employee’s employment immediately in exchange for a lump sum payment for the remainder of the 1 month notice period. The date upon which any party hereto terminates Employee’s employment shall be referred to as the “Termination Date”.

Upon the Termination Date, and except as otherwise specifically set forth herein, the Company shall have no obligation to make payments to Employee in accordance with the provisions of Section 5, or, except as otherwise required by law, to provide the benefits described in Section 6, for periods after Employee’s employment with the Company is terminated except for Base Salary accrued through the Termination Date and reimbursable expenses incurred through such date.

(b)                Death . Employee’s employment hereunder shall terminate upon the death of Employee. The Company shall have no obligation to make payments to Employee in accordance with the provisions of Section 5, or, except as otherwise required by law or the terms of any applicable benefit plan, to provide the benefits described in Section 6, for periods after the date of Employee’s death except for Base Salary earned and accrued through the date of death, payable to Employee’s beneficiary, as Employee shall have indicated in writing to the Company (or if no such beneficiary has been designated, to Employee’s estate) and Reimbursable Expenses incurred through such date.

8.                   Non-Disclosure .

(a)                 Confidential Information . “Confidential Information” means all confidential and proprietary information of the Company, its Affiliates (as defined below), its customers, its prospective customers and its suppliers (including insurance carriers), whether or not such information is protected by statute, common law, proprietary rights, or otherwise, and including, without limitation: names, addresses, contact persons and other information relating to the Company’s or any Affiliate’s customers or prospective customers and their personnel and suppliers or prospective suppliers and their personnel; current, past, potential or prospective commissions, premiums, prices, costs, profits, markets, products, services and innovations; business expansion plans, including electronic business development; internal practices and procedures; trade secrets; technologies, developments, inventions or improvements; and any other information relating to the business of the Company, its Affiliates, customers or suppliers.

(b)                Disclosure of Confidential Information . As an Employee of the Company, Employee will learn and will have access to Confidential Information. Employee acknowledges and agrees that the Company developed this Confidential Information at

 
 

significant expense, it is proprietary to the Company, and it is and shall remain the exclusive property of the Company. Employee further acknowledges and agrees that the Confidential Information is highly valuable and proprietary to the Company and that the disclosure of any such Confidential Information to third parties or the otherwise unauthorized use of the Confidential Information by Employee would cause the Company serious and irreparable harm. Accordingly, Employee agrees not to, without the express, written consent of the Company, while engaged by the Company as an Employee or after such engagement, disclose, copy, make any use of, or remove from the Company’s premises the Confidential Information except as required in the performance of Employee’s duties and responsibilities to the Company. Upon Employee’s termination as an employee of the Company, Employee shall immediately deliver to the Company any Confidential Information and all copies thereof, whether in hard copy, computerized or other form, which are in the possession or control of Employee.

(c)                 Disclosure of Customer and Advertiser Confidential Information . As an employee of the Company, Employee will also learn and will have access to Confidential Information belonging to the Company’s customers and advertisers. Employee agrees not to, without the express, written consent of the Company, either while engaged by the Company or thereafter, disclose, copy, make any use of, or remove from the Company’s premises Confidential Information of the Company’s customers or suppliers except as may be required in the performance of Employee’s duties and responsibilities as an employee of the Company.

For the purposes of this Paragraph 8 and Paragraph 9, the following terms shall have the meanings set forth below:

“Affiliate” shall mean with respect to any person, any other person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with, such first mentioned person. As used in this definition of Affiliate, the term “control” (including “controlled by”, or “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, as trustee, by contract, or otherwise.

“Business” shall mean any business which engages in the set up, scheduling, management or planning of conferences or events, and any other business in which the Company may engage during the term of Employee’s engagement.

Technology Ownership . Employee hereby assigns to the Company all inventions, discoveries, designs, trade secrets, formulae, processes, methods, techniques, mask works, improvements, developments, concepts, computer programs, databases and works which Employee may make or acquire during the term of his/her employment hereunder, whether or not during working hours and whether made solely or jointly with others, that (1) are related to the Business of the Company at the time they are made or acquired, or (2) are made using the equipment, supplies, facilities, or proprietary information of the Company, as well as all patents, patent applications, copyrights, copyright registrations and all other intellectual property rights which cover, protect or are embodied in any of the foregoing. "Relates to the Business of the Company" shall be

 
 

defined as any idea, invention, etc. that has a clear, immediate application for the Company or, if implemented by a third party, would directly compete with the Company

 

9.                   Remedies . Employee acknowledges that the Company may be irreparably injured by a violation of Sections 7, 8 or 9 and agrees that the Company shall be entitled to an injunction restraining Employee from any actual or threatened breach of Sections 7, 8 or 9 or to any other appropriate equitable remedy without bond or other security being required. Each of the parties to this Agreement will be entitled to enforce its rights under this Agreement, to recover damages and costs (including reasonable attorney’s fees and expenses) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor.

10.               Severability; Enforceability . If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, for any reason, such term or provision shall be ineffective to the extent of such invalidity or unenforceability only, and the remaining terms and provisions of this Agreement shall continue in full force and effect. The Company and Employee desire and intend that the restrictions be given effect to the maximum extent permitted by law and equity. They therefore respectfully request that any restriction determined to be over broad in any manner shall be interpreted or reformed to give that restriction the maximum effect permissible by applicable law and equity, and Employee agrees to the enforcement of the restriction as so modified.

11.               Waiver of Breach . The waiver by either the Company or Employee of a breach of any provision of this Agreement shall not operate as or be deemed a waiver of any subsequent breach by either the Company or Employee.

12.               Successors . This Agreement shall be binding on, and inure to the benefit of, the Company and its successors and assigns, including any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business.

13.               Nonalienation . The interests of Employee under this Agreement are not subject to the claims of Employee’s creditors other than the Company, and may not otherwise be voluntarily or involuntarily assigned, alienated or encumbered except to Employee’s beneficiary or estate upon his/her death and except as otherwise required by law. Any attempted assignment in violation of this provision shall be void.

14.               Notices . Any notice given by a party under this Agreement shall be in writing and shall be deemed to be duly given (i) when personally delivered, or (ii) upon delivery by Federal Express, United States Express Mail or similar overnight courier service which provides evidence of delivery, or (iii) when delivered by facsimile transmission if a copy thereof is also delivered in person or by overnight courier.

Notice to the Company shall be sufficient if given to:

 

 

Notice to Employee will be sufficient if given to (Employee’s Home Address):

 

 
 

 

15.               Amendment . This Agreement may not be amended or canceled except by mutual agreement of the parties in writing.

16.               No Third Party Beneficiaries . Except for Section 7(b), nothing in this Agreement is intended, nor shall it be construed, to confer any rights or benefits upon any person other than the parties hereto, and no other person shall have any rights or remedies hereunder.

17.               Complete Agreement . This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein and supersedes all previous negotiations, commitments, and writings relating to the subject matter hereof.

18.               Applicable Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado, without giving effect to the conflict of laws principles thereof. The parties consent to the exclusive jurisdiction of the state and federal courts of Colorado for the purpose of any suit, action or other proceeding arising out of or otherwise related to this Agreement, and expressly waive any and all objections they may have as to venue in any such courts.

19.               Section Headings . The Section headings of this Agreement are for convenience of reference only and do not form a part hereof and do not in any way modify, interpret, or construe the intentions of the parties.

20.               Rules of Construction . Whenever the context so requires, the use of the singular shall be deemed to include the plural and vice versa.

21.               Counterparts . This Agreement may be executed in one or more counterparts (including by way of facsimile) and all such counterparts shall constitute one and the same instrument.

22.               Arbitration . If a dispute arises under this Agreement that cannot be resolved informally by the parties, a party to the dispute shall invoke the procedures set forth in this Section 24. All disputes shall be solely and finally determined by arbitration in by one arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitrator’s award shall be final and binding on the parties; provided, however, that the arbitrator shall base his/her or his/her award on applicable law and judicial precedent, shall include in such award the findings of fact and conclusions of law upon which the award is based, and shall not grant any remedy or relief that a court could not grant under applicable law. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof; provided, however, that nothing herein shall impair the Company’s right to seek equitable relief from a court of competent jurisdiction for a breach or threatened breach of Section 8, 9 or 10 hereof.

23.               Company Policies and Procedures . Employee agrees to be bound by any rules, policies, terms or conditions that the Company has enacted and/or may enact or amend after the date hereof, including without limitation any rules or policies which may be set forth in an employee handbook or manual which may be published by the Company. Said material in no

 
 

way constitutes a promise or guarantee of continued employment for any length of time or alters Employee’s status as an employee “at-will.”

 
 

IN WITNESS WHEREOF, Employee and the Company have executed this Employment Agreement as of the day and year first above written.

 

   
   
   
 

By: /s/ Isaac Dietrich

Name Isaac Dietrich

Title: Chief Executive Officer

   

 

   
   
   
  By: /s/ Stewart Fortier
Employee Signature
   

 

 

Exhibit 10.4

 

employment agreement

THIS EMPLOYMENT AGREEMENT, made and entered into as of April 1, 2014, by and between MassRoots, Inc. (the “Company”), and Tyler Knight (the “Employee”).

R E C I T A L S

WHEREAS, the Company desires to employ Employee in the capacity hereinafter stated, and Employee desires to enter into the employ of the Company in such capacity, on the terms and conditions set forth herein.

WHEREAS, the parties hereto acknowledge that Employee’s employment will be “at will”.

WHEREAS, the Company and Employee desire to set forth in writing the employment relationship that exists between the Company and Employee.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is hereby covenanted and agreed by the Company and Employee as follows:

1.                   Employment . The Company hereby employs Employee as the Chief Marketing Officer of the Company (the “Position”) and Employee hereby accepts such employment, upon the terms and subject to the conditions set forth in this Agreement.

2.                   Term of Employmen t. The period of Employee’s employment under this Agreement shall begin as of the date first above written (the “Commencement Date”), and shall continue until the termination of employment pursuant to Section 7 below (the “Employment Period”).

3.                   Duties and Responsibilities . Employee shall, during the Employment Period, while Employee is employed by the Company, devote Employee’s full and undivided attention, business energies and talents to fulfilling the duties of the Position, subject to the direction and control of the Board of Directors of the Company (the “Board”) and the Chief Executive Officer of the Company (the “CEO”), currently Isaac Dietrich. Notwithstanding the foregoing, Employee’s duties are subject to change at the discretion of the Board and/or the CEO. Employee shall report to Isaac Dietrich.

4.                   Location of Employment . Employee shall work primarily out of his home, but travel will be required as requested by the Company.

5.                   Compensation . Subject to the terms and conditions of this Agreement, during the Employment Period:

(a)                 Employee shall receive an annual salary of forty two thousand ($42,000) (“Base Salary”) paid in accordance with the Company’s normal payroll practices. The Company may make such deductions, withholdings or payments from sums payable to Employee hereunder which are required by law for taxes and similar charges. The

 
 

Company will review Employee’s base salary in accordance with the Company’s normal payroll procedures.

(b)                In the event that the Company reaches 250,000 monthly active users and the Company’s $0.40 financing warrants are executed, the employee’s annual salary shall increase to sixty thousand dollars ($60,000); however, the plan may be amended, modified or terminated at any time in the sole discretion of the Company. If the plan is amended or terminated under this Section 5(b), the Company agrees that it shall establish total compensation for Employee that is substantially equivalent in the aggregate to his then current compensation.

6.                   Benefits .

(a)                 Vacation

(i)                  Employee shall be entitled to use up to 10 vacation days per year. Employee shall also be entitled to such holidays as are announced by the Company from time to time, which in general, may include federal or Colorado state holidays. As of the date hereof, such Company holidays are Christmas Eve, Christmas Day, New Year’s Day, Memorial Day, July 4th, Labor Day, Thanksgiving Day and the day after Thanksgiving Day. Up to 10 unused vacation days may be carried over, subject to the approval of your manager, from one year to the next; all other unused vacation days will be forfeited.

(ii)                Each year, Employee’s vacation days will accrue ratably over the course of the year. The Company may permit Employee to use vacation days during the year before such days have accrued. In the event Employee’s employment is terminated at a time when Employee has taken more vacation days than Employee has accrued, Employee shall reimburse the Company for each vacation day Employee has taken that hasn’t accrued at a per diem rate equal to Employee’s Base Salary divided by 365. The Company will be entitled to offset such amount against any amounts owing by the Company to Employee.

(b)                Employee, when and to the extent eligible pursuant to the terms of any such benefit plan, shall be entitled to participate in such employee benefit plans (e.g., health, dental and life insurance as well as 401k) as are offered by the Company to the Employees of the Company generally as those plans may be amended from time to time in the sole discretion of the Company. Should Employee elect to participate in any such employee benefit plan, Employee shall be responsible for any and all required employee premiums, contributions, co-insurance and costs associated with said plans.

(c)                 Employee shall be entitled to payment for unused vacation days as of the Termination Date, only if the Company is given 1 month’s advance notice of separation.

7.                   Termination of Employment .

(a)                 At will Employment . The parties hereto acknowledge that Employee’s employment hereunder is “at will”, that is, Employee may be terminated by the Company

 
 

or Employee may voluntarily resign, at any time with or without cause. Absent exigent circumstances, (i) in the event that the Company wishes to terminate Employee’s employment hereunder, the Company will provide 1 month’s notice prior to such termination and (ii) in the event that Employee wishes to terminate his employment hereunder, Employee will provide 1 month’s notice prior to such termination. Failure of either party to provide such notice shall not affect the timing or validity of the termination. However, if either party provides notice of termination, Employer may in its sole discretion, at any time during the notice period decide to terminate Employee’s employment immediately in exchange for a lump sum payment for the remainder of the 1 month notice period. The date upon which any party hereto terminates Employee’s employment shall be referred to as the “Termination Date”.

Upon the Termination Date, and except as otherwise specifically set forth herein, the Company shall have no obligation to make payments to Employee in accordance with the provisions of Section 5, or, except as otherwise required by law, to provide the benefits described in Section 6, for periods after Employee’s employment with the Company is terminated except for Base Salary accrued through the Termination Date and reimbursable expenses incurred through such date.

(b)                Death . Employee’s employment hereunder shall terminate upon the death of Employee. The Company shall have no obligation to make payments to Employee in accordance with the provisions of Section 5, or, except as otherwise required by law or the terms of any applicable benefit plan, to provide the benefits described in Section 6, for periods after the date of Employee’s death except for Base Salary earned and accrued through the date of death, payable to Employee’s beneficiary, as Employee shall have indicated in writing to the Company (or if no such beneficiary has been designated, to Employee’s estate) and Reimbursable Expenses incurred through such date.

8.                   Non-Disclosure .

(a)                 Confidential Information . “Confidential Information” means all confidential and proprietary information of the Company, its Affiliates (as defined below), its customers, its prospective customers and its suppliers (including insurance carriers), whether or not such information is protected by statute, common law, proprietary rights, or otherwise, and including, without limitation: names, addresses, contact persons and other information relating to the Company’s or any Affiliate’s customers or prospective customers and their personnel and suppliers or prospective suppliers and their personnel; current, past, potential or prospective commissions, premiums, prices, costs, profits, markets, products, services and innovations; business expansion plans, including electronic business development; internal practices and procedures; trade secrets; technologies, developments, inventions or improvements; and any other information relating to the business of the Company, its Affiliates, customers or suppliers.

(b)                Disclosure of Confidential Information . As an Employee of the Company, Employee will learn and will have access to Confidential Information. Employee acknowledges and agrees that the Company developed this Confidential Information at

 
 

significant expense, it is proprietary to the Company, and it is and shall remain the exclusive property of the Company. Employee further acknowledges and agrees that the Confidential Information is highly valuable and proprietary to the Company and that the disclosure of any such Confidential Information to third parties or the otherwise unauthorized use of the Confidential Information by Employee would cause the Company serious and irreparable harm. Accordingly, Employee agrees not to, without the express, written consent of the Company, while engaged by the Company as an Employee or after such engagement, disclose, copy, make any use of, or remove from the Company’s premises the Confidential Information except as required in the performance of Employee’s duties and responsibilities to the Company. Upon Employee’s termination as an employee of the Company, Employee shall immediately deliver to the Company any Confidential Information and all copies thereof, whether in hard copy, computerized or other form, which are in the possession or control of Employee.

(c)                 Disclosure of Customer and Advertiser Confidential Information . As an employee of the Company, Employee will also learn and will have access to Confidential Information belonging to the Company’s customers and advertisers. Employee agrees not to, without the express, written consent of the Company, either while engaged by the Company or thereafter, disclose, copy, make any use of, or remove from the Company’s premises Confidential Information of the Company’s customers or suppliers except as may be required in the performance of Employee’s duties and responsibilities as an employee of the Company.

For the purposes of this Paragraph 8 and Paragraph 9, the following terms shall have the meanings set forth below:

“Affiliate” shall mean with respect to any person, any other person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with, such first mentioned person. As used in this definition of Affiliate, the term “control” (including “controlled by”, or “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, as trustee, by contract, or otherwise.

“Business” shall mean any business which engages in the set up, scheduling, management or planning of conferences or events, and any other business in which the Company may engage during the term of Employee’s engagement.

9.                   Technology Ownership . Employee hereby assigns to the Company all inventions, discoveries, designs, trade secrets, formulae, processes, methods, techniques, mask works, improvements, developments, concepts, computer programs, databases and works which Employee may make or acquire during the term of his/her employment hereunder, whether or not during working hours and whether made solely or jointly with others, that (1) are related to the Business of the Company at the time they are made or acquired, or (2) are made using the equipment, supplies, facilities, or proprietary information of the Company, as well as all patents, patent applications, copyrights, copyright registrations and all other intellectual property rights which cover, protect or are embodied in any of the foregoing.

 
 

10.               Remedies . Employee acknowledges that the Company may be irreparably injured by a violation of Sections 7, 8 or 9 and agrees that the Company shall be entitled to an injunction restraining Employee from any actual or threatened breach of Sections 7, 8 or 9 or to any other appropriate equitable remedy without bond or other security being required. Each of the parties to this Agreement will be entitled to enforce its rights under this Agreement, to recover damages and costs (including reasonable attorney’s fees and expenses) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor.

11.               Severability; Enforceability . If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, for any reason, such term or provision shall be ineffective to the extent of such invalidity or unenforceability only, and the remaining terms and provisions of this Agreement shall continue in full force and effect. The Company and Employee desire and intend that the restrictions be given effect to the maximum extent permitted by law and equity. They therefore respectfully request that any restriction determined to be over broad in any manner shall be interpreted or reformed to give that restriction the maximum effect permissible by applicable law and equity, and Employee agrees to the enforcement of the restriction as so modified.

12.               Waiver of Breach . The waiver by either the Company or Employee of a breach of any provision of this Agreement shall not operate as or be deemed a waiver of any subsequent breach by either the Company or Employee.

13.               Successors . This Agreement shall be binding on, and inure to the benefit of, the Company and its successors and assigns, including any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business.

14.               Nonalienation . The interests of Employee under this Agreement are not subject to the claims of Employee’s creditors other than the Company, and may not otherwise be voluntarily or involuntarily assigned, alienated or encumbered except to Employee’s beneficiary or estate upon his/her death and except as otherwise required by law. Any attempted assignment in violation of this provision shall be void.

15.               Notices . Any notice given by a party under this Agreement shall be in writing and shall be deemed to be duly given (i) when personally delivered, or (ii) upon delivery by Federal Express, United States Express Mail or similar overnight courier service which provides evidence of delivery, or (iii) when delivered by facsimile transmission if a copy thereof is also delivered in person or by overnight courier.

Notice to the Company shall be sufficient if given to:

 

 

Notice to Employee will be sufficient if given to (Employee’s Home Address):

 

 

 
 

16.               Amendment . This Agreement may not be amended or canceled except by mutual agreement of the parties in writing.

17.               No Third Party Beneficiaries . Except for Section 7(b), nothing in this Agreement is intended, nor shall it be construed, to confer any rights or benefits upon any person other than the parties hereto, and no other person shall have any rights or remedies hereunder.

18.               Complete Agreement . This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein and supersedes all previous negotiations, commitments, and writings relating to the subject matter hereof.

19.               Applicable Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado, without giving effect to the conflict of laws principles thereof. The parties consent to the exclusive jurisdiction of the state and federal courts of Colorado for the purpose of any suit, action or other proceeding arising out of or otherwise related to this Agreement, and expressly waive any and all objections they may have as to venue in any such courts.

20.               Section Headings . The Section headings of this Agreement are for convenience of reference only and do not form a part hereof and do not in any way modify, interpret, or construe the intentions of the parties.

21.               Rules of Construction . Whenever the context so requires, the use of the singular shall be deemed to include the plural and vice versa.

22.               Counterparts . This Agreement may be executed in one or more counterparts (including by way of facsimile) and all such counterparts shall constitute one and the same instrument.

23.               Arbitration . If a dispute arises under this Agreement that cannot be resolved informally by the parties, a party to the dispute shall invoke the procedures set forth in this Section 24. All disputes shall be solely and finally determined by arbitration in by one arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitrator’s award shall be final and binding on the parties; provided, however, that the arbitrator shall base his/her or his/her award on applicable law and judicial precedent, shall include in such award the findings of fact and conclusions of law upon which the award is based, and shall not grant any remedy or relief that a court could not grant under applicable law. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof; provided, however, that nothing herein shall impair the Company’s right to seek equitable relief from a court of competent jurisdiction for a breach or threatened breach of Section 8, 9 or 10 hereof.

24.               Company Policies and Procedures . Employee agrees to be bound by any rules, policies, terms or conditions that the Company has enacted and/or may enact or amend after the date hereof, including without limitation any rules or policies which may be set forth in an employee handbook or manual which may be published by the Company. Said material in no way constitutes a promise or guarantee of continued employment for any length of time or alters Employee’s status as an employee “at-will.”

 
 

IN WITNESS WHEREOF, Employee and the Company have executed this Employment Agreement as of the day and year first above written.

 

   
   
   
 

By: /s/ Isaac Dietrich

Name Isaac Dietrich

Title: Chief Executive Officer

   

 

   
   
   
  By: /s/ Tyler Knight
Employee Signature
   

 

 

Exhibit 10.5 

     
 

     

Exhibit 10.6 

 

User Agreement

 

Last Update: October 25, 2013, effective October 25, 2013

 

This update replaces the word "Contractor" with the word "Freelancer" throughout the oDesk User Agreement to conform to similar wording use across the oDesk website.

 

This oDesk User Agreement (the "Agreement") is a contract between you (the "User") and oDesk Corporation, a California corporation with its principal place of business at 901 Marshall Street, Redwood City, California U.S.A. ("oDesk", "we" or "us"). You must read, agree with and accept all of the terms and conditions contained in this Agreement in order to use our website located at www.odesk.com (the "Site") and related software and services. oDesk may amend this Agreement at any time by posting a revised version on the Site. Each revised version will state its effective date, which will be on or after the date posted by oDesk. If the revised version materially reduces your rights or increases your responsibilities, we may post it in advance of the effective date in order to give you notice. Your continued use of the oDesk Platform after the effective date of a revised version of this Agreement constitutes your acceptance of its terms. This Agreement includes and hereby incorporates by reference the agreements and polices referred to herein or linked from the URL [www.odesk.com/info/terms/], as such agreements and policies may be modified by oDesk from time to time in its sole discretion. In the event of a conflict between such policies and agreements and this Agreement, this Agreement controls. Capitalized terms are defined throughout the Agreement and in Section 12.

 

YOU UNDERSTAND THAT BY CHECKING THE BOX AND CLICKING THE "SUBMIT" BUTTON, OR BY USING THE ODESK PLATFORM, YOU ARE AGREEING TO BE BOUND BY THIS AGREEMENT. IF YOU DO NOT ACCEPT THIS AGREEMENT IN ITS ENTIRETY, YOU MAY NOT ACCESS OR USE THE ODESK PLATFORM. IF YOU AGREE TO THIS AGREEMENT ON BEHALF OF AN ENTITY, YOU REPRESENT AND WARRANT THAT YOU HAVE THE AUTHORITY TO BIND THAT ENTITY TO THIS AGREEMENT. IN THAT EVENT, "YOU" AND "YOUR" WILL REFER AND APPLY TO THAT ENTITY.

 

1. THE ODESK PLATFORM.

 

1.1 Purpose of the oDesk Platform.

 

The oDesk Platform allows Clients and Freelancers to identify each other and enable them to buy and sell Services online. Under this Agreement, oDesk provides services to both Clients and Freelancers, including curating Clients and Freelancers, facilitating the formation of contracts between Clients and Freelancers, and managing disputes related to those contracts. Clients post jobs and invite Freelancers to apply. Freelancers post profiles and bid on jobs. If a Client and Freelancer agree on terms, a Service Contract is formed directly between such Client and Freelancer subject to the provisions set forth in Section 3 (Service Contract Terms Between Client and Freelancer). oDesk pays Freelancers in connection with their delivery of services through the oDesk platform. oDesk collects payment from Clients in connection with their receipt of services through the oDesk platform.

 

1.2 Eligibility.

 

The oDesk Platform is available only to legal entities and persons who are at least eighteen (18) years old and are otherwise capable of forming legally binding contracts under applicable law. User agrees that User is not (a) a citizen or resident of a country in which use or participation is prohibited by law, decree, regulation, treaty or administrative act; (b) a citizen or resident of, or located in, a country or region that is subject to U.S. or other sovereign country sanctions or embargoes; or (c) an individual or an individual employed by or associated with an entity identified on the U.S. Department of Commerce's Denied Persons or Entity List, the U.S. Department of Treasury's Specially Designated Nationals or Blocked Persons Lists, or the Department of State's Debarred Parties List or otherwise ineligible to receive items subject to U.S. export control laws and regulations, or other economic sanction rules of any sovereign nation.

 

2. ODESK GENERAL USER POLICIES

 

2.1 oDesk Fees.

     
 

oDesk charges Freelancers a fee for the services of connecting them with the Clients that hire them and collecting payment for work. Typically, this fee is equal to 10% of Client's payments, plus a fee for disbursements. If Freelancer elects disbursement through a third party, the third party may assess additional fees. If Freelancer elects disbursement in foreign currency, oDesk adds a conversion fee of 1.5% to the spot rate quoted by its foreign exchange vendor.

 

2.2 General User Obligations.

 

You will not access (or attempt to access) the Site by any means other than the interface provided, and you will not use information from the Site for any purpose other than the purpose for which it was made available. You will not engage in any activity that interferes with or disrupts the functioning of the Site. You will not upload or attach an invalid or malicious or unknown file. You will not insert any external links that may be malicious or unknown to you, or used for offering any goods or services other than Services. You agree not to "scrape" or disaggregate data from the Site (whether by manual or automated means), for any commercial, marketing, or data compiling or enhancing purpose, or to copy, re-post or re-use data from the Site for any other service. You agree not to use or provide software (except for general purpose web browsers and email clients, or software expressly licensed by us) or services that interact or interoperate with the Site, e.g. for downloading, uploading, posting, flagging, emailing, search, or mobile use.

 

2.3 Identity and Account Security.

 

oDesk reserves the right to validate User information at any time, including but not limited to validation against third party databases or the verification of one or more official government or legal documents that confirm the User's identity. You authorize oDesk, directly or through third parties, to make any inquiries necessary to validate your identity and confirm your ownership of your email address or financial accounts, subject to applicable law. Failure to provide information about you and your business when requested is a violation of this Agreement. The User is solely responsible for ensuring and maintaining the secrecy and security of the User's oDesk account password. User agrees not to disclose this password to anyone (or, in the case of an Agency (as defined below in Section 3), not to disclose this password to anyone who is not a subcontractor of such Agency), and shall be solely responsible under all circumstances for any use of or action taken through the use of such password on the oDesk Platform. You must notify oDesk Support immediately if you suspect that your password has been lost or stolen. By using your oDesk User account, you acknowledge and agree the oDesk's account security procedures are commercially reasonable.

 

2.4 Disbursements to Freelancers

 

oDesk will automatically disburse funds to Freelancers according to the payment instructions on file with oDesk no more than one month after funds become payable (or within six months, for amounts less than $100). Funds become payable to Freelancers working on Hourly Contracts following the expiration of the dispute period and the security period associated with each work week. Funds become payable to Freelancers working on Fixed Price Contracts after Clients accept work submitted by a Freelancer. Clients retain the ability to change the terms of a Fixed Price Contract, including the amount of money owed on a Fixed Price Contract, until they accept the work. Freelancers may ask oDesk to expedite payments. oDesk reserves the right to refuse any such request and may assess a processing fee in connection with such a request.

 

2.5 Disintermediation.

 

Client shall make all payments relating to, or in any way connected with, a Service Contract (including, without limitation, bonuses) through the oDesk Platform. Any action that encourages or solicits complete or partial payment outside of the oDesk Platform is a violation of this Agreement. Should a Client or Freelancer (including an Agency) be found in violation of this section of this Agreement, it will owe oDesk an amount with respect to each Service Contract equal to the greater of a) $2,500; or b) the applicable fees had the payments been processed through the oDesk Platform, plus 18%.

     
 

2.6 Buyout.

 

Notwithstanding the provisions set forth above, Users may agree to provide or receive Services outside of the oDesk Platform with Users identified through oDesk. If the Services are rendered more than three (3) years after the Client identifies the Freelancer through oDesk, no oDesk Fees or buyout provisions apply. If Services are rendered outside of oDesk less than three (3) years after the Client identifies the Freelancer through oDesk, payments for such Services will not be subject to the oDesk Fees, provided that the Client pays oDesk a "Buy-Out" amount in accordance with the procedure set forth below:

 

i. Prior to contracting outside of oDesk to receive Services from a User identified through the oDesk system, the Client will notify oDesk in writing of its intent to pay the Buy-Out fee in lieu of the oDesk Fees.
ii. The Client will provide a good faith estimate of the then anticipated amount to be paid to the Freelancer for such Services during the fifty-two week period immediately following the date of such notice.
iii. The Client will pay or authorize oDesk to deduct from its account the greatest of (i) fifteen percent (15%) of the good faith estimate described above; (ii) fifty-two (52) times the "Average Weekly oDesk Fees" (as defined below); or (iii) five hundred dollars ($500). For purposes of the foregoing, the "Average Weekly oDesk Fees" means the average weekly amount of oDesk Fees that became due to oDesk based upon work performed for Client by the Freelancer over the four (4) weeks immediately preceding the buy-out notice described above, not counting any weeks in which no oDesk Fees became due.

 

2.7 Non-payment.

 

If Client fails to pay amounts due under this Agreement, whether by cancelling Client's credit card, initiating an improper chargeback, or any other means, Client's oDesk account will be suspended, no additional payments will be processed, and any work-in-progress will be stopped. Without limiting other available remedies, Client must reimburse oDesk for amounts due upon demand, plus any applicable processing fees, charges or penalties, plus interest at the lesser of one and one-half percent (1.5%) per month or the maximum allowed by law, plus attorneys' fees and other costs of collection as allowed by law. In its discretion, oDesk may setoff amounts due against other amounts received from or held for Client, make appropriate reports to credit reporting agencies and law enforcement authorities, and cooperate with them in any resulting investigation or prosecution.

 

2.8 Hold on funds.

 

In cases of fraud, abuse or violation of this Agreement, the oDesk Payment Guarantee shall be revoked and all monies due to the Freelancer may be held and/or reclaimed, not just those from the Contract(s) under investigation.

 

For Hourly-Rate Contracts only, Clients may dispute hours during the dispute period following the close of a weekly invoice period. It is the Client's responsibility to review the Work Diary and Time Log of every Service Contract on a weekly basis and to file any disputes on a timely basis. Once the dispute period has passed, the charges are accepted by the Client and can no longer be disputed and can only be refunded by the Freelancer. Disputes can only address the hours billed, not the quality of the work performed or deliverables. oDesk will promptly investigate the Time Log to determine, in its sole discretion, whether an adjustment is appropriate. oDesk's determination shall be final.

 

2.9 Dispute Resolution Policy.

 

For Hourly-Rate Contracts only, Clients may dispute hours during the dispute period following the close of a weekly invoice period. It is the Client's responsibility to review the Work Diary and Time Log of every Service Contract on a weekly basis and to file any disputes on a timely basis. Once the dispute period has passed, the charges are accepted by the Client and can no longer be disputed and can only be refunded by the Freelancer. Disputes can only address the hours billed, not the quality of the work performed or deliverables. oDesk will promptly investigate the Time Log to determine, in its sole discretion, whether an adjustment is appropriate. oDesk's determination shall be final.

     
 

2.10 Enforcement of Agreement and Policies.

 

oDesk has the right, but not the obligation, to suspend or cancel your access to the oDesk Platform if it believes that you have violated or acted inconsistently with the letter or spirit of this Agreement or violated our rights or those of another party. Without limiting oDesk's other remedies, we may suspend or terminate your account, use self-help in connection with our rights to reclaim any available funds, and refuse to provide any further access to the oDesk Platform to you if (a) you breach any terms and conditions of this Agreement or other written policies and procedures posted on the Site; (b) we are unable to verify or authenticate any information you provide to us; or (c) we believe that your actions may cause legal liability for you, our Users or for oDesk. Once suspended or terminated, you MAY NOT continue to use the oDesk Platform under a different account or reregister under a new account. If you attempt to use the oDesk Platform under a different account, we reserve the right to reclaim available funds in that account and/or use an available payment method to pay for any amounts outstanding. In addition, violations of this Agreement may be prosecuted to the fullest extent of the law and may result in additional penalties and sanctions. When your User account is canceled, you may no longer have access to any parts of the oDesk Platform, including data, messages, files and other material you keep on oDesk.

 

3. SERVICE CONTRACT TERMS BETWEEN CLIENT AND FREELANCER.

 

Unless otherwise agreed to in a writing signed by both Client and Freelancer, the terms and conditions of the Service Contract are as set forth in Sections 3.1 through 3.12 below ("Standard Terms"). Client and Freelancer may not agree to any other terms and conditions that affect the rights or responsibilities of oDesk.

 

3.1 Services.

 

Freelancer shall perform Services in a professional and workmanlike manner and shall timely deliver any agreed-upon Work Product.

 

3.2 Agency.

 

Work performed on Hourly-Rate Contracts under a Freelancer's profile must be performed by the Freelancer represented. If the Freelancer wishes to subcontract with third parties to perform Services on behalf of the Freelancer on Hourly-Rate Contracts, the Freelancer must do so as a legally recognized entity with the ability to hire and/or contract (an "Agency"). Freelancer and Agency agree and acknowledge that Agency's employees or contract personnel are not employees of oDesk or Client. Agency is solely responsible for all wages, costs, unemployment insurance, compensation insurance, and expenses of Agency's employees or contract personnel and has the sole and exclusive right to supervise and control them. Agency acknowledges and agrees that neither it, nor any of its employees or agents, shall have any claim under this Agreement for overtime pay, sick leave, holiday or vacation pay, retirement benefits, worker's compensation benefits, unemployment benefits, or any other employee benefits of any kind from oDesk or Client.

 

3.3 Client Payments and Billing.

 

Client shall pay the agreed-upon amount for time spent (under Hourly-Rate Contracts) or the approved project (under Fixed-Price Contracts) to oDesk, and Client will have no obligation of payment to Freelancer. Freelancer agrees that it will be paid solely by oDesk and Freelancer will not have any recourse against Client if Freelancer is not paid by oDesk. For Hourly-Rate Contracts, Client is billed for hourly Freelancer Fees on a weekly basis. For payments under Fixed-Price Contracts, Client is billed immediately.

 

3.4 Termination of a Service Contract.

 

Under Hourly-Rate Contracts, either party may terminate the Service Contract at any time for any or no reason. However, the Client remains obligated to pay for any time the Freelancer worked prior to termination.

 

For Fixed-Price Contracts, the Client may terminate at any time but may not recover any payments already made. The Freelancer may terminate a Fixed-Price Contract at any time if no payment has been made. If a payment has been made on a Fixed Price Contract, the Freelancer may terminate only with the Client's consent or after the payment has been refunded.

     
 

3.5 Client Deliverables.

 

Client grants Freelancer a limited, non-exclusive, revocable (at any time, at Client's sole discretion) right to use the Client Deliverables as necessary for the performance of the Services. Client reserves all other rights and interest, including, without limitation, all Proprietary Rights, in and to the Client Deliverables. Upon completion or termination of the Service Contract, or upon written request by the Client, Freelancer shall immediately return all Client Deliverables to the Client and further agrees to purge all copies of Client Deliverables and Work Product contained in or on Freelancer's premises, systems, or any other equipment otherwise under Freelancer's control. Within ten (10) days of Client's request, Freelancer agrees to provide written certification to the Client that all Client Deliverables have been returned or purged.

 

3.6 Work Product.

 

Proprietary Rights in Work Product shall be owned by Freelancer until payment has been made by Client, at which time Freelancer will be deemed to have assigned all Proprietary Rights in the Work Product to Client. For Hourly-Rate Contracts, Client must pay for all hours that qualify for the Payment Guarantee. For Fixed-Price Contracts, Client has complete and sole discretion whether and how much to pay; however, if Client does not pay in full, Freelancer may terminate the Service Contract by refunding any partial payment, and Freelancer will retain Proprietary Rights in Work Product. To the extent that under applicable law, Proprietary Rights cannot be assigned, Freelancer hereby irrevocably agrees to grant, and hereby grants, to Client an exclusive (excluding also Freelancer), perpetual, irrevocable, unlimited, worldwide, fully paid, and unconditional license to use and commercialize Work Product in any manner now known or in the future discovered. To the extent such license grant is not fully valid, effective or enforceable under applicable law, Freelancer hereby irrevocably agrees to grant, and hereby grants, to Client, such rights as Client reasonably requests in order to acquire, as close as possible, all rights equivalent to full legal ownership. In order to ensure that Client will be able to acquire, perfect and use such Proprietary Rights, Freelancer will: (i) transfer possession, ownership, and title to media, models, and other tangible objects containing Work Product to Client, including delivery of a complete copy of the source code for any software, documented in sufficient detail to enable a reasonably skilled programmer to correct, integrate and modify it; (ii) sign any documents at Client's request to assist Client in the documentation, perfection and enforcement of its rights; and (iii) provide Client with support and reasonable access to information for recording, perfecting, securing, defending, and enforcing such Proprietary Rights in any and all countries. In the case that under applicable law, Freelancer retains any rights of paternity, integrity, disclosure and withdrawal and any other rights that may be known as or referred to as "moral rights" (collectively "Moral Rights") or other inalienable rights to Work Product or Confidential Information under this Agreement, Freelancer irrevocably agrees to waive, and hereby waives, all such rights, or, to the extent Freelancer cannot waive such rights, Freelancer agrees not to exercise such rights, until Freelancer has provided prior written notice to Client and then only in accordance with any reasonable instructions that Client issues in the interest of protecting its rights. Freelancer's obligations under this Section 3.6 will continue even after Freelancer deregisters from or ceases use of the oDesk Platform. Freelancer appoints Client as Freelancer's attorney-in-fact to execute documents on Freelancer's behalf for the purposes set forth in this Section 3.6.

 

3.7 Pre-existing Intellectual Property in Work Product.

 

Freelancer shall ensure that no Work Product created or delivered by Freelancer includes any pre-existing software, technology or other intellectual property, whether such pre-existing intellectual property is owned by Freelancer or a third party including, without limitation, code written by proprietary software companies or developers in the open source community (collectively "Pre-existing IP") without obtaining the prior written consent of the Client to the inclusion of such Pre-existing IP in the Work Product. Freelancer acknowledges that, without limiting any other remedies, Freelancer shall not be entitled to payment for, and shall refund to Client any payments previously made by Client to Freelancer for, any Services performed on a Service Contract if the Work Product contains any Pre-existing IP that was not approved in accordance with this Section 3.7.

     
 

3.8 Worker classification.

 

Client assumes all liability for proper classification of Freelancers as independent contractors or employees based on applicable legal guidelines. This Agreement does not create a partnership or agency relationship between Client and Freelancer. Freelancer does not have authority to enter into written or oral - whether implied or express - contracts on behalf of Client. Freelancer acknowledges that oDesk does not, in any way, supervise, direct, or control Freelancer's work or Services performed in any manner. oDesk does not set Freelancer's work hours and location of work, nor is oDesk involved in determining if the compensation will be set at an hourly or fixed rate or in setting the particular rate for a service contract. oDesk will not provide Freelancer with training or any equipment, labor or materials needed for a particular Contract. oDesk will not deduct any amount for withholding, unemployment, Social Security, or other taxes as it would in the case of an employee. Client and Freelancer will be solely responsible for all tax returns and payments required to be filed with or made to any federal, state, or local tax authority, in any nation, with respect to Freelancer's performance of Services. For Contracts classified as independent contractor relationships, Client may not require an exclusive relationship between Client and Freelancer. A Freelancer classified as independent contractor is free at all times to provide Services to persons or businesses other than Client, including any competitor of Client. For Contracts classified as employer-employee relationships, Client will manage the Service Contract through the payrolling program made available on the oDesk Platform by a third-party payroll provider, where the Freelancer becomes an hourly employee of such third-party payroll provider and Freelancer and Client enter into appropriate additional agreements. Client and Freelancer agree to indemnify, hold harmless and defend oDesk from any and all claims arising out of or related to their Service Contract, including but not limited to claims that Freelancer was misclassified as an independent contractor, any liabilities arising from a determination by a court, arbitrator, government agency or other body that Freelancer was misclassified (including, but not limited to, taxes, penalties, interest and attorney's fees), any claim that oDesk was an employer or joint employer of Freelancer, as well as claims under any employment-related laws, such as those relating to employment termination, employment discrimination, harassment or retaliation, as well as any claims for overtime pay, sick leave, holiday or vacation pay, retirement benefits, worker's compensation benefits, unemployment benefits, or any other employee benefits.

 

3.9 Audit Rights

 

Client and Freelancer each shall (i) create and maintain records to document satisfaction of its obligations under this Agreement and any Service Contract, including without limitation its payment obligations and compliance with tax laws, and (ii) provide copies of such records to oDesk upon request. oDesk, or oDesk's advisors or agents, shall have the right, but not the obligation, to routinely, but no more frequently than annually, audit Freelancer's operations and records to confirm compliance. Nothing in this provision should be construed as providing oDesk with the right or obligation to supervise or monitor the actual Services performed by Freelancer.

 

3.10 Third Party Beneficiary

 

oDesk is hereby named as a third party beneficiary of each Service Contract.

 

3.11 General.

 

Service Contracts shall be governed by Sections 6 (Confidential Information), 11 (General), and 12 (Definitions) of this Agreement, as applicable either directly or by way of analogy.

 

3.12 Entire Agreement.

 

The terms and conditions set forth in this Section 3 and any additional or different terms expressly agreed by Client and Freelancer shall constitute the entire agreement and understanding of Client and Freelancer with respect to each Service Contract and shall cancel and supersede any other prior or contemporaneous discussions, agreements, representations, warranties, and/or other communications between them.

 

4. ACKNOWLEDGMENTS BY USER OF ODESK'S ROLE.

 

4.1 Service Contracts.

     
 

User expressly acknowledges, agrees and understands that: (i) the oDesk Platform is merely a venue where Users may act as Clients or Freelancers; (ii) oDesk is not a party to any Service Contracts between Clients and Freelancers; (iii) User recognizes, acknowledges and agrees that User is not an employee of oDesk and that oDesk does not, in any way, supervise, direct, or control User's work or Services; (iv) oDesk shall not have any liability or obligations under or related to Service Contracts or any acts or omissions by Users; (v) oDesk has no control over Freelancers or over the Services promised or rendered by Freelancers; and, (vi) oDesk makes no representations as to the reliability, capability, or qualifications of any Freelancer or the quality, security or legality of any Services, and oDesk disclaims any and all liability relating thereto.

 

4.2 Proprietary Rights.

 

oDesk and its licensors reserve all Proprietary Rights in and to the oDesk Platform. User may not use the oDesk Platform except as necessary for the purposes of discharging its obligations under this Agreement and any Service Contract entered into pursuant to this Agreement. oDesk reserves the right to withdraw, expand and otherwise change the oDesk Platform at any time in oDesk's sole discretion. User shall not be entitled to create any "links" to the oDesk Platform, or "frame" or "mirror" any content contained on, or accessible through, the oDesk Platform, on any other server or internet-based device.

 

4.3 oDesk's Compensation.

 

All oDesk Fees are non-refundable, whether or not Service Contracts were satisfactorily completed.

 

4.4 oDesk as a Limited Agent

 

From time to time, a User may ask oDesk to provide a physical or manually signed copy of this Agreement, a Service Contract, or an ancillary document (for example, to enable a User to withdraw payments from User's foreign bank account). User hereby appoints oDesk as its agent for the limited purpose of executing documents that confirm User's activities on the oDesk Platform. oDesk will act on User's behalf and in a clerical capacity, without in any way restricting oDesk's rights or expanding oDesk's obligations under this Agreement or any Service Contract. Each User appoints oDesk as its agent to execute an Act of Acceptance or equivalent instrument on the User's behalf documenting payments made or to be made to Freelancers or to oDesk, if another User so requests.

 

5. INVOICES AND PAYMENT METHODS.

 

5.1 Formal Invoices and Taxes.

 

oDesk shall have no responsibility for determining the necessity of or for issuing any formal invoices, or for determining, remitting, or withholding any taxes applicable to Freelancer Fees. Instead, Freelancer shall be solely responsible for determining whether it is required by applicable law to issue any formal invoices for the Freelancer Fees and for issuing any invoices so required. Freelancer shall also be solely responsible for: (a) determining whether Freelancer or oDesk is required by applicable law to remit to the appropriate authorities any value added tax or any other taxes or similar charges applicable to the Freelancer Fees, and remitting any such taxes or charges to the appropriate authorities on behalf of itself or oDesk, as appropriate; and (b) determining whether oDesk is required by applicable law to withhold any amount of the Freelancer Fees, notifying oDesk of any such requirement and indemnifying oDesk (either by permitting oDesk to offset the relevant amount against a future payment of Freelancer Fees or by refunding to oDesk the relevant amount, at oDesk's sole discretion) for any requirement to pay any withholding amount to the appropriate authorities. oDesk shall have the right, but not the obligation, to audit and monitor Freelancer's compliance with applicable tax laws as required by this Section 5.1. Further, in the event of an audit of oDesk, Freelancer agrees to promptly cooperate with oDesk and provide copies of Freelancer's tax returns, and other documents as may be reasonably requested for purposes of such audit.

 

5.2 Payment Methods.

 

Client hereby authorizes oDesk to run credit card authorizations on all credit cards provided by Client, to store credit card details as Client's method of payment for Services, and to charge Client's credit card (or any other form of payment authorized by oDesk or mutually agreed to between Client and oDesk). oDesk may, in its sole discretion, deviate from its typical billing cycle for Hourly-Rate Contracts and charge Client for any and all Time Logs at any time.

     
 

5.3 Payment Guarantee.

 

oDesk guarantees payment to Freelancers working on Hourly-Rate Contracts where the Client has a verified payment method, the time represented is captured online using the oDesk Team software, the work performed and captured pertains directly to the Service Contract billed, and each Time Log is annotated with appropriate work memos describing the work performed (the "Payment Guarantee"). Determination of whether these criteria have been met is at the sole discretion of oDesk. The Payment Guarantee will not apply to Freelancers or Contracts in violation of this Agreement, where Freelancer does not meet clear specifications of the Service Contract, where the Freelancer is aware of or complicit in another User's violation of this Agreement, or where there is any other involvement in fraudulent activities or abuse of this Payment Guarantee.

 

6. CONFIDENTIAL INFORMATION.

 

6.1 Confidentiality.

 

To the extent a Client or Freelancer provides Confidential Information to the other, the recipient shall protect the secrecy of the Confidential Information with the same degree of care as it uses to protect its own confidential information, but in no event with less than due care, and shall not: (i) disclose Confidential Information to anyone except, in the case of oDesk, to any Client or Freelancer engaged in a Contract; and (ii) use the Confidential Information, except as necessary for the performance of Services for the relevant Service Contract (including, without limitation, the storage or transmission of Confidential Information on or through oDesk Platform for use by Freelancer).

 

6.2 Return.

 

If and when Confidential Information is no longer needed for the performance of Services for the relevant Contract, or at the Client's or Freelancer's written request (which may be made at any time at Client's or Freelancer's sole discretion), Client or Freelancer (as the case may be) shall promptly destroy or return all Confidential Information and any copies thereof contained in or on its premises, systems, or any other equipment otherwise under its control. Each of Client or Freelancer, as applicable, agrees to provide written certification to the party disclosing the Confidential Information of compliance with this Section 6.2 within ten (10) days after the receipt of disclosing party's written request to certify.

 

6.3 Publication.

 

Without limiting Section 6.1 (Confidentiality), Client, Freelancer and oDesk shall not publish, or cause to be published, any Confidential Information or Work Product, except as may be necessary for performance of Services for a Contract.

 

7. WARRANTY DISCLAIMER.

 

ODESK MAKES NO EXPRESS REPRESENTATIONS OR WARRANTIES WITH REGARD TO THE SERVICES, WORK PRODUCT, ODESK PLATFORM OR ANY ACTIVITIES OR ITEMS RELATED TO THIS AGREEMENT. TO THE MAXIMUM EXTENT PERMITTED BY LAW, ODESK DISCLAIMS ALL EXPRESS OR IMPLIED CONDITIONS, REPRESENTATIONS AND WARRANTIES INCLUDING, BUT NOT LIMITED TO, THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT. SECTION 10.2 (TERMINATION) STATES USER'S SOLE AND EXCLUSIVE REMEDY AGAINST ODESK WITH RESPECT TO ANY DEFECTS, NON-CONFORMANCES OR DISSATISFACTION.

     
 

8. LIMITATION OF LIABILITY.

 

IN NO EVENT WILL ODESK BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY OR INDIRECT COSTS OR DAMAGES, LITIGATION COSTS, INSTALLATION AND REMOVAL COSTS, OR LOSS OF DATA, PRODUCTION OR PROFIT. THE LIABILITY OF ODESK TO ANY USER FOR ANY CLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT SHALL NOT EXCEED THE GREATER OF: (A) U.S. $2,500; AND (B) ANY ODESK FEES RETAINED BY ODESK WITH RESPECT TO CONTRACTS ON WHICH USER WAS INVOLVED AS CLIENT OR FREELANCER DURING THE SIX (6) MONTH PERIOD PRECEDING THE DATE OF THE CLAIM. THESE LIMITATIONS SHALL APPLY TO ANY LIABILITY, ARISING FROM ANY CAUSE OF ACTION WHATSOEVER, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH COSTS OR DAMAGES AND EVEN IF THE LIMITED REMEDIES PROVIDED HEREIN FAIL OF THEIR ESSENTIAL PURPOSE.

 

9. INDEMNIFICATION.

 

9.1 Proprietary Rights.

 

Each User shall indemnify, defend and hold harmless oDesk and its subsidiaries, affiliates, officers, agents, employees, representatives and agents (each an "Indemnified Party" for purposes of this Section 9) from any and all claims, damages, liabilities, costs, and expenses (including, but not limited to, reasonable attorneys' fees and all related costs and expenses) arising from or relating to any claim, judgment, or adjudication that any Work Product, Services or action or omission by such User infringes Proprietary Rights or other rights of any third party.

 

9.2 Indemnification by Client.

 

Each Client shall indemnify, defend and hold harmless the Indemnified Parties from any and all claims, damages, liabilities, costs, and expenses (including, but not limited to, reasonable attorneys' fees and all related costs and expenses) arising from or relating to (i) such Client's use of Services, including without limitation claims by or on behalf of any Freelancer for Worker's Compensation or unemployment benefits, or (ii) any Service Contract entered into between such Client and a Freelancer.

 

9.3 Indemnification by Freelancer.

 

Each Freelancer shall indemnify, defend and hold harmless the Indemnified Parties from any and all claims, damages, liabilities, costs, and expenses (including, but not limited to, reasonable attorneys' fees and all related costs and expenses) arising from or relating to (i) such Freelancer's provision of Services, or (ii) any Service Contract entered into between such Freelancer and a Client.

 

10. TERM AND TERMINATION.

 

10.1 Term.

 

The term of this Agreement commences on the Effective Date and continues in effect until terminated in accordance with Section 10.2 below.

 

10.2 Termination.

 

Either party may terminate this Agreement at any time, with or without cause, effective immediately upon written notice to the other party (or by terminating or suspending User's account), provided, that any such termination for convenience shall not affect the validity of any Service Contracts that have been executed prior to termination and this Agreement shall continue to apply with respect to such Service Contracts.

     
 

10.3 Consequences of Termination.

 

Termination shall not relieve Client of the requirement to pay for time spent and expenses incurred prior to the effective date of the termination, which fees and expenses, together with any applicable taxes, shall be charged to Client's credit card or other form of payment pursuant to Section 5.2 (Payment Methods). Subject to Section 2.9 (Dispute Resolution Policy), oDesk shall pay Freelancer, in accordance with the provisions of Section 5 (Invoices and Payment Methods), for all time recorded in the Time Logs incurred prior to the effective date of the termination.

 

10.4 Survival.

 

Sections 4 through 12 of this Agreement shall survive any termination thereof.

 

11. GENERAL.

 

11.1 Entire Agreement.

 

This Agreement sets forth the entire agreement and understanding of the parties relating to its subject matter and cancels and supersedes any prior or contemporaneous discussions, agreements, representations, warranties, and other communications between them.

 

11.2 Side Agreements.

 

Section 11.1 notwithstanding, Clients and Freelancers may enter into any supplemental or other written agreement that they deem appropriate (e.g., confidentiality agreement, work for hire agreement, assignment of rights, etc.). The terms and conditions of this Agreement, however, will govern and supersede any term or condition in a side agreement that purports to expand oDesk's obligations or restrict oDesk's rights under this Agreement.

 

11.3 Compliance.

 

User shall not violate any laws or third party rights on or related to the oDesk Platform. Without limiting the generality of the foregoing, User agrees to comply with all applicable import and export control laws and third parties' Proprietary Rights.

 

11.4 Notices: Consent to Electronic Notice.

 

You consent to the use of (a) electronic means to complete this Agreement and to deliver any notices pursuant to this Agreement; and (b) electronic records to store information related to this Agreement or your use of the oDesk Platform. Notices hereunder shall be invalid unless made in writing and given (a) by oDesk via email (in each case to the email address that you provide), (b) a posting on the oDesk Site or (c) by you via email to support@odesk.com or to such other addresses as oDesk may specify in writing. The date of receipt will be deemed the date on which such notice is transmitted.

 

11.5 Modifications.

 

No modification or amendment to this Agreement shall be binding upon oDesk unless in a written instrument signed by a duly authorized representative of oDesk. For the purposes of this Section 11.5, a written instrument shall expressly exclude electronic communications such as email and electronic notices but shall include facsimiles.

 

11.6 No Waiver.

 

The failure or delay of either party to exercise or enforce any right or claim does not constitute a waiver of such right or claim and shall in no way affect that party's right to later enforce or exercise it, unless such party issues an express written waiver, signed by a duly authorized representative of each party.

     
 

11.7 Assignability.

 

User may not assign this Agreement, or any of its rights or obligations hereunder, without oDesk's prior written consent in the form of a written instrument signed by a duly authorized representative of oDesk (and, for the purposes of this Section 11.7, a written instrument shall expressly exclude electronic communications such as email and electronic notices but shall include facsimiles). oDesk may freely assign this Agreement without consent of User. Any attempted assignment or transfer in violation of this Section will be null and void. Subject to the foregoing restrictions, this Agreement will inure to the benefit of the successors and permitted assigns of the parties.

 

11.8 Severability.

 

If and to the extent any provision of this Agreement is held illegal, invalid, or unenforceable in whole or in part under applicable law, such provision or such portion thereof shall be ineffective as to the jurisdiction in which it is illegal, invalid, or unenforceable to the extent of its illegality, invalidity, or unenforceability, and shall be deemed modified to the extent necessary to conform to applicable law so as to give the maximum effect to the intent of the parties. The illegality, invalidity, or unenforceability of such provision in that jurisdiction shall not in any way affect the legality, validity, or enforceability of such provision in any other jurisdiction or of any other provision in any jurisdiction.

 

11.9 Choice of Law.

 

This Agreement and any controversy, dispute or claim arising out of or relating to this Agreement, including by not limited to a Service Contract, ("Claims") shall be governed by and construed in accordance with the laws of the State of California, without regard to its conflict of law provisions and excluding the United Nations Convention on Contracts for the International Sale of Goods (CISG).

 

11.10 Dispute Resolution; Arbitration; Personal Jurisdiction and Venue.

 

oDesk and User hereby agree that any Claims shall first be settled through negotiation or according to the Dispute Resolution Policy set forth in Section 2.9 above. If a Claim (other than a Claim for injunctive or other equitable relief) remains unresolved by these means, either party will have the right to demand binding non-appearance based arbitration by a third party service mutually agreed upon by the parties. A final judgment will be made by the arbitrator, which must be adhered to by both parties and by oDesk, as applicable. You agree that any Claim you may have against oDesk, if not resolved as set forth above, must be resolved by the California state courts of San Mateo County (or, if there is exclusive federal jurisdiction, the United States District Court for the Northern District of California). You hereby irrevocably consent to the personal jurisdiction and venue of these courts.

 

11.11 Prevailing Language.

 

The English language version of this Agreement shall be controlling in all respects and shall prevail in case of any inconsistencies with translated versions, if any.

 

12. DEFINITIONS.

 

12.1

 

"Agency" means a legally recognized entity with the ability to hire and/or contract.

 

12.2

 

"Average Weekly oDesk Fees" means the average weekly amount of oDesk Fees that became due to oDesk based upon work performed for Client by the Freelancer over the four (4) weeks immediately preceding the buy-out notice, not counting any weeks in which no oDesk Fees became due.

     
 

12.3

 

"Claim" means any controversy, dispute or claim arising out of or relating to this Agreement, including but not limited to a Service Contract.

 

12.4

 

"Client" means any User utilizing the oDesk Platform to request Services to be performed by a Freelancer. From time to time, oDesk may act as a Client, and the terms and conditions of this Agreement applicable to Clients will apply to oDesk when acting in this way.

 

12.5

 

"Client Deliverables" means instructions, requests, intellectual property and any other information or materials that a Freelancer receives from a Client for a particular Service Contract.

 

12.6

 

"Confidential Information" means Client or Freelancer Deliverables, Work Product, and any other information provided to, or created by, a User for a Service Contract, regardless of whether in tangible, electronic, verbal, graphic, visual or other form. Confidential Information does not include material or information that: (a) is generally known by third parties as a result of no act or omission of Freelancer or Client; (b) subsequent to disclosure hereunder, was lawfully received without restriction on disclosure from a third party having the right to disseminate the information; (c) was already known by User prior to receiving it from the other party and was not received from a third party in breach of that third party's obligations of confidentiality; or (d) was independently developed by User without use of Confidential Information.

 

12.7

 

"Effective Date" means the date of acceptance of this Agreement.

 

12.8

 

"Fixed-Price" means a fixed fee agreed between a Client and a Freelancer, prior to the commencement of a Contract, for the completion of all Services requested by Client for such Contract.

 

12.9

 

"Fixed-Price Contract" means a Service Contract for which Client is charged a Fixed-Price.

 

12.10

 

"Freelancer" means any company or individual User utilizing the oDesk Platform to offer Services to Clients.

 

12.11

 

"Freelancer Deliverables" means instructions, requests, intellectual property and any other information or materials that a Client receives from a Freelancer for a particular Service Contract.

 

12.12

 

"Freelancer Fees" means: (a) for an Hourly-Rate Contract, an amount equal to the number of hours recorded by Freelancer in the Time Logs, multiplied by the Hourly Rate; (b) for a Fixed-Price Contract, the Fixed-Price; and (c) any bonuses paid or other payments made by a Client for a Service Contract.

     
 

12.13

 

"Hourly Rate" for a Service Contract means, in respect of a Freelancer, the hourly rate specified for that Freelancer in the oDesk Platform.

 

12.14

 

"Hourly-Rate Contract" means a Service Contract for which Client is charged based on the Hourly Rate.

 

12.15

 

"Indemnified Party" means oDesk and its subsidiaries, affiliates, officers, agents, employees, representatives and agents.

 

12.16

 

"Moral Rights" means any rights of paternity, integrity, disclosure and withdrawal and any other rights that may be known as or referred to as "moral rights".

 

12.17

 

"oDesk Platform" means the online platform operated by oDesk, including related software and services, that allows Clients and Freelancers to identify each other and enable them to buy and sell Services online.

 

12.18

 

"oDesk Team" means the online platform accessed using oDesk's downloaded Team software that enables time tracking, chat and screen shot sharing with other team members.

 

12.19

 

"Payment Guarantee" means the guaranteed payment to Freelancers working on Hourly-Rate Contracts where the Client has a verified payment method, the time represented is captured online using the oDesk Team software, the work performed and captured pertains directly to the Service Contract billed, and each Time Log is annotated with appropriate work memos describing the work performed.

 

12.20

 

"Payment Period" shall mean the one-week period beginning on Monday at 12:00 AM UTC.

 

12.21

 

"Pre-Existing IP" means pre-existing software, technology or other intellectual property, whether such pre-existing intellectual property is owned by Freelancer or a third party including, without limitation, code written by proprietary software companies or developers in the open source community.

 

12.22

 

"Proprietary Rights" means any and all rights, title, ownership and interest in and to copyrights, mask works, industrial designs, trademarks, service marks, trade names, trade secrets, patents, and any other rights to intellectual property, recognized in any jurisdiction, whether or not perfected.

     
 

12.23

 

"Service Contract" means a particular project or set of ongoing tasks for which a Client has requested Services to be performed by a Freelancer and the Freelancer has agreed on the oDesk Platform.

 

12.24

 

"Services" means web development, software development, writing, translation, administrative, marketing, design customer service, sales, data entry, general business services or any other human services.

 

12.25

 

"The Site" means our website located at www.odesk.com.

 

12.26

 

"Time Logs" means the number of hours recorded for a stated period by a Freelancer in oDesk Team in compliance with oDesk's then-current Policies, for the Services performed in respect of a Contract.

 

12.27

 

"Work Product" means any tangible or intangible results or deliverables that Freelancer agrees to create for, or actually delivers to, Client as a result of performing the Services on a particular Service Contract, including, but not limited to, configurations, computer programs or other information, or customized hardware, and any intellectual property developed in connection therewith.

     

MASTER SERVICES AGREEMENT

 

THIS MASTER SERVICES AGREEMENT (this “ Agreement ”) is entered into on December 18, 2013 (the “ Effective Date ”) by and between PARSE, LLC, a Delaware corporation with offices at 1601 Willow Road, Menlo Park, California 94025 (“ Parse ”) and MassRoots, Inc. with offices at ____________________________, (“ Customer ”).

 

WHEREAS, Customer desires to utilize certain services offered by Parse to develop mobile software applications (each an “ Application ”) that are or will be available for download by individual users (each a “User”) for use on such Users’ mobile devices and/or tablets and Parse wishes to provide such services to Customer.

NOW THEREFORE, in consideration of the mutual promises and covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.                    Services . Parse will provide to Customer the services set forth in Exhibit A (the “ Services Agreement ”), attached hereto and incorporated herein (each, a “ Service ”). If there is a conflict or ambiguity between any term of this Agreement and the Services Agreement, the terms of this Agreement shall control. The Services shall include, without limitation, the services made available through http://www.parse.com or successor URL designated by Parse , Parse’s cloud computing platform, the Parse application programming interface (API), and any other software or services offered by Parse in connection with any of the foregoing, including all updates thereto and related documentation. Parse shall provide user identifications and passwords for the Services for use by Customer’s employees, agents and independent contractors.

2.                    Support Services . Parse shall provide Customer with support services as specified in the Services Agreement (the “ Support Services ”). Parse shall utilize appropriate measurement and monitoring tools and procedures necessary to measure the Services and/or its performance of the Support Services and compare such performance to that required by the applicable Service Level Agreement.

3.                    Service Policies and Privacy .

(a)                 User Content . The parties agree that Users may upload certain content into the Applications, including without limitation, photographs, graphics, images, and text (collectively “ User Content ”) and that User Content may be processed and shared between the Applications and the Services. Customer is solely responsible for the Application or any User Content that is created, transmitted or displayed while using the Services. Customer agree to comply with the Parse Acceptable Use Policy, then in effect and incorporated herein; a copy of which can be found at https://parse.com/about/aup or successor URL designated by Parse. Parse reserves the right (but shall have no obligation) to remove any or all User Content that violates such policy. Customer shall immediately take down any User Content that violates the Acceptable Use Policy, including pursuant to a take-down request from Parse. Parse reserves the right to disable Applications in response to a violation or suspected violation of its Acceptable Use Policy. Parse shall have no responsibility or liability for the deletion or failure to store any User Content and other communications maintained through use of the Services. Parse may periodically secure and backup Applications and User Content. However, Customer is ultimately responsible for securing and backing up its Applications and any User Content and Parse shall only restore lost User Content to its last-backup point if the loss was due to fault in Parse’s Services or Support Services.

(b)                 Privacy . The Services shall be subject to the privacy policy available at www.parse.com/about/privacy or successor URL designated by Parse. Customer agrees to the use of its Application, User Content and other applicable data in accordance with Parse's privacy policies. Customer agrees to protect the privacy and legal rights of Users of its Applications. Customer must provide legally adequate privacy notice and protection for its Users. If Users provide Customer with user names, passwords, or other login information or personal information, Customer must make the Users aware that the information will be available to Customer’s Application and to Parse.

(c)                 Copyright . Customer agrees to set up a process to respond to notices of alleged infringement that comply with the United States' Digital Millennium Copyright Act ("DMCA notices"). It is Parse's policy to respond to DMCA notices or other applicable copyright laws and to terminate the accounts of

 
 

repeat infringers. Parse reserves the right to take down User Content in Customer’s Application or, if necessary, the Application itself upon receipt of a valid DMCA notice. For more information, please go to http://www.parse.com/about/policies or successor URL designated by Parse.

(d)                 Third Party Site . The Services may include hyperlinks to other web sites, content or resources. Parse may have no control over any web sites or resources which are provided by companies or persons other than Parse. Customer agrees that Parse is not responsible for the availability of any such external sites or resources, and does not endorse any advertising, products or other materials on or available from such web sites or resources. Customer agrees that Parse is not liable for any loss or damage which may be incurred by Customer or Users as a result of the content or availability of those external sites or resources, or as a result of any reliance placed by you on the completeness, accuracy or existence of any advertising, products or other materials on, or available from, such web sites or resources.

4.                    Ownership of the Service; Intellectual Property . Parse shall retain all title to and ownership of and all proprietary rights with respect to the Services and all portions thereof (including all derivatives or improvements thereof), whether or not incorporated into or used with other software as a service, software or hardware. Customer’s use of the Services does not constitute a sale of any of the Services or any portion or copy of any of the Services. The Parse name, logo, and the product names associated with the Services are trademarks of Parse or third parties, and no right or license is granted herein to use them. Customer shall retain all right, title and interest in and to the Applications and any User Content and hereby grants Parse a worldwide, royalty-free, and non-exclusive license to access and use the Applications and the User Content for the sole purpose of enabling Parse to provide the Services.

5.                    Customer Responsibilities and Restrictions .

(a)                 Customer agrees that it shall not: (i) modify, make derivative works of, disassemble, reverse compile, or reverse engineer any part of the Services, or in any way attempt to reconstruct or discover any source code or underlying ideas or algorithms of any part of the Services; (ii) access or use the Services in order to build a similar or competitive product or service or for the purposes of bringing an intellectual property infringement claim against Parse; (iii) except as expressly stated herein, copy, reproduce, distribute, republish, download, display, post or transmit in any form or by any means any of the Services; and (iv) attempt to gain unauthorized access to the Services and to make commercially reasonable efforts to prevent unauthorized third parties from accessing the Services.

(b)                 Customer shall not (i) access or attempt to access the administrative interface of the Services by any means other than through the interface that is provided by Parse in connection with the Services, unless otherwise agreed in writing or (ii) intentionally engage in any activity that interferes with or disrupts the Services (or any servers or networks that are connected to the Services).

(c)                 Customer is responsible for all activity occurring under Customers’ accounts for the Services by its Users. Customer shall notify Parse within a commercially reasonable time of any unauthorized use of any user account or any unauthorized use of the Services. Customer may not develop multiple Applications to simulate or act as a single Application or otherwise access the Parse Services in a manner intended to avoid incurring fees.

(d)                 Open source software licenses for components of the Services released under an open source license constitute separate written agreements. To the limited extent that the open source software licenses expressly supersede the terms of this Agreement, the open source licenses govern your agreement with Parse for the use of the components of the Services released under an open source license.

6.                    Confidential Information .

(a)                 “Confidential Information” means any and all non-public information provided or revealed by one party (“Discloser”) to the other party (“Recipient”) or otherwise learned by a party during the course of performance under this Agreement, including without limit software, programs, prices, processes, documentation, financial, marketing and other business information, and all other material or information that is identified at the time of disclosure as confidential or proprietary or which otherwise would reasonably be expected to be kept confidential. Confidential Information shall also include: (i) the Discloser’s planned or existing computer systems and systems architecture, including computer hardware, computer software, source code, object code, SDK, API, documentation, methods of processing and operational methods; (ii) the Discloser’s

 
 

customer lists, sales, profits, organizational structure and restructuring, new business initiatives and finances; and (iii) the Discloser’s services and products, product designs, and how such products are administered and managed. Recipient’s obligations of confidentiality shall not apply to information that: (i) is or becomes public through no fault or breach by Recipient,

(ii) is or becomes known to Recipient (either directly or rightfully through a third party) without an obligation of confidentiality, or (iii) is independently developed by Recipient without use of or access or reference to Discloser’s Confidential Information.

(b)                 During the Term of this Agreement and for a period of five (5) years following the termination or expiration of this Agreement, or with respect to any Confidential Information that constitutes a trade secret of the Discloser, for so long as such information constitutes a trade secret, Recipient shall hold Discloser’s Confidential Information in confidence and will not disseminate or disclose the Confidential Information to any third party except its Personnel, as set forth herein. Recipient will protect Discloser’s Confidential Information with the same degree of care it uses to protect its own confidential information of a similar nature, but in no event will Recipient use less than a reasonable degree of care. Recipient will use Discloser’s Confidential Information solely to the extent necessary to exercise its rights and obligations under this Agreement and will ensure that Confidential Information is disclosed only to its employees, contractors and other personnel (individually and collectively, “Personnel”) with a bona fide need to know and who are under binding written obligations of confidentiality with Recipient to protect Discloser’s Confidential Information substantially in accordance with the terms of this Agreement. The Recipient shall be responsible for any breach of this Section 6 by any of its Personnel. In addition, Recipient will implement and maintain appropriate technical and organizational measures to protect Confidential Information against accidental or unlawful destruction or accidental loss, alteration, unauthorized disclosure or access, and which provide a level of security appropriate to the risk represented by the processing and the nature of the Confidential Information to be protected. Recipient may disclose Confidential Information to the limited extent required to by the order or requirement of a court, administrative agency, or other governmental body; provided, however, that the Recipient notifies the Discloser in writing in advance of such disclosure and provides the Discloser with copies of any related information so that the Discloser may take appropriate action to protect its Confidential Information.

(c)                 All Confidential Information is and shall remain the sole property of Discloser, and Recipient shall not acquire any rights or licenses therein except as expressly set forth in this Agreement. Within ten (10) days of Discloser’s written request, Recipient shall destroy any and all Confidential Information and any other information and materials that contain such Confidential Information and will provide written confirmation of its compliance with this Section 6 signed by an authorized representative of Recipient.

(d)                 Recipient acknowledges that the disclosure of Confidential Information in breach of the terms of this Section 6 may cause Discloser irreparable injury and damages that may be difficult to ascertain. Therefore, Discloser, upon a disclosure or threatened disclosure of any Confidential Information by Recipient or any Personnel, will be entitled to seek injunctive relief, including, but not limited to, a preliminary injunction upon an ex parte application by the Discloser to protect and recover its Confidential Information. Without limiting the foregoing, the Receiver will advise the Discloser immediately in the event that it learns or has reason to believe that any person or entity that has had access to Confidential Information, directly or indirectly, through the Receiver, has violated or intends to violate the terms of this Agreement. This provision will not in any way limit such other remedies as may be available to the Discloser, whether under this Agreement, at law, or in equity.

7.                    Billing and Payment .

(a)                 The amount of the monthly fee associated with the use of the Services and the Support Services by Customer shall be as set forth in the applicable Services Agreement (the “Monthly Fees”). If in any calendar month, Customer’s use of the Services and Support Services exceeds the threshold set forth in the applicable Services Agreement (the “Overage Threshold”), Customer shall pay to Parse the fees for such use in excess of the Overage Threshold, as set forth in such Services Agreement (the “Overage Fees”). Collectively, the Monthly Fees and the Overage Fees shall be referred to as the “Fees”. The Fees exclude all applicable sales, use, and other taxes, fees, duties and similar charges (“Taxes”), and Customer will be responsible for payment of all such Taxes (other than taxes based on Parse’s income) and any penalties or charges that accrue with respect to the non-payment of any Taxes as well as government charges, and all reasonable expenses and attorneys fees Parse incurs

 
 

collecting late amounts. All amounts payable under this Agreement will be payable in U.S. Dollars within thirty (30) days of date of invoice. Late payments may bear interest at the rate of 1.5% per month (or the highest rate permitted by law, if less). To the fullest extent permitted by law, you waive all claims relating to charges unless claimed within sixty (60) days after the charge and refunds (if any) are at the discretion of Parse and only in the form of credit for Parse Services. Notwithstanding any fees for the Services or Support Services posted on http://www.parse.com or otherwise published by Parse, the parties acknowledge and agree that the Fees may only be modified as set forth in Section 16 of this Agreement.

(b)                 Parse shall use commercially reasonable efforts to ensure enough throughput performance for its Services so that Customer does not experience degraded service as set forth in the Service Level Agreement. In the event Parse’s Services are unavailable to meet the requirements set forth in the Service Level Agreement, Customer shall receive service credit from Parse for the subsequent month as set forth in the applicable Service Level Agreement. No such service credit shall be available if failure to provide the Services is attributable to reasons of Force Majeure as set forth in Section 14, previously scheduled system and network maintenance performed during regular maintenance windows (which shall in all cases be outside of normal business hours between the hours of 6:00 pm and 5:00 am Pacific Time), or the acts, systems, or applications of Customer or its End Users.

8.                    Term and Termination .

(a)                 This Agreement commences on the Effective Date and, unless terminated earlier in accordance with its terms, shall remain in effect for a period of one (1) Contract Year (the “ Initial Term ”). This Agreement shall be automatically renewed on a Contract Year to Contract Year basis (each a “ Renewal Term ”) unless either party provides notice to the other of its intention not to renew at least sixty (60) days prior to the end of the Initial Term or Renewal Term, as applicable. The Initial Term, together with any Renewal Term(s), shall collectively be referred to as the “ Term ”. A “ Contract Year ” is a twelve (12) month period commencing on the Effective Date or the anniversary thereof, as applicable.

(b)                 Either party may terminate this Agreement and/or any Services Agreement by giving written notice to the other party upon the occurrence of an Event of Default on the part of such other party. For purposes of this Agreement, “ Event of Default ” shall mean a material breach by a party of any of its obligations under this Agreement if such breach remains uncured for a period of thirty (30) days following receipt of written notice from the non-breaching party.

(c)                 Client may terminate this Agreement without cause, having given 30 day written notice, at any time during the Initial Term or any Renewal Term; however, upon such termination without cause Client shall pay an Early Termination Fee (as such term is defined in Section 8(e)).

(d)                 Any and all provisions in this Agreement which would reasonably be expected to be performed after the termination or expiration of this Agreement shall survive and be enforceable after such termination or expiration, including without limitation provisions relating to confidentiality, ownership of materials, indemnification, limitations of liability, effects of termination, and governing law. Termination of this Agreement shall terminate all Services Agreements then in effect. Customer is solely responsible for exporting all User Content and Application(s) from the Services prior to termination of Customer’s account for any reason, provided that if Parse terminates Customer’s account, Parse will provide Customer a reasonable opportunity to retrieve User Content and Customer’s Application(s).

(e)                 In the event that Client terminates this Agreement in accordance with Section 8(c), Client agrees to pay Parse an early termination fee equal to the number of months remaining on the Initial Term or the then current Renewal Term (whichever the case may be) times the Total Monthly Services fee (“Early Termination Fee”).

9.                    Exclusion of Warranties . NOTHING IN THIS AGREEMENT SHALL EXCLUDE OR LIMIT ANY WARRANTY OR ANY LIABILITY FOR LOSSES WHICH MAY NOT BE LAWFULLY EXCLUDED OR LIMITED BY APPLICABLE LAW. CUSTOMER EXPRESSLY UNDERSTANDS AND AGREES THAT ITS USE OF THE PARSE SERVICES AND SUPPORT SERVICES ARE AT ITS SOLE RISK AND THAT THE PARSE SERVICES AND SUPPORT SERVICES ARE PROVIDED “AS IS” AND “AS AVAILABLE.” PARSE, ITS SUBSIDIARIES AND AFFILIATES, AND ITS LICENSORS MAKE NO EXPRESS WARRANTIES AND DISCLAIM ALL IMPLIED WARRANTIES REGARDING THE PARSE SERVICES AND SUPPORT SERVICES, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-

 
 

INFRINGEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, PARSE, ITS SUBSIDIARIES AND AFFILIATES, AND ITS LICENSORS DO NOT REPRESENT OR WARRANT TO CUSTOMER THAT: (A) CUSTOMER’S USE OF THE PARSE SERVICES OR SUPPORT SERVICES WILL MEET CUSTOMER’S REQUIREMENTS, (B) CUSTOMER’S USE OF THE PARSE SERVICES OR SUPPORT SERVICES WILL BE UNINTERRUPTED, TIMELY, SECURE OR FREE FROM ERROR, AND (C) USAGE DATA PROVIDED THROUGH THE PARSE SERVICES WILL BE ACCURATE.

10.                Limitation of Liability . SUBJECT TO SECTION 9, BOTH PARTIES EXPRESSLY UNDERSTAND AND AGREE THAT NEITHER PARTY SHALL BE LIABLE TO THE OTHER UNDER THIS AGREEMENT FOR ANY INDIRECT, PUNITIVE, SPECIAL, EXEMPLARY, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OR FOR LOSS OF DATA, REVENUE OR PROFITS, USE OR OTHER ECONOMIC ADVANTAGE ARISING OUT OF, OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN PREVIOUSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT FOR BREACHES OF SECTION 5 AND 6, IN NO EVENT SHALL EITHER PARTY’S AGGREGATE LIABILITY EXCEED THE AMOUNTS ACTUALLY PAID BY AND/OR DUE FROM CUSTOMER IN THE TWELVE (12) MONTH PERIOD IMMEDIATELY PRECEDING THE EVENT GIVING RISE TO SUCH CLAIM.

11.               Indemnification . Both parties agree to defend and indemnify the other, and its subsidiaries, affiliates, officers, employees, advertisers, licensors, suppliers or partners from and against any third party claims arising from or in any way related to such party’s breach of this Agreement or violation of applicable laws, rules or regulations.

12.                Publicity . Customer agrees that Parse may use Customer’s trade names, trademarks, service marks, logos, domain names and other distinctive branch features in presentations, marketing materials, customer lists, financial reports and website listings for the purpose of advertising or publicizing Customer’s use of the Parse Services.

13.                Relationship of the Parties . The parties are independent contractors with respect to each other, and nothing in this Agreement shall be construed as creating an employer-employee relationship, a partnership, fiduciary, or agency relationship or any association or joint venture between the parties.

14.                Force Majeure . Except with respect to delays or failures caused by the negligent act or omission of either party, any delay in or failure of performance by either party under this Agreement will not be considered a breach of this Agreement and will be excused to the extent caused by any occurrence beyond the reasonable control of such party, provided that the party affected by such event will immediately notify the other party and begin or resume performance as soon as practicable after the event has abated. If the act or condition beyond a party’s reasonable control that prevents such party from performing any of its obligations under this Agreement continues for thirty (30) days or more, then the other party may terminate this Agreement immediately upon written notice to the non-performing party with no Early Termination Fee.

15.                Binding Effect; Assignment; Third Parties . The terms of this Agreement shall be binding on the parties and all successors and permitted assigns of the foregoing. Customer may not assign, transfer or delegate its rights or obligations under this Agreement (in whole or in part) without written consent of Parse (not to be unreasonably withheld). Parse may hire qualified subcontractors to perform any of the Services or Support Services, as provided herein. Any attempted assignment, transfer or delegation in violation of the foregoing shall be null and void. This Agreement is intended for the sole and exclusive benefit of the parties, is not intended to benefit any third party, and only the parties may enforce this Agreement.

16.                Modification; Waiver . All modifications to or waivers of any terms of this Agreement (including any exhibit and/or Services Agreement) must be in a writing that is signed by the parties hereto and expressly references this Agreement. No waiver of any breach of any provision of this Agreement shall constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof, and no waiver shall be effective unless made in writing and signed by an authorized representative of the waiving party.

17.                Governing Law . This Agreement will be governed and construed under the laws of the State of California without regard to conflicts of law provisions. Any suit or proceeding arising out of or relating to this Agreement will be brought in the federal and/or state courts, as applicable, in Santa Clara County, California,

 
 

and each party irrevocably submits to the jurisdiction and venue of such courts.

18.                Severability . In the event that any provision of this Agreement shall be held invalid, illegal, or unenforceable by a court with jurisdiction over the parties to this Agreement, such invalid, illegal, or unenforceable provision shall be deleted from the Agreement, which shall then be construed to give effect to the remaining provisions thereof.

19.                Notices . All notices, consents and approvals under this Agreement must be delivered in writing by personal delivery, courier, express mail service, or by certified or registered mail, (postage prepaid and return receipt requested) to the other party at the address set forth on at the beginning of this Agreement (or such other address as a party may designate from time to time by written notice to the other party). Notice given by mail shall be effective five (5) days after the date of mailing, postage prepaid and return receipt requested. Notice by personal delivery, courier service, or express mail service shall be effective upon delivery.

20.                Interpretation . This Agreement may be executed in counterparts, each of which will constitute an original, and all of which will constitute one agreement.

The section headings and captions in this Agreement are for convenience of reference only and have no legal effect.

21.                Entire Agreement . Collectively, this Agreement, its referenced exhibits, and all Services Agreements constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior and contemporaneous oral or written representations, agreements or communications, including, without limitation, any quotations or proposals submitted by Parse.

[Signature Page Follows]

 

 

 
 

 

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Agreement as of the Effective Date.

 

PARSE : CUSTOMER

 

PARSE, LLC

 

 

By: /s Ilya Sukhar By: /s Isaac Dietrich

 

Name: Ilya Sukhar Name: Isaac Dietrich

 

Title: VP, Product Title: Co-Founder

 

 

 

 

 
 

 

EXHIBIT A

 

SERVICE AGREEMENT

THIS SERVICES AGREEMENT dated December 18, 2013 (the “Services Agreement”) is hereby integrated into and forms a part of the Master Services Agreement dated December 18, 2013, by and between PARSE, LLC (“Parse”) and MassRoots, Inc. (the “ Customer ”). All capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Master Services Agreement.

Included Services — Subject to the terms and conditions of the Master Services Agreement and payment of all applicable fees, Parse shall provide the following Services to Customer during the Term.

Enterprise Infrastructure & Support
Enterprise Infrastructure Your app(s) will reside on enterprise clusters with higher performance, managed resource contention, guaranteed data replication, and priority monitoring.  Parse Ops Engineers will scale your application as it grows.
Enterprise Support Get help for your unique and evolving needs with personalized support from a Parse engineer assigned to your account.  Guaranteed response to email support requests within one (1) business day.
API Requests (millions) 15
Push Notifications (millions) 5
File Storage (GB) 10
Burst Limit (per app) 100 Per Second
App Collaborators Included.  Up to ten (10) collaborators
Total included Services Fee $  2,000 USD per month
     


Overage Fees :

Description Fees
API Requests $13.30 per million over the total set forth above
Push Notifications $40 per million over the total set forth above
File Storage $0.145 per GB over the total set forth above
File Transfer Charge $0.13 per GB transferred out


Additional Support Services — if indicated in the table below and subject to the terms and conditions of the Master Services Agreement and payment of all applicable fees, Parse shall provide the following additional Support Services to Customer during the Term:

Description Fees (per month)
Service Level Agreement (SLA) - API Requests - 99.95% shall be successfully served per month Not included
Phone Support - Support time of 3 hours per month, upon reasonable notice $500 per extra hour, billed half-hourly Not included
Dedicated Services - Dedicated architecture for your deployment Not included
Total Additional Support Services Fee $0.00 USD per month
   
Total Monthly Services Fee $  2,000 USD per month
 
 

Limitations on Support Services

· Other than in exceptional circumstances, Support Services are available from 9:00 am to 5:00 pm Pacific Time, Monday through Friday, excluding U.S. holidays.
· Schedule telephone Support Service at least two (2) business days in advance during normal business hours of 9:00 am and 5:00 pm Pacific Time, Monday through Friday, excluding U.S. holidays.
· Telephone Support Services are subject to a thirty (30) minute minimum charge.
· Support Services are intended to help the customer maintain, update, and troubleshoot issues related to Parse Services only. Support Services are not a guarantee of uptime or of continued functionality.

Service Level Agreement Credits — Customer’s sole and exclusive remedy for Parse’s failure to meet the applicable SLAs of successful API requests served per month or successful push notifications delivered per month shall be the provision of service credits against subsequent Monthly Fees as follows:

 

Service Level Agreement Credits
API & Push Credit Determination Service Credit
> 99.9% - < 99.95% 5%
> 99.0% - < 99.9% 15%
< 99.0 40%

 

Customer Contact and Billing Information

Customer Contact Information Billing Contact Information
Name: Name:
Address: Address:
   
Email: Email:
Phone Number: Phone Number:

 

Payment Information . Customer will pay the Total Monthly Services Fee on a monthly basis. By signing this Services Agreement, customer authorizes Parse to charge the following credit card for the total Monthly Services Fee, monthly Overage Fees and additional Services fees, and/or any applicable non-recurring fees non-recurring Services fees, plus any applicable taxes and governmental levies in accordance with the schedules, terms and conditions herein.

 

Name on Card: Card Number:
Expiration Date: Security Number:

 

PARSE:   CUSTOMER
     
PARSE, LLC    
     
By: /s/ Ilya Sukhar   By: /s/ Isaac Dietrich
         
Name: Ilya Sukhar   Name: Isaac Dietrich
Title: VP, Product   Title: Co-Founder

 

Exhibit 10.8  

 

CONSULTING AGREEMENT

This AGREEMENT made this 18th day of March, 2014 (the “Agreement”), between MassRoots, Inc. , a Delaware corporation with its address at 6525 Gunpark Drive, Ste 370 #150, Boulder, CO 80301, and its predecessors and assigns, (the “Company ”) and Dutchess Opportunity Fund, II, LP , a Delaware limited liability company with its address at 50 Commonwealth Ave., Suite 2, Boston, MA, 02116 (“DOF”) . The Company and DOF are sometimes referred to herein as a “Party” and together referred to as the “Parties”.

 

W I T N E S S E T H

WHEREAS, the Company desires to: (i) effectuate a transaction to become a U.S. publicly-traded entity;

WHEREAS, since the October 1, 2013, DOF and its advisors have assisted the Company with several matters, including, but not limited to, organizing the Company’s corporate structure and financial records, and establishing sound business practices and procedures;

WHEREAS, the Company desires to become a publicly traded entity;

WHEREAS, the Company and DOF now wish to enter into an agreement to more accurately define the terms and conditions of their respective relationship; and

NOW, THEREFORE, in consideration of the premises and of the mutual covenants set forth in this Agreement, the Company and DOF agree as follows:

1. Scope and Exclusivity of Engagement.

 

DOF shall use its best efforts to: (a) continue to assist the Company with organizing its corporate structure and financial records and establishing sound business practices and procedures; and (b) introduce the Company to various third party service providers, including broker-dealers registered with the Financial Industry Regulatory Authority (“FINRA”), corporate counsel and independent financial auditors registered with the PCAOB (collectively, the “Services”). It is acknowledged and agreed by the Company that DOF possesses no professional licenses, and is not rendering legal advice or performing accounting services, nor acting as an investment advisor or broker/dealer within the meaning of the applicable state and federal securities laws. DOF shall be the Company’s exclusive advisor for the Services described in this Agreement from the date of this Agreement through September 30, 2014.

 

2. Acknowledgement of Duties Performed by DOF.

 

Since October 1, 2013, DOF has assisted the Company with several matters, including, but not limited to, organizing the Company’s corporate structure and financial records,

 
 

and establishing sound business practices and procedures. Further, to prepare the Company to become a publicly-traded entity, DOF and its advisors, have performed comprehensive due diligence, including, but not limited to, a review of the Company’s financial condition, legal matters (existing and potential), operations, market and opportunities, tangible and intangible assets, debt instruments, customers, supply chain, regulatory compliance, financial analysis, document review, and other areas of interest.

Further, DOF has introduced the Company to a FINRA-registered broker-dealer, qualified legal counsel and a PCAOB-registered independent financial auditor.

 

3. Compensation

 

The Company, as the sole compensation for DOF’s services, shall grant to DOF or its designees, upon the execution of this Agreement, a 3 year warrant to purchase up to 4,050,000 (four million fifty thousand) shares of the Company’s common stock (“DOF Warrant”), at an exercise price of $0.001 (one one thousandth of a dollar) per share. The Company shall also pay to DOF a warrant to purchase up to two million three hundred and seventy-five thousand (2,375,000) shares exercisable at forty cents ($.40) per share with a term of three (3) years.

 

4. Reimbursement of Expenses.

Subject to prior written consent from both the CEO and Chairman of the Company, DOF shall be reimbursed by the Company for all reasonable office expenses, telecommunications, travel (excepting commute), lodging, food expenses and other ordinary and necessary business expenses incurred by DOF in connection with its duties under this Agreement. DOF shall submit to the Company receipts, bills or sales slips for the expenses incurred. The Company agrees to reimburse DOF for such expenses within three (3) days of presentation by DOF of evidence of the expenses incurred.

 

5. Term of Engagement.

 

This Agreement shall remain in effect from the date hereof and will continue until September 30, 2014 (the “Term”), unless terminated sooner either by DOF or the Company, with cause.

 

6. Representations, Warranties and Covenants of The Company

 

The Company represents and warrants to, and covenants with, DOF as follows:

(a)                 Authority . The Company has full corporate power and authority to execute and deliver this Agreement on behalf of itself and its affiliates and to perform its obligations hereunder, and all consents, authorizations, approvals and orders required in connection with the execution, delivery and performance hereof have been obtained. This

 
 

Agreement is a valid and binding obligation of the Company, enforceable in accordance with its terms, except to the extent that the enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors generally and general principles of equity. The execution, delivery and performance of this Agreement will not conflict with, result in a breach of any of the terms or provisions of, or constitute a violation or a default under any material agreement or instrument to which the Company is a party or by which the Company is bound.

 

(b)                Furnishing Information . The Company shall furnish DOF with such information as DOF reasonably believes appropriate to its assignment hereunder (all such information so furnished being the “Information”). The Company recognizes and confirms that DOF (i) will use, and rely primarily on, the Information and information available from generally recognized public sources (the “Other Information”) in rendering its services without having independently verified the same, (ii) does not assume responsibility for the accuracy of completeness of the Information and such Other Information, (iii) will not make an appraisal of any assets of the Company, and (iv) will provide its advice hereunder based on the Information and the Other Information. The Information to be furnished by the Company, when delivered, will be true and correct in all material respects and will not contain any misstatement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. The Company shall promptly notify DOF of any material inaccuracy or misstatement in, or material omission from, any Information theretofore delivered to DOF.

 

(c) Notice of Material Changes . During the term of this Agreement, the Company will give DOF prompt notice of any material change in the business affairs of the Company, whether or not arising in the ordinary course of business, as well as such other information concerning the business and financial condition of the Company as DOF may from time to time reasonably request.

7. Confidential Information.

 

DOF hereby agrees to the keep confidential information confidential and shall not disclose such information unless for the performance of this Agreement..

 

8. Indemnification

 

The Company shall indemnify DOF and its affiliates and their respective directors, officers, employees, agents and controlling persons (DOF and each such person being an “Indemnified Party”) from and against any and all losses, claims, damages, and liabilities, joint, or several (collectively, the “Damages”), to which such Indemnified Party may become subject and which relate to or arise out of any transaction contemplated by this Agreement (including but not limited to any disclosures or omissions made by DOF) or any role of DOF

 
 

pursuant to this Agreement and shall reimburse each Indemnified Party for all expenses (including reasonable legal fees and expenses) as they are incurred in connection with the investigation of, preparation for, or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party to such action or proceeding. Notwithstanding the foregoing, the Company shall not be liable for indemnification under this paragraph to the extent that any such loss, claim, damage, or liability is determined in a final judgment by a court of competent jurisdiction to have resulted solely from DOF’s bad faith or gross negligence.

 

DOF shall indemnify the Company and its affiliates and their respective directors, officers, employees, agents and controlling persons (the Company and each such person being an “Indemnified Party”) from and against any and all losses, claims, damages, and liabilities, joint, or several (collectively, the “Damages”), to which such Indemnified Party may become subject and which relate to or arise out of any transaction contemplated by this Agreement (including but not limited to any disclosures or omissions made by the Company) or any role of the Company pursuant to this Agreement and shall reimburse each Indemnified Party for all expenses (including reasonable legal fees and expenses) as they are incurred in connection with the investigation of, preparation for, or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party to such action or proceeding. Notwithstanding the foregoing, DOF shall not be liable for indemnification under this paragraph to the extent that any such loss, claim, damage, or liability is determined in a final judgment by a court of competent jurisdiction to have resulted solely from the Company’s bad faith or gross negligence.

 

9. Independent Contractor Status.

 

Independent Contractor. DOF is an independent contractor . Nothing in this Agreement shall be construed to: (i) create an employee-employer relationship, joint venture, partnership, or other shared enterprise, between DOF and the Company, (ii) authorize either DOF to act as an agent for or otherwise on behalf of the Company, or (iii) confer any rights of employment to DOF. DOF shall not have the right or authority to make any promise, guarantee, warranty, or representation, or to assume, create, or incur any liability or other obligation of any kind, express or implied, against or in the name of, or on behalf of, the Company. Nothing in this Agreement shall be construed to obligate DOF to enter into any further agreement between them or to require or authorize DOF to act on behalf of the Company in any capacity other than as specifically defined in this Agreement.

 

10. Miscellaneous

 

Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly

 
 

given, made and received when delivered against receipt or when deposited in the United States mails, first class postage prepaid, addressed as set forth below:

 

(i)                              If to The Company:

 

MassRoots, Inc.,

6525 Gunpark Drive,

Ste. 370, #150,

Boulder, CO 80301

 

 

 

(ii)                            If to DOF:

 

Dutchess Opportunity Fund, II, LP

ATTN: Douglas Leighton

50 Commonwealth Ave., Suite 2

Boston, MA 02116

 

Either the Company or DOF may alter the address to which communications are sent by giving notice of such change of address in conformity with the provisions of this paragraph for the giving of notice.

Indulgences. Neither any failure nor any delay on the part of either DOF or the Company to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence.

 

Controlling Law. This Agreement shall be construed and interpreted in accordance with the laws of the Commonwealth of Massachusetts. Any legal suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby shall be instituted exclusively in Suffolk County, MA.

 

Binding Nature of Agreement. This Agreement shall be binding upon and inure to the benefit of DOF and its respective heirs, personal representatives, successors and assigns except that DOF may not assign or transfer its rights or obligations under this Agreement without the prior written consent of Company.

 

 
 

Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any Party whose signature appears thereon, and all of which shall together constitute one and the same instrument.

 

Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.

 

Entire Agreement. This Agreement contains the entire understanding between DOF and the Company with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, including, but not limited to, , inducements and conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.

 

Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation.

 

Gender. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.

 

IN WITNESS WHEREOF, DOF and the Company have executed this Agreement on the date first above written.

DUTCHESS OPPORTUNITY FUND, II, LP

 

/ s/ Douglas Leighton

Name: Douglas Leighton

Title: Managing Member

 

MASSROOTS, INC.

/s/ Isaac Dietrich

Name: Isaac Dietrich

Title: President & CEO

Exhibit 10.9

 

Security Agreement

THIS SECURITY AND PLEDGE AGREEMENT (the " Agreement "), dated as of the 18th day of March, 2014 by and between MassRoots, Inc., a Delaware corporation (hereinafter called " Debtor "), and [_____] (the " Secured Party "), as the holder of the Note (as defined below).

1.                    Security Interest . For value received, Debtor hereby sells, transfers, conveys, sets over, delivers, bargains, pledges, assigns and grants to Secured Party, upon the terms and conditions of this Agreement, a security interest in and to any and all present or future rights of Debtor in and to all of the following rights, interests and property (all of the following being herein sometimes called the "Pledged Collateral"):

(a)      all fixtures and personal property of every kind and nature including all accounts, goods (including inventory and equipment), documents (including, if applicable, electronic documents), instruments, promissory notes, chattel paper (whether tangible or electronic), letters of credit, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), securities and all other investment property, money, deposit accounts, and any other contract rights or rights to the payment of money; and

(b)      all Proceeds and products of each of the foregoing Pledged Collateral.

All capitalized terms used but not otherwise defined in this Agreement shall have the respective meanings given them in the Delaware Uniform Commercial Code.

2.                    Debenture . This Agreement is being executed and delivered pursuant to the terms, conditions and requirements of the Debenture Agreement, dated of even date herewith.. The security interests herein granted (" Security Interests ") shall secure full payment and performance of: (a) that certain Debenture of even date herewith in the principal amount of $ [ ___________ ] , made by Debtor and payable to the order of Secured Party (such Debenture Agreement and any modification, renewal, extension or substitution thereof being herein sometimes collectively referred to as the " Notes " and individually as the " Note "); and (b) the due and punctual observance and performance of each and every agreement, covenant and condition on Debtor's part to be observed or performed under this Agreement and the Note (all of which debts, duties, liabilities and obligations hereinbefore described and covered by this Agreement and the Note are hereinafter referred to as the " Obligation ").

3.                    Priority . Debtor represents and warrants that the Security Interests are the most senior lien to which such Pledged Collateral is subject (subject only to liens permitted under the Note).

4.                    Representations, Warranties and Covenants . The Debtor hereby represents and warrants to Secured Party and covenants for the benefit of Secured Party as follows:

(a)      Debtor is the sole legal and equitable owner of the Pledged Collateral free from any adverse claim, lien, security interest, encumbrance or other right, title or interest of any person, except for the security interest created hereby. Debtor has the right and power to grant a security interest in the Pledged Collateral to Secured Party without the consent of any other person, and Debtor shall at his expense defend the Pledged Collateral against all claims and demands of all persons at any time claiming the Pledged Collateral or any interest therein adverse to Secured Party. So long as any Obligation to the Secured Party pursuant to the Note is outstanding, Debtor will not without the prior written consent of Secured Party grant to any person a security interest in any of the Pledged Collateral or permit any lien or encumbrance to attach to any of the Pledged Collateral, or suffer or permit any levy or garnishment, or attachment to be made on any part of the Pledged Collateral, or permit any financing statement to reflect an interest in any part of the Pledged Collateral, except that of Secured Party, to be on file with respect thereto.

 

 
 

5.                    Debtor's Obligations .

(a)                  So long as the Note is outstanding, Debtor covenants and agrees with Secured Party (a) not to permit any material part of the Pledged Collateral to be levied upon under any legal process; without the prior written consent of Secured Party; (b) to comply with all applicable federal, state and local statutes, laws, rules and regulations, the noncompliance with which would have a material and adverse effect on the value of the Pledged Collateral; and (c) to pay all taxes accruing after the Closing Date which constitute, or may constitute, a lien against the Pledged Collateral, prior to the date when penalties or interest would attach to such taxes; provided, that Debtor may contest any such tax claim if done diligently and in good faith.

(b)                  The Debtor shall, from time to time, as may be required by the Secured Party with respect to all Pledged Collateral, take all actions as may be requested by the Secured Party to perfect the security interest of the Secured Party in the Pledged Collateral, including, without limitation, with respect to all Pledged Collateral over which control may be obtained within the meaning of sections 8-106, 9-104, 9-105, 9-106 and 9-107 of the UCC, as applicable, the Debtor shall take all actions as may be requested from time to time by the Secured Party so that control of such Pledged Collateral is obtained and at all times held by the Secured Party.

6.                    Event of Default . As used herein, the term "Event of Default" shall include any or all of the following if same exist on the 15th calendar day after written notice by Secured Party to Debtor which certifies such default:

(a)      The assignment, voluntary or involuntary conveyance of legal or beneficial interest, mortgage, pledge or grant of a security interest in any material part of the Pledged Collateral in violation of this Agreement; or

(b)      The filing or issuance of a notice of any lien, warrant for distraint or notice of levy for taxes or assessment against the Pledged Collateral (except for those which are being contested in good faith and for which adequate reserves have been created); or

(c)      Nonpayment of any installment of principal upon the date same shall be due and payable under the terms of the Note; or

(d)      The adjudication of Debtor as bankrupt, or the taking of any voluntary action by Debtor or any involuntary action against Debtor seeking an adjudication of Debtor as bankrupt, or seeking relief by or against Debtor under any provision of the Bankruptcy Code.

7.                    Remedies . Upon the occurrence and during the continuation of an Event of Default as defined herein, in addition to any and all other rights and remedies which Secured Party may then have hereunder or under the Note, under the Uniform Commercial Code of the State of Delaware or of any other pertinent jurisdiction (the " Code "), or otherwise, Secured Party may, at its Option: (a) reduce its claim to judgment or foreclosure or otherwise enforce the Security Interests, in whole or in part, by any available judicial procedure; (b) sell, or otherwise dispose of, at the office of Secured Party, or elsewhere, all or any part of the Pledged Collateral, and any such sale or other disposition may be as a unit or in parcels, by public or private proceedings, and by way of one or more contracts (it being agreed that the sale of any part of the Pledged Collateral shall not exhaust the Secured Party's power of sale, but sales may be made from time to time, and at any time, until all of the Pledged Collateral has been sold or until the Obligation has been paid and performed in full); (c) at its discretion, retain the Pledged Collateral in satisfaction of the Obligation whenever the circumstances are such that Secured Party is entitled to do so under the Code or otherwise; and (d) exercise any and all other rights, remedies and privileges it may have under the Note and the other documents defining the Obligation.

8.                    Application of Proceeds by Secured Party . Any and all proceeds ever received by Secured Party from any sale or other disposition of the Pledged Collateral, or any part thereof, or the exercise of any other remedy

 
 

pursuant hereto shall be applied by Secured Party to the Obligation in such order and manner as Secured Party, in its sole discretion, may deem appropriate, notwithstanding any directions or instructions to the contrary by Debtor; provided that (a) the proceeds and/or accounts shall be applied toward satisfaction of the Obligation; and (b) if such proceeds and/or accounts are not sufficient to pay the Obligation in full, Debtor shall remain liable to Secured Party for the deficiency. Any proceeds received by Secured Party under this Agreement in excess of those necessary to fully and completely satisfy the Obligation (as well as Secured Party's costs and expenses incurred in connection with its exercise of remedies hereunder) shall be distributed to Debtor.

9.                    Notice of Sale . Reasonable notification of the time and place of any public sale of the Pledged Collateral, or reasonable notification of the time after which any private sale or other intended disposition of the Pledged Collateral is to be made, shall be sent to Debtor and to any other persons entitled under the Code to notice; provided, that if any of the Pledged Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Secured Party may sell, pledge, assign or otherwise dispose of the Pledged Collateral without notification, advertisement or other notice of any kind. It is agreed that notice sent or given not less than fifteen (15) calendar days prior to the taking of the action to which the notice relates is reasonable notification and notice for the purpose of this paragraph.

10.                 Delivery of Notices . Any notice or demand required to be given hereunder shall be in writing and shall be deemed to have been duly given and received, if given by hand, when a writing containing such notice is received by the entity or person to whom addressed or, is given by mail, two (2) business days after a certified or registered letter containing such notice, with postage prepaid, is deposited in the United States mails, addressed to:

If to Secured Party:

[inset name and address]

 

If to Debtor:

MassRoots, Inc.

Ste. 370 #150

6525 Gunpark Drive

Boulder, CO 80301

 

 

Any such address may be changed from time to time by serving notice to the other party as above provided. A business day shall mean a day of the week which is not a Saturday or Sunday or a holiday recognized by national banking associations.

11.                 Binding Effect . This Agreement shall be binding upon Debtor, his heirs, successors, assigns, executors, administrators, and personal or legal representatives, and shall inure to the benefit of Secured Party, its successors and assigns.

12.                 Governing Law . This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware

13.                 Severability . In the event that any one or more of the provisions contained in this Agreement are held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement.

[Signatures on Following Page]

 
 

EXECUTED as of the day and year first herein set forth.

SECURED PARTY:

[ __________________________ ]


By:
Name:

Title:

DEBTOR:
MassRoots, Inc.

By:
Name: Issac Dietrich

Title: CEO

Exhibit 10.10

 

 

____________________

 

MASSROOTS, INC,

____________________

 

 

 

SUBSCRIPTION AGREEMENT

 

 

 

____________________

 

 

 

$475,000 Of The Company’s Two-Year Secured Convertible Debentures

 

and

 

Warrants to Purchase Shares of Common Stock

 

___________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

SUBSCRIPTION PROCEDURES

 

 

Convertible Debentures (the “ Debentures ”) and Warrants to Purchase Common Stock (“Warrants”, together with the Debentures, the “Securities”) of MassRoots, Inc., Delaware corporation (the “ Company ”) are being offered pursuant to this Subscription Agreement (this “ Subscription Agreement ”). This “Offering” is being made in accordance with the exemptions from registration provided under Section 4(a)(2) of the Securities Act of 1933, as amended (the “ Securities Act ”) and Rule 506(b) of Regulation D promulgated under the Securities Act.

 

In order to purchase Securities, each Subscriber must complete and execute this Subscription Agreement and the accompanying investor questionnaire (the “ Questionnaire ”). In addition, the Holder, as defined herein, must make a payment for the amount being subscribed for hereunder directly to the Company. All subscriptions are subject to acceptance by the Company, which shall not occur until the Company has returned the signed “Company Signature Page”.

 

The Questionnaire is designed to enable the Holder to demonstrate the minimum legal requirements under federal and state securities laws to purchase the Securities. The Signature Page for the Questionnaire and the Subscription Agreement contain representations relating to the subscription and should be reviewed carefully by each subscriber and/or its advisors.

 

If the Holder is a foreign person or foreign entity, the Holder may be subject to a withholding tax equal to thirty percent (30%) of any dividends paid by the Company. In order to eliminate or reduce such withholding tax, the Holder must submit a properly executed I.R.S. Form 4224 “Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States” or I.R.S. Form 1001 “Ownership Exemption or Reduced Trade Certificate”, claiming exemption from withholding or eligibility for treaty benefits in the form of a lower rate of withholding tax on interest or dividends.

 

Payment of the full subscription amount will be made by wire transfer by ____________ (the “ Holder ”) on or prior to the closing per the wire instructions that will be established. In the event of a termination of the Offering or the rejection of a subscription, subscription funds will be returned by the Company without interest or charges.

 
 

SUBSCRIPTION AGREEMENT

 

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”) OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “ SEC ” OR THE “ COMMISSION ”) OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

 

MassRoots, Inc.

 

This Subscription Agreement is made between MassRoots, Inc., a Delaware corporation (the “ Company ”), and the undersigned prospective Holder (the “ Holder ”) who is subscribing hereby for the Company’s secured convertible debentures (the “ Debentures ”) and Warrants to Purchase Common Stock (“Warrants”, together with the Debenture, the “Securities”). This subscription is submitted to you in accordance with and subject to the terms and conditions described in this Subscription Agreement, together with any Exhibits hereto, relating to an offering of up to Four Hundred Seventy-Five Thousand dollars ($475,000) of the Securities (the “ Offering ”). The Offering is limited to certain “accredited investors” and is made in accordance with the exemptions from registration provided for under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated under the Securities Act (“ Regulation D ”).

 

Contemporaneously with the execution and delivery of this Subscription Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, Warrant Agreement, Security Agreement and Form of Debenture, all of even date herewith (collectively with the documents referenced in the foregoing documents, the “ Transaction Documents ”).

 

1. Subscription .

 

(a) The closing shall be deemed to have occurred on or about March 24, 2014 (the “ Closing Date ” or a “ Closing ”).

 

(b) Upon receipt by the Company of the requisite payment for the Debenture

being purchased, the Debenture so purchased will be forwarded by the Company to the Holder or its broker, as listed on the signature page, and the name of the Holder will be

 
 

registered on the Debenture transfer books of the Company as the record owner of such Debentures.

 

(c) As long as the Holder owns the Debenture, the Holder shall have the right, to change the terms and conditions for the balance of the Debenture it then holds, to match the terms of any other offering of securities made by the Company.

 

(d) The Holder shall fund (i) _________ dollars ($_____) upon the Closing which shall be paid directly to the Company.

 

(e) The Holder shall be granted a security interest in all of the Company's and its “ Subsidiaries ' ” (as defined in Section 3(a) of this Subscription Agreement), assets, currently owned or hereinafter acquired, (as defined in Schedule 3(a) of this Subscription Agreement), as more fully set forth in the Security Agreement (attached hereto as Exhibit A).

 

2. Representations And Warranties Of The Holder .

The Holder hereby represents and warrants to, and agrees with, the Company as follows:

 

(a) The Holder has been furnished with, and has carefully read the applicable form of the Debenture and the Warrant and is familiar with and understands the terms of the Offering. With respect to tax and other economic considerations involved in his investment, the Holder is not relying on any representation or warranty made by the Company. The Holder has carefully considered and has, to the extent the Holder believes such discussion necessary, discussed with the Holder's professional legal, tax, accounting and financial advisors the suitability of an investment in the Company, by purchasing the Debentures, for the Holder's particular tax and financial situation and has determined that the investment being made by the Holder is a suitable investment for the Holder.

 

(b) The Holder acknowledges that all documents, records, and books pertaining to this investment which the Holder has requested, have been made available for inspection, or the Holder has had access thereto.

 

(c) The Holder has had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of the Company concerning the Offering, and if such opportunity was taken, then all such questions have been answered to the full satisfaction of the Holder.

 

(d) The Holder will not sell, or otherwise dispose of the Debentures or its underlying shares of the Company’s common stock, par value $0.001 per share (the “ Common Stock ”) or the Warrant or its underlying shares of Common Stock issued upon conversion or exercise, as the case may be, of the Debentures or the

 
 

Warrant without registration under the Securities Act or applicable state securities laws or compliance with an exemption therefrom including but not limited to Rule 144(b) and 144(k) under the Securities Act (an “ Exemption ”). The Securities have not been registered under the Securities Act or under the securities laws of any state. The Common Stock underlying the Securities, is to be registered by the Company, with the U.S. Securities and Exchange Commission (“SEC”), pursuant to the terms of the Registration Rights Agreement (attached hereto as Exhibit B) incorporated herein and made a part hereof.

 

(e) The Holder recognizes that an investment in the Securities is speculative and involves substantial risks, including loss of the entire amount of such investment. Further, the Holder has carefully read and considered the schedules attached hereto.

 

(f) The Holder understands that no federal or state agency has made any finding or determination regarding the fairness of this Offering of the Securities, or the Common Stock issuable upon conversion or exercise of the Debenture or the Warrant for investment, or any recommendation or endorsement of this Offering of the Securities.

(g) The Holder is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the 1933 Act. The Holder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Securities. The Holder is not registered as a broker or dealer under Section 15(a) of the 1934 Act, affiliated with any broker or dealer registered under Section 15(a) of the Securities Exchange Act of 1934, as amended, or a member of the Financial Industry Regulatory Authority.

 

(h) The Holder acknowledges that each certificate representing the Debentures and the Warrants (and the shares of Common Stock issued upon conversion or exercise of the Debentures or Warrants), shall be stamped or otherwise imprinted with a legend substantially in the following form:

 

THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT.

 

 
 

If the Holder sends a Notice of Conversion (attached hereto as Exhibit C ), and a registration statement under the Securities Act is in effect as to the sale, then in such event the Company shall have its transfer agent send Holder the appropriate number of shares of Common Stock without restrictive legends (other than a legend referring to the resale registration and prospectus delivery requirements) and not subject to stop transfer instructions.

 

(i) If this Subscription Agreement is executed and delivered on behalf of a corporation or legal entity other than a natural person: (i) such corporation or other entity has the full legal right and power and all authority and approval required (a) to execute and deliver, or authorize execution and delivery of this Subscription Agreement and all other Transaction Documents executed and delivered by or on behalf of such corporation in connection with the purchase of the Securities, and (b) to purchase and hold the Securities; and (ii) the signature of the party signing on behalf of such corporation or entity is binding upon such corporation.

 

(j) The Holder is not subscribing for the Securities as a result of, or pursuant to, any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or meeting, or any other general solicitation.

 

(k) The Holder is purchasing the Securities for its own account for investment, and not with a view toward the resale or distribution thereof, except pursuant to sales registered or exempted from registration under the Securities Act. The Holder has not offered or sold any portion of the Securities being acquired nor does the Holder have any present intention of dividing the Securities with others or of selling, distributing or otherwise disposing of any portion of the Securities either currently or after the passage of a fixed or determinable period of time or upon the occurrence or non-occurrence of any predetermined event or circumstance in violation of the Securities Act provided, however, that by making the representations herein, the Holder does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The Holder is neither an underwriter of, nor a dealer in, the Debentures or Warrants or the Common Stock issuable upon conversion or exercise, as the case may be, thereof or upon the payment of interest thereon and is not participating in the distribution or resale of the Debentures or Warrants or the Common Stock issuable upon conversion or exercise, as the case may be, thereof. Notwithstanding anything in this Section to the contrary, the Holder reserves the right to pledge any of the Securities for margin purposes and dispose of the Securities at any time in accordance with federal and state securities laws applicable to such dispositions.

 

l) The Holder or the Holder's representatives, as the case may be, has such knowledge and experience in financial, tax and business matters so as to

 
 

enable the Holder to utilize the information made available to the Holder in connection with the Offering to evaluate the merits and risks of an investment in the Securities and to make an informed investment decision with respect thereto.

 

3. Representations And Warranties Of The Company .

 

Except as set forth in the Schedules attached hereto, the Company hereby represents and warrants to, and agrees with the Holder, as follows:

 

a. Organization and Qualification . The Company and its “ Subsidiaries ” (which for purposes of this Subscription Agreement means any entity in which the Company, directly or indirectly, owns capital stock or holds an equity or similar interest) (a complete list of which is set forth in Schedule 3(a) ) are corporations duly organized and validly existing in good standing under the laws of the respective jurisdictions of their incorporation, and have the requisite corporate power and authorization to own their properties and to carry on their business as now being conducted. Both the Company and its Subsidiaries are duly qualified to do business and are in good standing in every jurisdiction in which their ownership of property or the nature of the business conducted by them makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Subscription Agreement, the term “ Material Adverse Effect ” means any material adverse effect on the business, properties, assets, operations, results of operations, financial condition or prospects of the Company and its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined in Section 3.b hereof).

 

b. Authorization; Enforcement; Compliance with Other Instruments . (i) The Company has the requisite corporate power and authority to enter into and perform its obligations under the Transaction Documents, and to issue the Securities in accordance with the terms hereof and thereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the reservation for issuance and the issuance of the Debentures and the Warrant pursuant to this Subscription Agreement, have been duly and validly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors, or its shareholders, (iii) the Transaction Documents have been duly and validly executed and delivered by the Company, and (iv) the Transaction Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies.

 

c. Capitalization . As of the Closing Date, the Company’s authorized capital stock shall be 200,000,000 shares of Common Stock, of which, approximately

 
 

(49,550,000) shares shall be issued and outstanding. All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid for and nonassessable. Except as disclosed in Schedule 3(c) , which is attached hereto and made a part hereof, (i) no shares of the Company's capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company, (ii) there are no outstanding debt securities, (iii) there are no outstanding shares of capital stock, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, (iv) there are no agreements or arrangements under which the Company or any of its Subsidiaries, is obligated to register the sale of any of their securities under the Securities Act (except the as otherwise set forth in the Transaction Documents), (v) there are no outstanding securities of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries, (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities as described in this Subscription Agreement, (vii) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement, and (viii) there is no dispute as to the class of any shares of the Company's capital stock. The Company has furnished to the Holder, or the Holder has had access through EDGAR to, true and correct copies of the Company's Articles of Incorporation, as in effect on the date hereof (the “ Articles Of Incorporation ”), and the Company's Bylaws, as in effect on the date hereof (the “ Bylaws ”).

 

d. Issuance of Debentures and Warrants . Upon issuance in accordance with this Subscription Agreement, the Debentures and Warrants will be validly issued, fully paid for and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. In the event the Company cannot register a sufficient number of shares of Common Stock issuable upon conversion of the Debenture or exercise of the Warrant, due to the remaining number of authorized shares of Common Stock being insufficient, the Company will use its best efforts to register the maximum number of shares it can based on the remaining balance of authorized shares and will use its best efforts to increase the number of its authorized shares as soon as reasonably practicable.

 

e. No Conflicts . The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby will not (i) result in a violation of the Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the Bylaws or (ii) conflict with, or constitute a material default (or an event which with notice or lapse of time or both would become a

 
 

material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which the Company or any of its Subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree, including United States federal and state securities laws and regulations and the rules and regulations of the principal securities exchange or trading market on which the Common Stock is traded or listed (the “ Principal Market ”), applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Except as disclosed in Schedule 3(e) , neither the Company nor its Subsidiaries is in violation of any term of, or in default under, the Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the Bylaws or their organizational charter or bylaws, respectively, or any contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its Subsidiaries, except for possible conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not individually or in the aggregate have a Material Adverse Effect. The business of the Company and its Subsidiaries, is not being conducted, and shall not be conducted, in violation of any law, statute, ordinance, rule, order or regulation of any governmental authority or agency, regulatory or self-regulatory agency, or court, except for possible violations the sanctions for which either individually or in the aggregate would not have a Material Adverse Effect. Except as specifically contemplated by this Subscription Agreement and as required under the Securities Act, the Company is not required to obtain any consent, authorization, permit or order of, or make any filing or registration (except the filing of a registration statement) with, any court, governmental authority or agency, regulatory or self-regulatory agency or other third party in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Transaction Documents in accordance with the terms hereof or thereof. All consents, authorizations, permits, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof and are in full force and effect as of the date hereof. Except as disclosed in Schedule 3(e), the Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company is not, and will not be, in violation of the listing requirements of the Principal Market as in effect on the date hereof and on each of the Closing Dates and is not aware of any facts which would reasonably lead to delisting of the Common Stock by the Principal Market in the foreseeable future.

 

f. SEC Documents; Financial Statements . Upon effectiveness of a registration statement covering the Company’s Common Stock, the Company shall file all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities and Exchange Act of 1934, as amended (“ Exchange Act ”) (all of the foregoing filed since the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “ SEC Documents ”).

 

 
 

g. Absence of Certain Changes . Except as disclosed in Schedule 3.g there has been no change or development in the business, properties, assets, operations, financial condition, results of operations or prospects of the Company or its Subsidiaries which has had or reasonably could have a Material Adverse Effect. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings.

 

h. Absence of Litigation . There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of Company or any of its Subsidiaries, threatened against or affecting the Company, the Common Stock or any of the Company's Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or directors in their capacities as such, in which an adverse decision could have a Material Adverse Effect.

 

i. Acknowledgment Regarding the Purchase of Debentures . The Company acknowledges and agrees that the Holder is acting solely in the capacity of an arm's-length investor with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that the Holder is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby and any advice given by the Holder or any of its respective representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Holder's purchase of the Debentures. The Company further represents to the Holder that the Company's decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.

 

j. Employee Relations . Neither the Company nor any of its Subsidiaries is involved in any union labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. Neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that relations with their employees are good. No executive officer (as defined in Rule 501(f) under the Securities Act) has notified the Company that such officer intends to leave the Company's employ or otherwise terminate such officer's employment with the Company.

 

k. Intellectual Property Rights . All patents, patent applications, trademark registrations and applications for trademark registration held by the Company are owned free and clear of all mortgages, liens, charges or encumbrances whatsoever. No licenses have been granted with respect to these items and the Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar

 
 

rights of others, and, except as set forth on Schedule 3.l. , there is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its Subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual property.

 

l. Environmental Laws . The Company and its Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“ Environmental Laws ”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (iii) are in compliance with all terms and conditions of any such permit, license or approval where, in each of the three foregoing cases, the failure to so comply would have, individually or in the aggregate, a Material Adverse Effect.

 

m. Title . The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3.n. or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its Subsidiaries. Any real property and facilities held under lease by the Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.

 

n. Insurance . The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

 

o. Regulatory Permits . The Company and its Subsidiaries have in full force and effect all certificates, approvals, authorizations and permits from the appropriate federal, state, local or foreign regulatory authorities and comparable foreign regulatory agencies, necessary to own, lease or operate their respective properties and assets and

 
 

conduct their respective businesses, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, approval, authorization or permit, except for such certificates, approvals, authorizations or permits which if not obtained, or such revocations or modifications which, would not have a Material Adverse Effect.

 

p. Internal Accounting Controls . The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

q. No Materially Adverse Contracts . Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company's officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company's officers has or is expected to have a Material Adverse Effect.

 

r. Tax Status . The Company has filed all applicable federal and state income tax, payroll tax, and sales tax returns, as required and the Company and each of its Subsidiaries has made or filed all United States federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject. The Company represents that there are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

 

s. Certain Transactions . Except for arm's-length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed on Schedule 3.c. none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

 

t. Dilutive Effect . The Company understands and acknowledges that the number of shares of Common Stock issuable upon purchases pursuant to this

 
 

Subscription Agreement will increase in certain circumstances including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines following the effective date of the registration statement covering the Common Stock underlying the Debentures (the “ Effective Date ”), or pursuant to an exemption. The Company’s executive officers and directors have studied and fully understand the nature of the transactions contemplated by this Subscription Agreement and recognize that they have a potential dilutive effect. The board of directors of the Company has concluded, in its good faith business judgment that such issuance is in the best interests of the Company. The Company specifically acknowledges that, subject to such limitations as are expressly set forth in the Transaction Documents, its obligation to issue shares of Common Stock upon purchases pursuant to this Subscription Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.

 

u. Additional Financings . The Company shall not, directly nor indirectly, without the prior written consent of the Holder, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition) any of its Common Stock or any derivative securities convertible into Common Stock, or file any registration statement, including those on Form S-8, for any securities, until the sooner of; (i) the date on which the full Face Amount and penalties, if any, on the Debentures have been paid, or (ii) two years following the Closing Date. Notwithstanding this section, the Company may conduct additional financings upon written consent of the Holder.

 

If there is any outstanding balance on the Debentures, the Holder shall retain a first right of refusal for any additional financings. The Company must submit to the Holder a duly authorized term sheet of the financing and the Holder may elect, in writing within five (5) business days, to exercise its right to finance the Company upon the same terms and conditions, as set forth in the Debenture. In the event the Holder does not elect to complete such financing within such period, the Company may proceed with the proposed third-party financing on the same terms and conditions as contained in the notice to Holder.

 

v. Code of Ethics . The Company has adopted a Code of Ethics and will file the Code with the SEC, if required.

 

w. No Disagreements with Accountants, Auditors and Lawyers . There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants, auditors and lawyers formerly or presently used by the Company, including but not limited to disputes or conflicts over payment owed to such accountants, auditors or lawyers.

 

x. Investment Company . Neither the Company nor any Affiliate is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

 
 

. Company Predecessor . All representations made by or relating to the Company of a historical nature and all undertaking described herein shall relate and refer to the Company, its predecessors, and the Subsidiaries.

 

z. Option Plan Restrictions . The only officer, director, employee and consultant stock option or stock incentive plan currently in effect or contemplated by the Company has been submitted to the Holder. No other plan will be adopted nor may any options or equity not included in such plan be issued until after the Debenture is paid in full.

 

4. Covenants Of The Company .

 

a. Best Efforts . The Company shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in this Subscription Agreement.

 

b. Blue Sky . The Company shall, at its sole cost and expense, make all filings and reports relating to the offer and sale of the Debentures and Warrants and the Common Stock underlying the Debentures and Warrants as required under the applicable securities or “Blue Sky” laws of such states of the United States as specified by the Holder or as required by law.

 

c. Reporting Status . Until the earlier of (i) the date that the Holder may sell all of the Common Stock underlying the Debentures and Warrants acquired pursuant to this Subscription Agreement without restriction pursuant to Rule 144(k) under the Securities Act, or (ii) the date on which the Holder shall have sold all the Common Stock underlying the Debentures, the Company shall file all reports required to be filed with the SEC pursuant to the Exchange Act, and the Company shall not terminate its status as a reporting company under the Exchange Act.

 

d. Use of Proceeds . The Company shall apply proceeds from the Offering (“Proceeds”), of no less than two hundred and twenty-five thousand dollars ($225,000), to pay for expenses related to servicing and maintaining its publicly-traded status. Such expenses shall include, but are not limited for, (i) qualified securities legal counsel, (ii) a Public Company Accounting Oversight Board (“PCAOB”) registered auditor, (iii) stock transfer agent, (iv) press release distribution, (v) investor relations, (vi) Depository Trust and Transfer Corporation, (vii) Financial Industry Regulatory Authority (“FINRA”) (viii) a FINRA registered market maker, and (ix) Edgar/XBRL filings. Prior to Closing, the Company shall also retain a qualified chief financial officer. The balance of the Proceeds shall be used for the Company’s operations and general corporate purposes. Any other use of Proceeds contemplated herein, shall be considered a breach of contract and an Event of Default.

 

e. Conditions to Closing . The Company shall execute and remain in compliance with the Transaction Documents with the Holder.

 

 
 

f. Financial Information . The Company shall make available to Holder, its most recent financial statements and related information, and must complete an SEC compliant financial audit performed by a PCAOB registered auditor, by the Closing Date.

 

g. Reservation of Common Stock . Subject to the following sentence, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the issuance of the Common Stock underlying the Debentures. In the event that the Company determines that it does not have a sufficient number of authorized shares of Common Stock to reserve and keep available for issuance, the Company shall use its best efforts to increase the number of authorized shares of Common Stock by seeking shareholder approval for the authorization of such additional shares. The Holder shall have the right to reasonably determine the amount of shares to be re-registered such as are necessary to satisfy the terms of the Agreement.

 

h. Listing . Following approval from the SEC and FINRA, the Company shall secure the listing of all of the Common Stock underlying the Securities upon the Principal Market and each other national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, such listing. The Company shall maintain the Common Stock's authorization for quotation on the Principal Market, unless the Holder and the Company agree otherwise. Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market (excluding suspensions of not more than one trading day resulting from business announcements by the Company). The Company shall promptly provide to the Holder copies of any notices it receives from the Principal Market regarding the continued eligibility of the Common Stock for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section.

 

i. Corporate Existence . The Company shall use its commercially reasonable best efforts to preserve and continue the corporate existence of the Company.

 

j. Notice of Certain Events Affecting Registration . The Company shall promptly notify Holder upon the occurrence of any of the following events in respect of a registration statement or related prospectus covering the Common Stock underlying the Debentures: (i) receipt of any request for additional information by the SEC or any other federal or state governmental authority during the period of effectiveness of the registration statement for amendments or supplements to the registration statement or related prospectus; (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any registration statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Common Stock underlying the Debentures for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in such registration statement or related prospectus or any

 
 

document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the registration statement, related prospectus or documents so that, in the case of a registration statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company's reasonable determination that a post-effective amendment to the registration statement would be appropriate, and the Company shall promptly make available to the Holder any such supplement or amendment to the related prospectus.

 

k. Indemnification . In consideration of the Holder’s execution and delivery of this Agreement and the Debenture Registration Rights Agreement and acquiring the Debentures hereunder and in addition to all of the Company's other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless the Holder and all of its shareholders, officers, directors, employees and direct or indirect investors and any of the foregoing person's agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “ Indemnitees ”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the “ Indemnified Liabilities ”), incurred by any Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (ii) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (iii) any cause of action, suit or claim brought or made against such Indemnitee by a third party and arising out of or resulting from the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (iv) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Debentures, (v) the status of the Holder as an investor in the Company, except, in the case of any of such clauses, insofar as any such Indemnified Liability was attributable to gross negligence, willful misconduct or any illegal activity on the part of Holder and, in the case of clause, (v) only, insofar as any such Indemnified Liability was attributable to an untrue statement, alleged untrue statement, omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Holder which is specifically intended by the Holder for use in the preparation of any Registration Statement, preliminary prospectus or prospectus. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible

 
 

under applicable law. The indemnity provisions contained herein shall be in addition to any cause of action or similar rights the Holder may have, and any liabilities to which the Holder may be subject. The Company shall have the right to control the defense of any such claim and the Holder shall not consent to any settlement of any such claim without the prior written consent of the Company (which shall not be unreasonably withheld or delayed). The Holder shall provide indemnification comparable in scope and coverage to the Company and corresponding related persons in respect of any Indemnified Liability if and to the extent attributable to gross negligence, willful misconduct or any illegal activity on the part of the Holder, and shall be obligated to reimburse the Company and such persons to the same extent as the Company’s reimbursement obligations under Section 4.m. hereof.

 

l. Reimbursement . If (i) the Holder, other than by reason of its gross negligence or willful misconduct, becomes involved in any capacity in any action, proceeding or investigation brought by any shareholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if the Holder is impleaded in any such action, proceeding or investigation by any person, or (ii) the Holder, other than by reason of its gross negligence or willful misconduct or by reason of its trading of the Common Stock in a manner that is illegal under the federal securities laws, becomes involved in any capacity in any action, proceeding or investigation brought by the SEC against or involving the Company or in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if the Holder is impleaded in any such action, proceeding or investigation by any person, then in any such case, the Company will reimburse the Holder for its reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith, as such expenses are incurred. In addition, other than with respect to any matter in which the Holder is a named party, the Company will pay to the Holder the charges, as reasonably determined by the Holder, for the time of any officers or employees of the Holder devoted to appearing and preparing to appear as witnesses, assisting in preparation for hearings, trials or pretrial matters, or otherwise with respect to inquiries, hearing, trials, and other proceedings relating to the subject matter of this Subscription Agreement. The reimbursement obligations of the Company under this Section shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any affiliates of Holder that are actually named in such action, proceeding or investigation, and partners, directors, agents, employees, attorneys, accountants, auditors and controlling persons (if any), as the case may be, of Holder and any such affiliate, and shall be binding upon and inure to the benefit of any successors of the Company, Holder and any such affiliate and any such person.

 

m. Transfer Agent . Upon choosing a transfer agent, the Company covenants and agrees that, in the event that the Company's agency relationship with the transfer agent should be terminated for any reason prior to the Maturity Date (as defined in the Form of Debenture), and the Company shall immediately appoint a new transfer agent. The Company shall be current with all payments to the transfer agent.

 

 
 

5. 144 Opinion Letter

 

 

If so requested by the Holder, the Company shall instruct legal counsel to write a Rule 144 opinion letter, provided the necessary paperwork has been submitted and the Exemption applies (as defined herein).

 

6. Delivery Instructions; Fees .

 

The Securities being purchased hereunder shall be delivered to the Holder on the Closing Date at which time funds will be wired to the Company and the Debentures will be delivered to the Holder, per the Holder’s instructions.

 

7. Understandings .

 

The Holder understands, acknowledges and agrees as follows:

 

a. No U.S. federal or state agency or any agency of any other jurisdiction has made any finding or determination as to the fairness of the terms of the Offering for investment nor any recommendation or endorsement of the Securities or the Company.

 

b. The representations, warranties and agreements of the Holder and the Company contained herein shall be true and correct in all material respects on and as of the date of the sale of the Securities as if made on and as of such date and shall survive the execution and delivery of this Subscription Agreement and the purchase of the Securities.

 

c. In making an investment decision, the Holder is relying on its own examination of the Company and the terms of the Offering, including the merits and risks involved. The Common Stock shares have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense.

 

d. The Offering is intended to be exempt from registration by virtue of Section 4(a)(2) of the Securities Act and the provisions of Regulation D thereunder, which is in part dependent upon the truth, completeness and accuracy of the statements made by the undersigned herein and in the Questionnaire.

 

e. It is understood that in order not to jeopardize the Offering’s exempt status under Section 4(a)(2) of the Securities Act and Regulation D, the Holder may, at a minimum, be required to fulfill the investor suitability requirements thereunder.

 

f. The shares may not be resold except as permitted under the securities act and applicable state securities laws, pursuant to registration or exemption therefrom.

 
 

Holder should be aware that they will be required to bear the financial risks of this investment for an indefinite period of time.

 

g. THE COMPANY’S SECURITIES, INCLUDING ITS COMMON STOCK, ARE ILLIQUID THERE IS CURRENTLY NO MARKET FOR THE COMPANY’S COMMON STOCK AND THERE CAN BE NO ASSURANCE THAT A MARKET WILL EVER DEVELOP. AN INVESTMENT IN THE COMPANY INVOLVES SUBSTANTIAL RISK.

 

 

8. Disputes Subject To Arbitration Governed By Massachusetts Law .

 

a. All disputes arising under this Subscription Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, without regard to principles of conflict of laws. The parties to this Subscription Agreement shall submit all disputes arising under this Subscription Agreement to arbitration in Boston, Massachusetts before a single arbitrator of the American Arbitration Association (the “ AAA ”). The arbitrator shall be selected by application of the rules of the AAA, or by mutual agreement of the parties, except that such arbitrator shall be an attorney admitted to practice law in the Commonwealth of Massachusetts. No party to this Subscription Agreement shall challenge the jurisdiction or venue provisions as provided in this Section 8 . Nothing in this Section 8 shall limit the Holder's right to seek and obtain an injunction for violation of the terms and conditions of this Subscription Agreement.

 

9. Miscellaneous .

 

a. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Subscription Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided a confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

 

If to the Company: MassRoots, Inc.

6525 Gunpark Drive

Ste. 370 #150,

Boulder, CO 80301

 

 

 
 

with a copy to: Thompson Hine LLP

Attn: Peter Gennuso

335 Madison Ave., 12th Floor

New York, NY, 10017

 

If to the Holder: The address listed on the Questionnaire

 

Each party shall provide five (5) business days prior notice to the other party of any change in address, phone number or facsimile number.

 

b. All pronouns and any variations thereof used herein shall be deemed to refer to the masculine, feminine, impersonal, singular or plural, as the identity of the person or persons may require.

 

c. Neither this Subscription Agreement nor any provision hereof shall be waived, modified, changed, discharged, terminated, revoked or canceled, except by an instrument in writing signed by the party effecting the same against whom any change, discharge or termination is sought.

 

d. Notices required or permitted to be given hereunder shall be in writing and shall be deemed to be sufficiently given when personally delivered or sent by facsimile transmission: (i) if to the Company, at its executive offices, or (ii) if to the Holder, at the address for correspondence set forth in the Questionnaire, or at such other address as may have been specified by written notice given in accordance with this paragraph.

 

e. This Subscription Agreement shall be enforced, governed and construed in all respects in accordance with the laws of the Commonwealth of Massachusetts, as such laws are applied by Massachusetts courts to agreements entered into, and to be performed in, Massachusetts by and between residents of Massachusetts, and shall be binding upon the undersigned, the undersigned's heirs, estate and legal representatives and shall inure to the benefit of the Company and its successors. If any provision of this Subscription Agreement is invalid or unenforceable under any applicable statue or rule of law, then such provisions shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof that may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

 

f. This Subscription Agreement shall not be assignable.

 

g. This Subscription Agreement, together with the Exhibits and the Schedules attached hereto and made a part of this Subscription Agreement by this reference, constitute the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by both parties hereto.

 

 
 

h. This Subscription Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument. Execution and delivery of this Subscription Agreement by exchange of facsimile copies bearing the facsimile signature of a party shall constitute a valid and binding execution and delivery of this Subscription Agreement by such party. Such facsimile copies shall constitute enforceable original documents.

 

i. When in this Agreement or the Transaction Documents, reference is made to any party, such reference shall be deemed to include the successors, assigns, heirs and legal representatives of such party. No party hereto may transfer any rights under this Agreement or the Transaction Documents, unless the transferee agrees to be bound by, and comply with all of the terms and provision of this Agreement and the Transaction Documents, as if an original signatory hereto on the date hereof.

 

j. The Company hereby represent and warrants to the Holder that: (i) it has voluntarily entered into this Subscription Agreement of its own freewill, (ii) it is not entering into this Subscription Agreement under economic duress, (iii) the terms of this Subscription Agreement are reasonable and fair to the Company, and (iv) the Company has had independent legal counsel of its own choosing review this Subscription Agreement, advise the Company with respect to this Subscription Agreement, and represent the Company in connection with its entering into this Subscription Agreement.

 

k. Notwithstanding anything in this Agreement to the contrary, the parties hereto hereby acknowledge and agree to the following: (i) the Holder makes no representations or covenants that it will not engage in trading in the securities of the Company; (ii) the Company has not and shall not provide material non-public information to the Holder unless prior thereto the Holder shall have executed a written agreement regarding the confidentiality and use of such information; and (iii) the Company understands and confirms that the Holder will be relying on the acknowledgements set forth in clauses (i) through (iii) above if the Holder effects any transactions in the securities of the Company.

 

10. Waiver .

 

The Holder's delay or failure at any time or times hereafter to require strict performance by Company of any undertakings, agreements or covenants shall not waiver, affect, or diminish any right of the Holder under this Agreement to demand strict compliance and performance herewith. Any waiver by the Holder of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type. None of the undertakings, agreements and covenants of the Company contained in this Agreement, and no Event of Default, shall be deemed to have been waived by the Holder, nor may this Agreement be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver, amendment, change or modification and signed by the Holder.

 

 
 

11. Governmental Changes .

 

In the event that any rules, regulations, oral or written interpretations or Comments (as defined in the Registration Rights Agreement) from the SEC, FINRA, NYSE, NASDAQ or other governing or regulatory body, prohibit or hinder any operation of this Subscription Agreement or the other Transaction Documents, the parties hereto hereby agree that those specific terms and conditions shall be negotiated in good faith on similar terms within five (5) business days, and shall not alter, diminish or affect any other rights, duties, obligations or covenants in Transaction Documents and that all terms and conditions will remain in full force and effect except as is necessary to make those specific terms and conditions comply with applicable rule, regulation, interpretation or Comment. Failure for the Company to agree to on such new terms as necessary to achieve the intent of the original documents shall constitute and Event of Default as outlined in Article 6 in the Debenture and accordingly the Holder may elect to take actions as outlined in the Debenture and the other Transaction Documents.

 

12. No Oral Agreements .

 

This Subscription Agreement and the other Transaction Documents represent the final definitive agreements between the Company and the Holder and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties; there are no unwritten oral agreements among the parties.

 

 

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK)

 

 
 

MASSROOTS, INC.

 

INVESTOR QUESTIONNAIRE

 

 

The information contained in this Investor Questionnaire (this “ Questionnaire ”) is being furnished in order to determine whether the undersigned’s subscription to purchase the Debentures described in the accompanying Subscription Agreement may be accepted.

 

ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED CONFIDENTIALLY. The undersigned understands, however, that the Company may present this Questionnaire to such parties as it deems appropriate if called upon to establish that the proposed offer and sale of the securities is exempt from registration under the Securities Act of 1933, as amended (the “ Securities Act ”). Further, the undersigned understands that the offering is required to be reported to the United States Securities and Exchange Commission (the “ SEC ” or the “ Commission ”), and to various state securities and “blue sky” regulators.

 

IN ADDITION TO SIGNING THE SIGNATURE PAGE, IF REQUESTED BY MASSROOTS, INC., A DELAWARE CORPORATION (THE “ COMPANY ”), THE UNDERSIGNED MUST COMPLETE FORM W-9.

 

 

I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES.

 

[_] 1. The undersigned: (a) has total assets in excess of $5,000,000; (b) was not formed for the specific purpose of acquiring the securities; and (c) has its principal place of business in ___________.

 

[_] 2. The undersigned is a natural person whose individual net worth*, or joint net worth with that person's spouse, at the time of purchase exceeds $1,000,000 (excluding the person’s primary residence).

 

[_] 3. The undersigned is a natural person who had an individual income* in excess of $200,000 in each of the two most recent years and who reasonably expects an individual income in excess of $200,000 in the current year. Such income is solely that of the undersigned and excludes the income of the undersigned’s spouse.

 

[_] 4. The undersigned is a natural person who, together with his or her spouse, has had a joint income* in excess of $300,000 in each of the two most recent years and who reasonably expects a joint income in excess of $300,000 in the current year.

 

* For purposes of this Questionnaire, the term “ net worth ” means the excess of total assets over total liabilities (not including the value of any equity in my primary residence

 
 

and subtracting the amount of any mortgage indebtedness exceeding the value of my primary residence).. In determining “ income ”, an investor should add to his or her adjusted gross income any amounts attributable to tax-exempt income received, losses claimed as a limited partner in any limited partnership, deductions claimed for depletion, contributions to IRA or Keogh retirement plan, alimony payments and any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income.

 

5. The undersigned is:

 

[_] (a) a bank as defined in Section 3(a)(2) of the Securities Act; or

 

[_] (b) a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity; or

 

[_] (c) a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”); or

 

[_] (d) an insurance company as defined in Section 2(13) of the Securities Act; or

 

[_] (e) An investment company registered under the Investment Company Act of 1940 (the “ ICA ”), as amended, or a business development company as defined in Section 2(a)(48) of the ICA; or

 

[_] (f) a small business investment company licensed by the U.S. Small Business Administration under Section 301 (c) or (d) of the Small Business Investment Act of 1958; or

 

[_] 6. The undersigned is an entity in which all of the equity owners are accredited investors.

 
 
II. HOLDER INFORMATION .

 

Name of Entity: ________

 

Person’s Name: _________

 

State of Organization/Residence: _____

 

Address: ______________

 

City, State, Zip Code: _____________

 

Taxpayer Identification Number: ___________

 

Phone: ____________ Fax: __________

 

Send Correspondence to: Same as above

 

 
 

MASSROOTS, INC.

 

SIGNATURE PAGE

 

Your signature on this Signature Page evidences your agreement to be bound by the accompanying Questionnaire and the Transaction Documents (as such term is defined in the accompanying Subscription Agreement).

 

1. The undersigned hereby represents that (a) the information contained in the Questionnaire is complete and accurate and (b) the undersigned will notify the Company immediately if any material change in any of the information occurs prior to the acceptance of the undersigned’s subscription and will promptly send the Company written confirmation of such change.

 

2. The undersigned signatory hereby certifies that he/she has read and understands the Transaction Documents, including the Subscription Agreement and Questionnaire, and the representations made by the undersigned in said documents are true and accurate.

 

 

______________________________ ________________________

Amount of Debentures being purchased Date

 

 

 

Holder

 

 

By: _________________________

Name:

Title (if not an individual):

 

 

 

 

 

 
 

MASSROOTS, INC.

 

COMPANY ACCEPTANCE PAGE

 

 

This Subscription Agreement accepted and agreed to this 24th day of March, 2014, by MassRoots, Inc. and duly authorized to sign on behalf of the Company.

 

MassRoots, Inc.

 

 

By __________________

Name: Isaac Dietrich

Title: Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

LIST OF EXHIBITS

 

 

EXHIBIT A Security Agreement

EXHIBIT B Registration Rights Agreement

EXHIBIT C Notice of Conversion

EXHIBIT D Form of Warrants

EXHIBIT E Form of Debenture

EXHIBIT F Board Resolution

 

 

 

LIST OF SCHEDULES

 

Schedule 3.a Subsidiaries

Schedule 3.c. Capitalization

Schedule 3.e. Conflicts

Schedule 3.g. Material Changes

Schedule 3.h. Litigation

Schedule 3.l. Intellectual Property

Schedule 3.n. Liens

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

EXHIBIT A

 

SECURITY AGREEMENT

 

 
 

EXHIBIT B

 

REGISTRATION RIGHTS AGREEMENT

 
 

EXHIBIT C

 

NOTICE OF CONVERSION

 

TO: MASSROOTS, INC.

 

The undersigned hereby irrevocably elects, as of ________________, to convert $________________ of its convertible debenture (the “ Debenture ”) into Common Stock of MassRoots, Inc. (the “ Company ”) according to the conditions set forth in the Debenture issued by the Company.

 

Date of Conversion: ________________________________________________

 

 

Applicable Conversion Price: ________________________________________

 

 

Number of Shares Issuable upon this Conversion: _______________________

 

 

Name(Print): ________________________________________________

 

Address: ________________________________________________

 

Phone: ________________________________________________

 

 

 

HOLDER

 

By:____________________________________

Name:

 

 
 

 

EXHIBIT D

 

FORM OF WARRANTS

 

 

 

 

 

 
 

 

EXHIBIT E

 

FORM OF DEBENTURE

 
 

EXHIBIT F

 

BOARD RESOLUTION

 
 

 

 

 

SCHEDULE 3. a.

 

SUBSIDIARIES

 

 

Name State of Incorporation EIN

________ ________________ ________

 

[ None]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

 

 

SCHEDULE 3. c.

 

CAPITALIZATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

 

 

SCHEDULE 3. e.

 

CONFLICTS

 

[ None]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

 

 

SCHEDULE 3. g.

 

MATERIAL CHANGES

 

[ None]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

SCHEDULE 3. h.

 

LITIGATION

 

 

[ None]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

SCHEDULE 3. l.

 

INTELLECTUAL PROPERTY

 

 

[ None]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

SCHEDULE 3. n.

 

LIENS

 

 

[ None]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 10.11  

 

DEBENTURE REGISTRATION RIGHTS AGREEMENT

 

 

THIS DEBENTURE REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”), dated as of March 18, 2014, by and between MassRoots, Inc., a Delaware corporation (the “ Company ”), and the undersigned (the “ Holder ”). The Company and the Holder are hereinafter sometimes collectively referred to as the “ Parties ” and each a “ Party ” to this Agreement.

 

RECITALS:

 

WHEREAS, upon the terms and subject to the conditions of that certain Subscription Agreement, of even date herewith, by and between the Holder and the Company (the “ Subscription Agreement ”), the Company has agreed to issue and sell to the Holder convertible debentures and warrants of the Company, which will be convertible or exercisable into shares of common stock, $0.001 par value per share (the “ Common Stock ”), of the Company; and

 

WHEREAS, to induce the Holder to execute and deliver (i) the Subscription Agreement, (ii) this Agreement, (iii) that certain Debenture, of even date herewith, by and between the Company and the Holder (the “ Debenture ”), and (vi) all agreements referenced in the foregoing documents (collectively, the “ Transaction Documents ”), the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended (the “ Securities Act ”) and the rules and regulations promulgated thereunder, and applicable state securities laws, with respect to the shares of Common Stock issuable pursuant to the Transaction Documents.

 

NOW, THEREFORE, for and in consideration of the foregoing premises, the agreements and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Holder, intending to be legally bound, hereby agree as follows:

 

 

1. Definitions. As used in this Agreement, the following terms shall have the following meanings:

 

a. “ Closing Date ” shall mean on or about March 24, 2014.

 

b. “ Debentures ” shall mean the convertible debenture issued by the Company to the Holder pursuant to the Debenture.

 

c. “ Holder ” shall mean the Parties other than the Company executing this Agreement.

 

d. “ Effective Date ” shall mean the date the SEC declares the Registration Statement effective and the Company has filed all necessary amendments, including the letter to request accelerated effectiveness and the Prospectus covering the resale of Shares.

 

 
 

e. “ Face Amount ” means Four Hundred Seventy-Five Thousand U.S. Dollars ($475,000) to be invested in the aggregate by all of the Holders.

 

f. “ Filing Date ” shall mean the date the Registration Statement has been filed with the SEC (as determined by EDGAR) and no stop order of acceptance has been issued by the SEC.

 

g. “ Person ” means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.

 

h. “ Potential Material Event ” means any of the following: (i) the possession by the Company of material information not ripe for disclosure in a Registration Statement, which shall be evidenced by determinations in good faith by the Board of Directors of the Company that disclosure of such information in the Registration Statement would be detrimental to the business and affairs of the Company, or (ii) any event or activity concerning the Company which would, based on a good faith determination by the Company's Board of Directors, adversely affect the Company or its shareholders if it were included in a Registration Statement or other filing.

 

i. “ Principal Market ” means either The American Stock Exchange, Inc., The New York Stock Exchange, Inc., the Nasdaq National Market, The Nasdaq SmallCap Market, OTC electronic bulletin board, or OTC Markets, whichever is the principal market on which the Common Stock is listed.

 

j. “ Register ”, “ Registered ” and “ Registration ” refer to a registration effected by preparing and filing with the SEC one or more Registration Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis (“ Rule 415 ”), and effectiveness of such Registration Statement(s).

 

k. “ Registrable Securities ” means the shares of Common Stock issued or issuable (i) pursuant to the Subscription Agreement and the Transaction Documents, and (ii) any shares of capital stock issued or issuable with respect to such shares of Common Stock as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, which have not been (x) included in a Registration Statement that has been declared effective by the SEC, (y) sold under circumstances meeting all of the applicable conditions of Rule 144, promulgated under the Securities Act or (z) saleable without limitation as to time, manner and volume pursuant to Rule 144(k) (or any similar provision then in force) under the Securities Act.

 

l. “ Registration Statement ” means a registration statement of the Company filed under the Securities Act.

 

 

 

 
 

m. “ SEC ” means the United States Securities and Exchange Commission.

 

All capitalized terms used but not defined in this Agreement shall have the meaning ascribed to them in the Transaction Documents.

 

For the purposes of determining dates for penalties or filing deadlines, as outlined in this Agreement, both parties agree that the date given by the SEC shall constitute the official date.

 

2. Registration .

 

a. Mandatory Registration . Within forty-five (45) days following the Closing Date, the Company shall prepare and file with the SEC a Registration Statement or Registration Statements (as is necessary) covering the resale of all of the Registrable Securities, which Registration Statement(s) shall state that, in accordance with Rule 415 promulgated under the Securities Act, such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon stock splits, stock dividends or similar transactions. The Company shall initially register for resale an amount of shares of Common Stock which would be issuable on the date preceding the filing of the Registration Statement based on the Conversion Price (as defined in the Debenture) of the Debenture or the Exercise Price (as defined in the Warrant); or an amount equal to the maximum amount allowed under Rule 415 (a)(1)(i) as interpreted by the SEC. In the event the Company cannot register sufficient shares of Common Stock, due to the remaining number of authorized shares of Common Stock being insufficient, the Company will use its best efforts to register the maximum number of shares it can based on the remaining balance of authorized shares and will use its best efforts to increase the number of its authorized shares as soon as reasonably practicable.

 

b. The Company shall use its best efforts to have the Registration Statement filed with the SEC within 45 days following the Closing Date. (“ Filing Deadline ”). If the Registration Statement covering the Registrable Securities required to be filed by the Company pursuant to Section 2(a) hereof is not filed by the Filing Deadline, then the Company shall pay the Holder the sum of two percent (2%) of the Face Amount of the Debentures outstanding as liquidated damages, and not as a penalty.

 

Notwithstanding the foregoing, the amounts payable by the Company pursuant to this Section 2 shall not be payable to the extent any delay in the filing of the Registration Statement occurs because of an act of, or a failure to act or to act timely by the Holder or is otherwise attributable to the Holder.

 

The liquidated damages set forth in this Section 2 shall continue until the obligation is fulfilled and shall be paid, at the Holder's option in cash or common stock priced at the Conversion Price, or portion thereof, until the Registration Statement is filed. Failure of the Company to make payment within said three (3) business days shall be considered a breach of this Agreement, and the Holder may elect to pursue remedies as outlined in this Section 2 .

 

 
 

The Company acknowledges that its failure to have the Registration Statement filed by the Filing Deadline will cause the Holder to suffer irreparable harm, and, that damages will be difficult to ascertain. Accordingly, the Parties agree that it is appropriate to include in this Agreement a provision for liquidated damages. The Parties acknowledge and agree that the liquidated damages provision set forth in this section represents the parties’ good faith effort to quantify such damages and, as such, agree that the form and amount of such liquidated damages are reasonable and will not constitute a penalty. The payment of liquidated damages shall not relieve the Company from its obligations to register the Common Stock and deliver the Common Stock pursuant to the terms of this Agreement, the Subscription Agreement and the Debenture.

 

c. The Company shall use its best efforts and take all available steps to have the Registration Statement declared effective by the SEC within one hundred eighty (180) calendar days after the Filing Deadline (the “Effective Deadline”). If the Registration Statement covering the Registrable Securities required to be filed by the Company pursuant to Section 2(a) hereof has not become effective by the Effective Deadline, then the Company shall pay the Holder the sum of two percent (2%) of the Face Amount as liquidated damages, and not as a penalty, following the one hundred eighty (180) calendar day period until the Registration Statement becomes effective.

 

If the Registration Statement covering the Registrable Securities required to be filed by the Company pursuant to Section 2(a) hereof has become effective, and, thereafter, the Holder’s right to sell is suspended, for any reason, then the Company shall pay the Holder the sum of two percent (2%) of the Face Amount plus interest and penalties due to the Holder for the Registrable Securities pursuant to the Subscription Agreement for each ten (10) calendar day period, pro rata, compounded daily, following the suspension, until such suspension ceases.

 

Notwithstanding the foregoing, the amounts payable by the Company pursuant to this Section 2 shall not be payable to the extent any delay in the effectiveness of the Registration Statement or any suspension of the effectiveness occurs because of an act of, or a failure to act or to act timely by the Holder or is otherwise attributable to the Holder.

 

The damages set forth in this Section 2 shall continue until the obligation is fulfilled and shall be paid within three (3) business days after each ten (10) day period, or portion thereof, until the Registration Statement is declared effective or such suspension is released. Failure of the Company to make payment within said three (3) business days shall be considered a default.

 

The Company acknowledges that its failure to have the Registration Statement become effective by the Effective Deadline or to permit the suspension of the effectiveness of the Registration Statement, will cause the Holder to suffer irreparable harm and, that damages will be difficult to ascertain. Accordingly, the parties agree that it is appropriate to include in this Agreement a provision for liquidated damages. The parties acknowledge and agree that the liquidated damages provision set forth in this section represents the parties’ good faith effort to quantify such damages and, as such, agree that the form and amount of such liquidated damages are reasonable and will not constitute a penalty. The payment of liquidated damages shall not relieve the Company from its obligations to register the Common Stock and deliver the Common Stock pursuant to the terms of this Agreement, the Subscription Agreement and the Debenture.

 
 

 

d. The Company agrees to only register such securities as are necessary to meet its obligations to the Holder and agrees not to register additional securities without the Holder's prior written consent to be agreed upon in writing by the Holder before the Filing Date. Furthermore, the Company agrees that it will not file any other Registration Statement, including those on Form S-8 or Form S-4, for other securities, until there is no balance left on the Debenture, unless it has the prior written approval from the Holder. Failure to obtain prior written approval from the Holder will cause the Holder to suffer damages that will be difficult to ascertain. Accordingly, the Parties agree that it is appropriate to include a provision for liquidated damages and the Company agrees to pay the Holder the sum of two percent (2%) of the Face Amount as liquidated damages and not as a penalty for each thirty (30) calendar day period, pro rata, compounded daily, until the unauthorized Registration Statement is withdrawn.

 

e. Mandatory filing with FINRA. By the Effective Deadline, the Company shall have prepared with a Financial Investment Regulatory Authority (“FINRA”) registered market maker (“Market Maker”), to; (i) file a Form 15c2-11 (“Form 15c”) with FINRA, to request a trading symbol for, and as notification of its intentions for, the Common Stock to become publicly-traded and quoted on a Principal Market, and (ii) as soon as the Company is able upon clearance of the Form 15c, cause the Market Maker and/or a securities clearing firm to coordinate with the Depository Trust & Clearing Corporation (“DTCC”),to have the Common Stock eligible for electronic clearing and transfer (“DTC Filing”, together with the Form 15c, the “15c Documents”). The Form 15c , shall be filed within three (3) days of the Effective Date and the DTC Filing shall be made upon clearance of the Form 15c by FINRA.

 

The Company shall use its best efforts to have the Form 15c filed with FINRA within three (3) days following the Effective Date (“15c Filing Deadline ”). If the 15c Documents required to be filed by the Company pursuant to Section 2(e) hereof are not filed by the 15c Filing Deadline, then the Company shall pay the Holder the sum of two percent (2%) of the Face Amount of the Debentures outstanding as liquidated damages, and not as a penalty.

 

Notwithstanding the foregoing, the amounts payable by the Company pursuant to this Section 2 shall not be payable to the extent any delay in the filing of the Form 15c occurs because of an act of, or a failure to act or to act timely by the Holder or is otherwise attributable to the Holder.

 

The liquidated damages set forth in this Section 2 shall continue until the obligation is fulfilled and shall be paid, at the Holder's option in cash or common stock priced at the Conversion Price, or portion thereof, until the Form 15c is filed. Failure of the Company to make payment within said three (3) business days shall be considered a breach of this Agreement, and the Holder may elect to pursue remedies as outlined in this Section 2 .

 

The Company acknowledges that its failure to have the Form 15c and the DTC Filing as provided herein will cause the Holder to suffer irreparable harm, and, that damages will be difficult to ascertain. Accordingly, the Parties agree that it is appropriate to include in this Agreement a provision for liquidated damages. The Parties acknowledge and agree that the

 
 

liquidated damages provision set forth in this section represents the parties’ good faith effort to quantify such damages and, as such, agree that the form and amount of such liquidated damages are reasonable and will not constitute a penalty. The payment of liquidated damages shall not relieve the Company from its obligations to file and have declared effective, the 15c Documents, pursuant to the terms of this Agreement.

 

f. The Company shall use its best efforts and take all available steps to have the 15c Documents declared effective by FINRA and DTCC, within sixty (60) calendar days after the 15c Filing Deadline (“15c Documents Filing Deadline”). If the 15c Documents required to be filed by the Company pursuant to Section 2(e) hereof have not become effective within said 30-day period of time, then the Company shall pay the Holder the sum of two percent (2%) of the Face Amount as liquidated damages, and not as a penalty, following the thirty days (30) calendar day period until the 15c Documents become effective.

 

If the 15c Documents required to be filed by the Company pursuant to Section 2(e) hereof have become effective, and, thereafter, the Holder’s right to sell is suspended, for any reason, then the Company shall pay the Holder the sum of two percent (2%) of the Face Amount plus interest and penalties due to the Holder for the Face Amount pursuant to the Subscription Agreement for each ten (10) calendar day period, pro rata, compounded daily, following the suspension, until such suspension ceases.

 

Notwithstanding the foregoing, the amounts payable by the Company pursuant to this Section 2 shall not be payable to the extent any delay in the effectiveness of the 15c Documents, or any suspension of the effectiveness occurs because of an act of, or a failure to act or to act timely by the Holder or is otherwise attributable to the Holder.

 

The damages set forth in this Section 2 shall continue until the obligation is fulfilled and shall be paid within three (3) business days after each ten (10) day period, or portion thereof, until the 15c Documents are declared effective or such suspension is released. Failure of the Company to make payment within said three (3) business days shall be considered a default.

 

The Company acknowledges that its failure to have the 15c Documents become effective within said 15c Documents Filing Deadline or to permit the suspension of the effectiveness of the 15c Documents, will cause the Holder to suffer irreparable harm and, that damages will be difficult to ascertain. Accordingly, the parties agree that it is appropriate to include in this Agreement a provision for liquidated damages. The parties acknowledge and agree that the liquidated damages provision set forth in this section represents the parties’ good faith effort to quantify such damages and, as such, agree that the form and amount of such liquidated damages are reasonable and will not constitute a penalty. The payment of liquidated damages shall not relieve the Company from its obligations to register the Common Stock and deliver the Common Stock pursuant to the terms of this Agreement, the Subscription Agreement and the Debenture.

 

 

 
 

3. Related Obligations .

 

At such time as the Company is obligated to prepare and file a Registration Statement with the SEC pursuant to Section 2(a) hereof, the Company will use its best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, with respect thereto, the Company shall have the following obligations:

 

 

a. The Company shall use its best efforts to cause such Registration Statement relating to the Registrable Securities to become effective within one hundred eighty (180) calendar days after the Filing Deadline and shall keep such Registration Statement effective pursuant to Rule 415 under the Securities Act until the date on which (A) the Holder shall have sold all the Registrable Securities or the shares included therein otherwise cease to be Registrable Securities, and (B) the Holder has no right to convert the securities it owns into Common Stock under the Subscription Agreement or Debenture, respectively (the “ Registration Period ”), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall, as of the date thereof, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading.

 

b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 under the Securities Act, as may be necessary to keep such Registration Statement effective during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the Holder as set forth in such Registration Statement. In the event the number of shares of Common Stock available under a Registration Statement filed pursuant to this Agreement is at any time insufficient to cover all of the Registrable Securities, the Company shall amend such Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover all of the Registrable Securities, in each case, as soon as practicable, but in any event within thirty (30) calendar days after the necessity therefor arises (based on the then Purchase Price of the Common Stock and other relevant factors on which the Company reasonably elects to rely), assuming the Company has sufficient authorized shares at that time, and if it does not, within thirty (30) calendar days after such shares are authorized. The Company shall use it best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof.

 

Prior to conversion of all the Shares (as defined in the Debenture) if at any time the conversion of all the Shares outstanding would result in an insufficient number of authorized shares of Common Stock being available to cover all the conversions, or in the event that Holder deems that the Shares authorized will become insufficient, the Company will move to call and hold a shareholder’s meeting within thirty (30) calendar days for the sole purpose of authorizing additional shares of Common Stock to facilitate the conversions. In such an event the Company shall recommend to all shareholders and management of the Company to vote their shares in

 
 

favor of increasing the authorized number of shares of Common Stock in sufficient number to fully cover the Holder's conversion rights. The Company represents and warrants that under no circumstances will it deny or prevent Holder’s right to convert the Shares as permitted under the terms of the Subscription Agreement, this Agreement or any of the other Transaction Documents. The Holder retains the right to request additional shares upon the determination the company may not be able to facilitate conversions in the future.

 

c The Company shall furnish to the Holder whose Registrable Securities are included in any Registration Statement and its legal counsel without charge and upon request (i) promptly after the same is prepared and filed with the SEC at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits, the prospectus included in such Registration Statement (including each preliminary prospectus) and, with regards to such Registration Statement(s), any correspondence by or on behalf of the Company to the SEC or the staff of the SEC and any correspondence from the SEC or the staff of the SEC to the Company or its representatives, (ii) upon the effectiveness of any Registration Statement, a copy of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as the Holder may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus, as the Holder may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities. The Company filing the documents described in this paragraph through EDGAR shall constitute delivery.

 

d. The Company shall use reasonable efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under the applicable securities or “blue sky” laws of such states of the United States as reasonably specified by the Holder, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d) , (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify the Holder who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose.

 

e. The Company shall immediately notify the Holder in writing of the happening of any event as a result of which the prospectus included in a Registration Statement, as then in effect, would then contain an untrue statement of a material fact or omission to state a material fact, which would otherwise be required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

 
 

and, as a result, is required to be supplemented or as a result of which the Registration Statement is required to be amended (“ Registration Default ”) and use all diligent efforts to promptly prepare any necessary supplement to such prospectus or amendment to such Registration Statement and take any other necessary steps to cure the Registration Default, (which, if such Registration Statement is on Form S-3, may consist of a document to be filed by the Company with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) and to be incorporated by reference in the prospectus) to correct such untrue statement or omission, and deliver one (1) copy of such supplement or amendment to Holder (or such other number of copies as Holder may reasonably request; delivery via EDGAR shall constitute delivery). Failure to cure the Registration Default within five (5) business days shall result in the Company paying liquidated damages of two percent (2%) of the then outstanding principal amount of the Debentures then held by the Holder for each thirty (30) calendar day period or portion thereof, beginning on the date of suspension. The Company shall also promptly notify Holder in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to Holder by facsimile on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, (iii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate, (iv) in the event the Registration Statement is no longer effective or, (v) the Registration Statement is stale for a period of more than five (5) Trading Days as a result of the Company’s failure to timely file its financials with the SEC.

 

The Company acknowledges that its failure to cure the Registration Default within three (3) business days will cause the Holder irreparable harm, and that damages will be difficult to ascertain. Accordingly, the parties agree that it is appropriate to include in this Agreement a provision for liquidated damages. The parties acknowledge and agree that the liquidated damages provision set forth in this section represents the parties’ good faith effort to quantify such damages and, as such, agree that the form and amount of such liquidated damages are reasonable and will not constitute a penalty.

 

It is the intention of the parties that interest payable under any of the terms of this Agreement shall not exceed the maximum amount permitted under any applicable law. If a law, which applies to this Agreement which sets the maximum interest amount, is finally interpreted so that the interest in connection with this Agreement exceeds the permitted limits, then: (1) any such interest shall be reduced by the amount necessary to reduce the interest to the permitted limit; and (2) any sums already collected (if any) from the Company which exceed the permitted limits will be refunded to the Company. The Holder may choose to make this refund by reducing the amount that the Company owes under this Agreement or by making a direct payment to the Company. If a refund reduces the amount that the Company owes the Holder, the reduction will be treated as a partial payment. In the event that any provision of this Agreement is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Agreement will not in any way be affected or impaired thereby.

 
 

 

f. The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Holder of the issuance of such order and the resolution thereof. The Company will immediately notify the Holder of a proceeding, or threat of proceeding, the result of which could affect the effectiveness of the registration statement.

 

g. The Company shall permit the Holder and its counsel, of the Holder's choosing, to review and comment upon all Registration Statements, amendments and supplements, at least seven (7) days prior to filing. The Company shall not file any Registration Statement with which Holder or its counsel reasonably objects.

 

h. The Company shall make available for inspection by (i) the Holder and (ii) one firm of attorneys and one firm of accountants or other agents retained by the Holder (collectively, the “ Inspectors ”) all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the “ Records ”), as shall be reasonably deemed necessary by each Inspector, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall hold in strict confidence and shall not make any disclosure (except to the Holder) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the Securities Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector has knowledge. The Holder agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential.

 

i. The Company shall hold in confidence and not make any disclosure of information concerning the Holder unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning a Holder is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to the Holder and allow the Holder, at the Holder's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

 
 

 

j. The Company shall use its best efforts to secure designation and quotation of all the Registrable Securities covered by any Registration Statement on the Principal Market. If, despite the Company's best efforts, the Company is unsuccessful in satisfying this obligation, it shall use its best efforts to cause all the Registrable Securities covered by any Registration Statement to be listed on each other national securities exchange and automated quotation system, if any, on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or system. If, despite the Company's best efforts, the Company is unsuccessful in satisfying its obligation in this Section, it will use its best efforts to secure the inclusion for quotation with Pink Sheets, LLC. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(k) .

 

k. The Company shall cooperate with the Holder to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Holder may reasonably request and registered in such names of the Persons who shall acquire such Registrable Securities from the Holder, as the Holder may request.

 

l. The Company shall provide a transfer agent for all the Registrable Securities not later than the Effective Date of the first Registration Statement filed pursuant hereto.

 

m. If requested by the Holder, the Company shall (i) as soon as reasonably practical, incorporate in a prospectus supplement or post-effective amendment such information as Holder reasonably determines should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the offering of the Registrable Securities to be sold in such offering; (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any Registration Statement if reasonably requested by Holder.

 

n. The Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.

 

o. The Company shall make available to the Holder as soon as reasonably practical, but not later than ninety (90) calendar days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the Securities Act) covering a 12-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of any Registration Statement. Filing via EDGAR shall constitute delivery.

 

 
 

p. The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.

 

q. Within one (1) business day after the Registration Statement which includes Registrable Securities is declared effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities, with copies to the Holder, confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A .

 

r. After the SEC declares the Registration Statement cleared of all comments and the Company's acceptance of the effectiveness of the Registration Statement, the Company shall file a prospectus covering the resale of the Shares (“ Prospectus ”) within two (2) trading days.

 

s. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Holder of the Registrable Securities pursuant to a Registration Statement.

 

 

 

4. Obligations Of The Holder .

 

a. At least five (5) calendar days prior to the first anticipated filing date of a Registration Statement, the Company shall notify the Holder in writing of the information the Company requires from the Holder. The Holder covenants and agrees that, in connection with any resale of Registrable Securities by it pursuant to a Registration Statement, it shall comply with the “Plan of Distribution” section of the current prospectus relating to such Registration Statement.

 

b. The Holder, by the Holder's acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder and in responding to SEC comments in connection therewith.

 

c. The Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) hereof or the first sentence of Section 3(e) hereof, the Holder will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) hereof or the first sentence of Section 3(e) hereof.

 

 
 

5. Expenses Of Registration .

 

All expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Section 2 and Section 3 hereof, including, without limitation, all registration, listing and qualifications fees, printing and accounting fees, and reasonable fees and disbursements of counsel for the Company shall be paid by, and are the sole obligation of, the Company.

 

6. Indemnification .

 

In the event any Registrable Securities are included in a Registration Statement under this Agreement:

 

 

a. To the fullest extent permitted by law, the Company will, and hereby agrees to, indemnify, hold harmless and defend the Holder who holds such Registrable Securities, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls Holder within the meaning of the Securities Act or the Exchange Act) (each, an “ Indemnified Person ”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint or several (collectively, “ Claims ”), incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ( Indemnified Damages ”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“ Blue Sky Filing ”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which the statements therein were made, not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, “ Violations ”). Subject to the restrictions set forth in Section 6(c) hereof with respect to the number of legal counsel, the Company shall reimburse the Holder and each such controlling person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a) : (i) shall not apply to a Claim arising out of or based upon a Violation committed by any

 
 

Indemnified Person or which occurs in reliance upon and in conformity with information furnished in writing to the Company by any Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus were timely made available by the Company pursuant to Section 3(c) hereof; (ii) shall not be available to the extent such Claim is based on (a) a failure of the Holder to deliver or to cause to be delivered the prospectus made available by the Company or (b) the Indemnified Person's use of an incorrect prospectus despite being promptly advised in advance by the Company in writing not to use such incorrect prospectus; and (iii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the resale of the Registrable Securities by the Holder pursuant to the Registration Statement.

 

b. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6 , deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The indemnifying party shall pay for only one separate legal counsel for the Indemnified Persons or the Indemnified Parties, as applicable, and such counsel shall be selected by the Holder, if the Holder is entitled to indemnification hereunder, or the Company, if the Company is entitled to indemnification hereunder, as applicable. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such Claim. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated

 
 

to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6 , except to the extent that the indemnifying party is actually prejudiced in its ability to defend such action.

 

c. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.

 

d. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

 

7. Contribution .

 

To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 hereof to the fullest extent permitted by law; provided, however, that: (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6 hereof; (ii) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (iii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.

 

8. Reports Under The Exchange Act .

With a view to making available to the Holders the benefits of Rule 144 under the Securities Act or any similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration (“ Rule 144 ”) the Company agrees to:

a. make and keep public information available, as those terms are understood and defined in Rule 144;

 

b. file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements and the filing of such reports and other documents as are required by the applicable provisions of Rule 144; and

 

 
 

c. furnish to the Holder so long as the Holder owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration.

 

9. No Assignment Of Registration Rights .

 

The registration rights and obligations under this Agreement shall not be assignable.

 

10. Amendment Of Registration Rights .

 

Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of both the Company and the Holder of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon the Holder and the Company. No such amendment shall be effective to the extent that it applies to less than all of the Holders of the Registrable Securities. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

 

11. Miscellaneous .

 

a. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided a confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses for such communications shall be:

 

If to the Company: MassRoots, Inc.

Ste 370 #150

6525 Gunpark Drive,

Boulder, CO 80301

 

If to the Holder: Name:

Address:

 

Each party shall provide five (5) business days prior notice to the other party of any change in address, phone number or facsimile number.

 

 
 

b. Failure of any Party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

 

c. All disputes arising under this Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, without regard to principles of conflict of laws. The Parties shall submit all disputes arising under this Agreement to arbitration in Boston, Massachusetts before a single arbitrator of the American Arbitration Association (the “ AAA ”). The arbitrator shall be selected by application of the rules of the AAA, or by mutual agreement of the parties, except that such arbitrator shall be an attorney admitted to practice law in the Commonwealth of Massachusetts. No Party shall challenge the jurisdiction or venue provisions as provided in this Section. Nothing in this Section shall limit the Holder's right to obtain an injunction for a breach of this Agreement from a court of law. Any injunction obtained shall remain in full force and effect until the arbitrator, as set forth in section c., fully adjudicates the dispute.

 

d. This Agreement and the Transaction Documents constitute the entire set of agreements among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to in the Transaction Documents.

 

e. This Agreement and the Transaction Documents supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

 

f. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

 

g. This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument. Execution and delivery of this Agreement by exchange of facsimile copies bearing the facsimile signature of a party shall constitute a valid and binding execution and delivery of this Agreement by such party. Such facsimile copies shall constitute enforceable original documents.

 

h. Each Party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other Party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

i. All consents and other determinations to be made by the Holder pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by the Holder holding a majority of the Registrable Securities.

 

 
 

j. The language used in this Agreement will be deemed to be the language chosen by the Parties to express their mutual intent and no rules of strict construction will be applied against any party.

 

k. The Company hereby represent and warrants to the Holder that: (i) it has voluntarily entered into this Agreement of its own freewill, (ii) it is not entering into this Agreement under economic duress, (iii) the terms of this Agreement are reasonable and fair to the Company, and (iv) the Company has had independent legal counsel of its own choosing review this Agreement, advise the Company with respect to this Agreement, and represent the Company in connection with its entering into this Agreement.

 

l. Notwithstanding anything in this Agreement to the contrary, the parties hereto hereby acknowledge and agree to the following: (i) the Holder makes no representations or covenants that it will not engage in trading in the securities of the Company; (ii) the Company has not and shall not provide material non-public information to the Holder unless prior thereto the Holder shall have executed a written agreement regarding the confidentiality and use of such information; and (iii) the Company understands and confirms that the Holder will be relying on the acknowledgements set forth in clauses (i) through (iii) above if the Holder effects any transactions in the securities of the Company.

 

12. Waiver .

 

The Holder's delay or failure at any time or times hereafter to require strict performance by Company of any undertakings, agreements or covenants shall not waive, affect, or diminish any right of the Holder under this Agreement to demand strict compliance and performance herewith. Any waiver by the Holder of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type. None of the undertakings, agreements and covenants of the Company contained in this Agreement, and no Event of Default, shall be deemed to have been waived by the Holder, nor may this Agreement be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver, amendment, change or modification and signed by the Holder.

 

13. Payment Of Liquidated Damages .

 

Any liquidated damages or other fees incurred herein by the Company for failure to act in a timely manner shall be charged to the Face Amount of the Debenture (as defined in the Debenture), unless specifically noted otherwise. The Holder reserves the rights to take payment of such amounts in cash or in Common Stock priced at the Conversion Price (as defined in the Debenture).

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 
 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Debenture Registration Rights Agreement to be duly executed on the day and year first above written.

 

 

MassRoots, Inc.

 

 

By __________________ Name: Isaac Dietrich

Title: Chief Executive Officer

 

 

 

HOLDER

 

By: __________________________________

Name:

Title:

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

EXHIBIT A

 

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

Date: __________

 

[TRANSFER AGENT]

 

Re: MassRoots, Inc..

 

Ladies and Gentlemen:

 

We are counsel to MassRoots, Inc., a Delaware corporation (the “ Company ”), and have represented the Company in connection with that certain Subscription Agreement (the "Subscription Agreement") entered into by and among the Company and Dutchess the “ Holder ” pursuant to which the Company has agreed to issue to the Holder shares of the Company's common stock, $0.001 par value per share (the “ Common Stock ”) on the terms and conditions set forth in the Subscription Agreement. Pursuant to the Subscription Agreement, the Company also has entered into a Registration Rights Agreement with the Holder (the “ Registration Rights Agreement ”) pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the shares of Common Stock issued or issuable under the Subscription Agreement under the Securities Act of 1933, as amended (the “ Securities Act ”). In connection with the Company's obligations under the Registration Rights Agreement, on ____________ ___, 2014, the Company filed a Registration Statement on Form ________ (File No. 333-________) (the “ Registration Statement ”) with the United States Securities and Exchange Commission (the “ SEC ”) relating to the Registrable Securities which names the Holder as a selling shareholder thereunder.

 

In connection with the foregoing, we advise you that the Registration Statement has become effective under the Securities Act at [enter the time of effectiveness] on [ enter the date of effectiveness ] and to the best of our knowledge, after telephonic inquiry of a member of the SEC’s staff, no stop order suspending its effectiveness has been issued and no proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the Securities Act pursuant to the Registration Statement.

 

Very truly yours,

 

[Company Counsel]

 

By: ____________________

 

 

Exhibit 10.12

MASSROOTS, INC.

 

2014 STOCK INCENTIVE PLAN

 

 

1. Purpose

 

MassRoots, Inc.’s 2014 Stock Incentive Plan is intended to promote the best interests of MassRoots, Inc. and its stockholders by (i) assisting the Corporation and its Affiliates in the recruitment and retention of persons with ability and initiative, (ii) providing an incentive to such persons to contribute to the growth and success of the Corporation’s businesses by affording such persons equity participation in the Corporation and (iii) associating the interests of such persons with those of the Corporation and its Affiliates and stockholders.

 

2. Definitions

 

As used in this Plan the following definitions shall apply:

 

A.           “ Affiliate ” means (i) any Subsidiary, (ii) any Parent, (iii) any corporation, or trade or business (including, without limitation, a partnership, limited liability company or other entity) which is directly or indirectly controlled fifty percent (50%) or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) by the Corporation or one of its Affiliates, and (iv) any other entity in which the Corporation or any of its Affiliates has a material equity interest and which is designated as an “Affiliate” by resolution of the Committee.

 

B.           “ Award ” means any Option or Stock Award granted hereunder.

 

C.           “ Board ” means the Board of Directors of the Corporation.

 

D.           “ Code ” means the Internal Revenue Code of 1986, and any amendments thereto.

 

E.           “ Committee ” means the Board or any Committee of the Board to which the Board has delegated any responsibility for the implementation, interpretation or administration of this Plan.

 

F.            “ Common Stock ” means the common stock, $0.001 par value, of the Corporation.

 

G.           “ Consultant ” means (i) any person performing consulting or advisory services for the Corporation or any Affiliate, or (ii) a director of an Affiliate.

 

H.          “ Corporation ” means MassRoots, Inc., a Delaware corporation.

 

I.             “ Corporation Law ” means the Delaware Revised Statutes, as the same shall be amended from time to time.

 

J.             “ Date of Grant ” means the date that the Committee approves an Option grant; provided, that all terms of such grant, including the amount of shares subject to the grant, exercise price and vesting are defined at such time.

 

K.           “ Deferral Period ” means the period of time during which Deferred Shares are subject to deferral limitations under Section 7.D of this Plan.

 

L.           “ Deferred Shares ” means an award pursuant to Section 7.D of this Plan of the right to receive shares of Common Stock at the end of a specified Deferral Period.

 

 

M.         “ Director ” means a member of the Board.

 

N.            “ Eligible Person ” means an employee of the Corporation or an Affiliate (including a corporation that becomes an Affiliate after the adoption of this Plan), a Director or a Consultant to the Corporation or an Affiliate (including a corporation that becomes an Affiliate after the adoption of this Plan).

 

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

 

P.             “ Fair Market Value ” means, on any given date, the current fair market value of the shares of Common Stock as determined as follows:

 

(i) If the Common Stock is traded on a national securities exchange, the closing price for the day of determination as quoted on such market or exchange, including the NASDAQ Global Market or NASDAQ Capital Market, which is the primary market or exchange for trading of the Common Stock or if no trading occurs on such date, the last day on which trading occurred, or such other appropriate date as determined by the Committee in its discretion, as reported in The Wall Street Journal or such other source as the Committee deems reliable;

 

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high and the low asked prices for the Common Stock for the day of determination; or

 

(iii) In the absence of an established market for the Common Stock, Fair Market Value shall be determined by the Committee in good faith.

 

Q.           “ Family Member” means a parent, child, spouse or sibling.

 

R.           “ Incentive Stock Option ” means an Option (or portion thereof) intended to qualify for special tax treatment under Section 422 of the Code.

 

S.             “ Nonqualified Stock Option ” means an Option (or portion thereof) which is not intended or does not for any reason qualify as an Incentive Stock Option.

 

T.           “ Option ” means any option to purchase shares of Common Stock granted under this Plan.

 

U.           “ Parent ” means any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation if each of the corporations (other than the Corporation) owns stock possessing at least fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

V.           “ Participant ” means an Eligible Person who (i) is selected by the Committee or an authorized officer of the Corporation to receive an Award and (ii) is party to an agreement setting forth the terms of the Award, as appropriate.

 

W.         “ Performance Agreement ” means an agreement described in Section 8 of this Plan.

 

X.           “ Performance Objectives ” means the performance objectives established by the Committee pursuant to this Plan for Participants who have received grants of Awards. Performance Objectives may be described in terms of Corporation-wide objectives or objectives that are related to the performance of the individual Participant or the Affiliate, division, department or function within the Corporation or Affiliate in which the Participant is employed or has responsibility. Any Performance Objectives applicable to Awards to the extent that such an Award is intended to qualify as “Performance Based Compensation” under Section 162(m) of the Code shall be limited to specified levels of or increases in the Corporation’s or a business unit’s return on equity, earnings per share, total earnings, earnings growth, return on capital, return on assets, economic value added, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, sales growth, gross margin return on investment, increase in the Fair Market Price of the shares, net operating profit, cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on investments (which equals net cash flow divided by total capital), internal rate of return, increase in net present value or expense targets. The Awards intended to qualify as “Performance Based Compensation” under Section 162(m) of the Code shall be pre-established in accordance with applicable regulations under Section 162(m) of the Code and the determination of attainment of such goals shall be made by the Committee. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Corporation (including an event described in Section 9), or the manner in which it conducts its business, or other events or circumstances render the Performance Objectives unsuitable, the Committee may modify such Performance Objectives or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable; provided, however, that no such modification shall be made to an Award intended to qualify as “Performance Based Compensation” under Section 162(m) of the Code unless the Committee determines that such modification will not result in loss of such qualification or the Committee determines that loss of such qualification is in the best interests of the Corporation.

 

Y.           “ Performance Period ” means a period of time established under Section 8 of this Plan within which the Performance Objectives relating to a Stock Award are to be achieved.

 

Z.           “ Performance Share ” means an award pursuant to Section 8 of this Plan of the right to receive shares of Common Stock upon the achievement of specified Performance Objectives.

 

AA.      “ Plan ” means this MassRoots, Inc., 2014 Stock Incentive Plan.

 

BB.      “ Repricing ” means, other than in connection with an event described in Section 9 of this Plan, (i) lowering the exercise price of an Option after it has been granted or (ii) canceling an Option at a time when the exercise price exceeds the then-Fair Market Value of the Common Stock in exchange for another Option.

 

CC.      “Restricted Stock Award” means an award of Common Stock under Section 7.B.

 

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

 

EE.       “ Stock Award ” means a Stock Bonus Award, Restricted Stock Award, Stock Appreciation Right, Deferred Shares, or Performance Shares.

 

FF.        “ Stock Bonus Award ” means an award of Common Stock under Section 7.A.

 

GG.      “ Stock Award Agreement ” means a written agreement between the Corporation and a Participant setting forth the specific terms and conditions of a Stock Award granted to the Participant under Section 7. Each Stock Award Agreement shall be subject to the terms and conditions of this Plan and shall include such terms and conditions as the Committee shall authorize.

 

HH.     “ Stock Option Agreement ” means an agreement (written or electronic) between the Corporation and a Participant setting forth the specific terms and conditions of an Option granted to the Participant. Each Stock Option Agreement shall be subject to the terms and conditions of this Plan and shall include such terms and conditions as the Committee shall authorize.

 

II.          “ Subsidiary ” means any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing at least fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

JJ.          “ Ten Percent Owner ” means any Eligible Person owning at the time an Option is granted more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or of a Parent or Subsidiary. An individual shall, in accordance with Section 424(d) of the Code, be considered to own any voting stock owned (directly or indirectly) by or for such Eligible Person’s brothers, sisters, spouse, ancestors and lineal descendants and any voting stock owned (directly or indirectly) by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its stockholders, partners, or beneficiaries.

 

3. implementation, interpretation and Administration

 

A.           Delegation to Board Committee. The Board shall have the sole authority to implement, interpret, and/or administer this Plan unless the Board delegates all or any portion of its authority to implement, interpret, and/or administer this Plan to a Committee. To the extent not prohibited by the Certificate of Incorporation or Bylaws of the Corporation, the Board may delegate all or a portion of its authority to implement, interpret, and/or administer this Plan to a Committee of the Board appointed by the Board and constituted in compliance with the applicable Corporation Law. The Committee shall consist solely of two (2) or more Directors who are (i) Non-Employee Directors (within the meaning of Rule 16b-3 under the Exchange Act) for purposes of exercising administrative authority with respect to Awards granted to Eligible Persons who are subject to Section 16 of the Exchange Act; (ii) to the extent required by the rules of the market on which the Corporation’s shares are traded or the exchange on which the Corporation’s shares are listed, “independent” within the meaning of such rules; and (iii) at such times as an Award under this Plan by the Corporation is subject to Section 162(m) of the Code (to the extent relief from the limitation of Section 162(m) of the Code is sought with respect to Awards and administration of the Awards by a committee of “outside directors” is required to receive such relief), “outside directors” within the meaning of Section 162(m) of the Code.

 

B.           Delegation to Officers . The Committee may delegate to one or more officers of the Corporation the authority to grant and administer Awards to Eligible Persons who are not Directors or executive officers of the Corporation; provided that the Committee shall have fixed the total number of shares of Common Stock that may be subject to such Awards. No officer holding such a delegation is authorized to grant Awards to himself or herself. In addition to the Committee, the officer or officers to whom the Committee has delegated the authority to grant and administer Awards shall have all powers delegated to the Committee with respect to such Awards.

 

C.           Powers of the Committee . Subject to the provisions of this Plan, and in the case of a Committee appointed by the Board, the specific duties delegated to such Committee, the Committee (and the officers to whom the Committee has delegated such authority) shall have the authority:

 

(i) To construe and interpret all provisions of this Plan and all Stock Option Agreements, Stock Award Agreements, Performance Agreements, or any other agreement under this Plan.

 

(ii) To determine the Fair Market Value of Common Stock in the absence of an established market for the Common Stock.

 

(iii) To select the Eligible Persons to whom Awards are granted from time to time hereunder.

 

(iv) To determine the number of shares of Common Stock covered by an Award; to determine whether an Option shall be an Incentive Stock Option or Nonqualified Stock Option; and to determine such other terms and conditions, not inconsistent with the terms of this Plan, of each such Award. Such terms and conditions include, but are not limited to, the exercise price of an Option, purchase price of Common Stock subject to a Stock Award, the time or times when Options or a Stock Award may be exercised or Common Stock issued thereunder, the vesting schedule of an Option, the right of the Corporation to repurchase Common Stock issued pursuant to the exercise of an Option or a Stock Award and other restrictions or limitations (in addition to those contained in this Plan) on the forfeitability or transferability of Options, Stock Awards or Common Stock issued upon exercise of an Option or pursuant to a Stock Award. Such terms may include conditions which shall be determined by the Committee and need not be uniform with respect to Participants.

 

(v) To accelerate the time at which any Option or Stock Award may be exercised, or the time at which a Stock Award or Common Stock issued under this Plan may become transferable or non-forfeitable.

 

(vi) To determine whether and under what circumstances an Option or Stock Award may be settled in cash, shares of Common Stock or other property under Section 6.H instead of in Common Stock.

 

(vii) To waive, amend, cancel, extend, renew, accept the surrender of, modify or accelerate the vesting of or lapse of restrictions on all or any portion of an outstanding Award. Except as otherwise provided by this Plan, Stock Option Agreement, Stock Award Agreement or Performance Agreement or as required to comply with applicable law, regulation or rule, no amendment, cancellation or modification shall, without a Participant’s consent, adversely affect any rights of the Participant; provided, however, that (x) an amendment or modification that may cause an Incentive Stock Option to become a Nonqualified Stock Option shall not be treated as adversely affecting the rights of the Participant and (y) any other amendment or modification of any Stock Option Agreement, Stock Award Agreement or Performance Agreement that does not, in the opinion of the Committee, adversely affect any rights of any Participant, shall not require such Participant’s consent. Notwithstanding the foregoing, the restrictions on the Repricing of Options, as set forth in this Plan, may not be waived.

 

(viii) To prescribe the form of Stock Option Agreements, Stock Award Agreements, Performance Agreements, or any other agreements under this Plan; to adopt policies and procedures for the exercise of Options or Stock Awards, including the satisfaction of withholding obligations; to adopt, amend, and rescind policies and procedures pertaining to the administration of this Plan; and to make all other determinations necessary or advisable for the administration of this Plan. Except for the due execution of the award agreement by both the Corporation and the Participant, the Award’s effectiveness will not be dependent on any signature unless specifically so provided in the award agreement.

 

The express grant in this Plan of any specific power to the Committee shall not be construed as limiting any power or authority of the Committee; provided that the Committee may not exercise any right or power reserved to the Board. Any decision made, or action taken, by the Committee or in connection with the implementation, interpretation, and administration of this Plan shall be final, conclusive and binding on all persons having an interest in this Plan.

 

4. Eligibility

 

A.           Eligibility for Awards . Awards, other than Incentive Stock Options, may be granted to any Eligible Person selected by the Committee. Incentive Stock Options may be granted only to employees of the Corporation or a Parent or Subsidiary.

 

B.           Eligibility of Consultants . A Consultant shall be an Eligible Person only if the offer or sale of the Corporation’s securities would be eligible for registration on Form S-8 Registration Statement (or any successor form) because of the identity and nature of the service provided by such person, unless the Corporation determines that an offer or sale of the Corporation’s securities to such person will satisfy another exemption from the registration under the Securities Act and complies with the securities laws of all other jurisdictions applicable to such offer or sale. Accordingly, an Award may not be granted pursuant to this Plan for the purpose of the Corporation obtaining financing or for investor relations purposes.

 

C.           Substitution Awards . The Committee may make Awards under this Plan by assumption, in substitution or replacement of performance shares, phantom shares, stock awards, stock options or similar awards granted by another entity (including an Affiliate) in connection with a merger, consolidation, acquisition of property or stock or similar transaction. Notwithstanding any provision of this Plan (other than the maximum number of shares of Common Stock that may be issued under this Plan), the terms of such assumed, substituted, or replaced Awards shall be as the Committee, in its discretion, determines is appropriate.

 

5. Common Stock Subject to Plan

 

A.           Share Reserve and Limitations on Grants . The maximum aggregate number of shares of Common Stock that may be (i) issued under this Plan pursuant to the exercise of Options (without regard to whether payment on exercise of the Stock Option is made in cash or shares of Common Stock), (ii) issued pursuant to Stock Awards shall be 4,000,000 shares. The number of shares of Common Stock subject to the Plan shall be subject to adjustment as provided in Section 9. Notwithstanding any provision hereto to the contrary, shares subject to the Plan shall include shares forfeited in a prior year as provided herein. For purposes of determining the number of shares of Common Stock available under this Plan, shares of Common Stock withheld by the Corporation to satisfy applicable tax withholding obligations pursuant to Section 10 of this Plan shall be deemed issued under this Plan. No single participant may receive more than 25% of the total Options awarded in any single year.

 

B.           Reversion of Shares . If an Option or Stock Award is terminated, expires or becomes unexercisable, in whole or in part, for any reason, the unissued or unpurchased shares of Common Stock which were subject thereto shall become available for future grant under this Plan. Shares of Common Stock that have been actually issued under this Plan shall not be returned to the share reserve for future grants under this Plan; except that shares of Common Stock issued pursuant to a Stock Award which are forfeited to the Corporation or repurchased by the Corporation at the original purchase price of such shares, shall be returned to the share reserve for future grant under this Plan.

 

C.           Source of Shares . Common Stock issued under this Plan may be shares of authorized and unissued Common Stock or shares of previously issued Common Stock that have been reacquired by the Corporation.

 

6. Options

 

A.           Award . In accordance with the provisions of Section 4, the Committee will designate each Eligible Person to whom an Option is to be granted and will specify the number of shares of Common Stock covered by such Option. The Stock Option Agreement shall specify whether the Option is an Incentive Stock Option or Nonqualified Stock Option, the exercise price of such Option, the vesting schedule applicable to such Option, the expiration date of such Option, events of termination of such Option, and any other terms of such Option. No Option that is intended to be an Incentive Stock Option shall be invalid for failure to qualify as an Incentive Stock Option.

 

B.           Option Price . The exercise price per share for Common Stock subject to an Option shall be determined by the Committee, but shall comply with the following:

 

(i) The exercise price per share for Common Stock subject to an Option shall not be less than one hundred percent (100%) of the Fair Market Value on the date of grant.

 

(ii) The exercise price per share for Common Stock subject to an Incentive Stock Option granted to a Participant who is deemed to be a Ten Percent Owner on the date such option is granted, shall not be less than one hundred ten percent (110%) of the Fair Market Value on the date of grant.

 

C.           Maximum Option Period . The maximum period during which an Option may be exercised shall be ten (10) years from the date such Option was granted. In the case of an Incentive Stock Option that is granted to a Participant who is or is deemed to be a Ten Percent Owner on the date of grant, such Option shall not be exercisable after the expiration of five (5) years from the date of grant.

 

D.           Maximum Value of Options which are Incentive Stock Options . To the extent that the aggregate Fair Market Value of the Common Stock with respect to which Incentive Stock Options granted to any Participant are exercisable for the first time during any calendar year (under all stock option plans of the Corporation or any Parent or Subsidiary) exceeds $100,000 (or such other amount provided in Section 422 of the Code), the Options shall not be deemed to be Incentive Stock Options. For purposes of this section, the Fair Market Value of the Common Stock will be determined as of the time the Incentive Stock Option with respect to the Common Stock is granted. This section will be applied by taking Incentive Stock Options into account in the order in which they are granted.

 

E.           Nontransferability . Options granted under this Plan which are intended to be Incentive Stock Options shall be nontransferable except by will or by the laws of descent and distribution and, during the lifetime of the Participant, shall be exercisable by only the Participant to whom the Incentive Stock Option is granted. Except to the extent transferability of a Nonqualified Stock Option is provided for in the Stock Option Agreement or is approved by the Committee, during the lifetime of the Participant to whom the Nonqualified Stock Option is granted, such Option may be exercised only by the Participant. If the Stock Option Agreement so provides or the Committee so approves, a Nonqualified Stock Option may be transferred by a Participant through a gift or domestic relations order to the Participant’s family members to the extent such transfer complies with applicable securities laws and regulations and provided that such transfer is not a transfer for value (within the meaning of applicable securities laws and regulations). The holder of a Nonqualified Stock Option transferred pursuant to this section shall be bound by the same terms and conditions that governed the Option during the period that it was held by the Participant. No right or interest of a Participant in any Option shall be liable for, or subject to, any lien, obligation, or liability of such Participant, unless such obligation is to the Corporation itself or to an Affiliate.

 

F.            Vesting . Options will vest as provided in the Stock Option Agreement.

 

G.           Termination . Options will terminate as provided in the Stock Option Agreement.

 

H.          Exercise . Subject to the provisions of this Plan and the applicable Stock Option Agreement, an Option may be exercised to the extent vested in whole at any time or in part from time to time at such times and in compliance with such requirements as the Committee shall determine. A partial exercise of an Option shall not affect the right to exercise the Option from time to time in accordance with this Plan and the applicable Stock Option Agreement with respect to the remaining shares subject to the Option. An Option may not be exercised with respect to fractional shares of Common Stock. The Participant may face certain restrictions on his/her ability to exercise Options and/or sell underlying shares when such Participant is potentially in possession of insider information. The Corporation will make the Participant aware of any formal insider trading policy it adopts, and the provisions of such insider trading policy (including any amendments thereto) shall be binding upon the Participant.

 

I.             Payment . Unless otherwise provided by the Stock Option Agreement, payment of the exercise price for an Option shall be made in cash or a cash equivalent acceptable to the Committee or if the Common Stock is traded on an established securities market, by payment of the exercise price by a broker-dealer or by the Option holder with cash advanced by the broker-dealer if the exercise notice is accompanied by the Option holder’s written irrevocable instructions to deliver the Common Stock acquired upon exercise of the Option to the broker-dealer or by delivery of the Common Stock to the broker-dealer with an irrevocable commitment by the broker-dealer to forward the exercise price to the Corporation. With the consent of the Committee, payment of all or a part of the exercise price of an Option may also be made (i) by surrender to the Corporation (or delivery to the Corporation of a properly executed form of attestation of ownership) of shares of Common Stock that have been held for such period prior to the date of exercise as is necessary to avoid adverse accounting treatment to the Corporation, or (ii) any other method acceptable to the Committee. If Common Stock is used to pay all or part of the exercise price, the sum of the cash or cash equivalent and the Fair Market Value (determined as of the date of exercise) of the shares surrendered must not be less than the Option price of the shares for which the Option is being exercised.

 

J.             Stockholder Rights . No Participant shall have any rights as a stockholder with respect to shares subject to an Option until the date of exercise of such Option and the certificate for shares of Common Stock to be received on exercise of such Option has been issued by the Corporation.

 

K.           Disposition and Stock Certificate Legends for Incentive Stock Option Shares . A Participant shall notify the Corporation of any sale or other disposition of Common Stock acquired pursuant to an Incentive Stock Option if such sale or disposition occurs (i) within two years of the grant of an Option or (ii) within one year of the issuance of the Common Stock to the Participant. Such notice shall be in writing and directed to the Chief Financial Officer of the Corporation or is his/her absence, the Chief Executive Officer. The Corporation may require that certificates evidencing shares of Common Stock purchased upon the exercise of Incentive Stock Options issued under this Plan be endorsed with a legend in substantially the following form:

 

THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED PRIOR TO ___, 20___, IN THE ABSENCE OF A WRITTEN STATEMENT FROM THE CORPORATION TO THE EFFECT THAT THE CORPORATION IS AWARE OF THE FACTS OF SUCH SALE OR TRANSFER.

 

          The blank contained in this legend shall be filled in with the date that is the later of (i) one year and one day after the date of the exercise of such Incentive Stock Option or (ii) two years and one day after the grant of such Incentive Stock Option.

 

L.           No Repricing . In no event shall the Committee permit a Repricing of any Option without the approval of the stockholders of the Corporation.

 

7. Stock Awards

 

A.           Stock Bonus Awards . Stock Bonus Awards may be granted by the Committee. Each Stock Award Agreement for a Stock Bonus Award shall be in such form and shall contain such terms and conditions (including provisions relating to consideration, vesting, reacquisition of shares following termination, and transferability of shares) as the Committee shall deem appropriate. The terms and conditions of Stock Award Agreements for Stock Bonus Awards may change from time to time and need not be uniform with respect to Participants, and the terms and conditions of separate Stock Bonus Awards need not be identical.

 

B.           Restricted Stock Awards . Restricted Stock Awards may be granted by the Committee. Each Stock Award Agreement for a Restricted Stock Award shall be in such form and shall contain such terms and conditions (including provisions relating to purchase price, consideration, vesting, reacquisition of shares following termination, and transferability of shares) as the Committee shall deem appropriate. The terms and conditions of the Stock Award Agreements for Restricted Stock Awards may change from time to time and need not be uniform with respect to Participants, and the terms and conditions of separate Restricted Stock Awards need not be identical. Vesting of any grant of Restricted Stock Awards may be further conditioned upon the attainment of Performance Objectives established by the Committee in accordance with the applicable provisions of Section 8 of this Plan regarding Performance Shares.

 

C.           Deferred Shares. The Committee may authorize grants of Deferred Shares to Participants upon the recommendation of the Corporation’s management, and upon such terms and conditions as the Committee may determine in accordance with the following provisions:

 

(i) Each grant shall constitute the agreement by the Corporation to issue or transfer shares of Common Stock to the Participant in the future in consideration of the performance of services, subject to the fulfillment during the Deferral Period of such conditions as the Committee may specify.

 

(ii) Each grant may be made without additional consideration from the Participant or in consideration of a payment by the Participant that is less than the Fair Market Value on the date of grant.

 

(iii) Each grant shall provide that the Deferred Shares covered thereby shall be subject to a Deferral Period, which shall be fixed by the Committee on the date of grant, and any grant or sale may provide for the earlier termination of such period in the event of a change in control of the Corporation or other similar transaction or event.

 

(iv) During the Deferral Period, the Participant shall not have any right to transfer any rights under the subject Award, shall not have any rights of ownership in the Deferred Shares and shall not have any right to vote such shares, but the Committee may on or after the date of grant, authorize the payment of dividend or other distribution equivalents on such shares in cash or additional shares on a current, deferred or contingent basis.

 

(v) Any grant, or the vesting thereof, may be further conditioned upon the attainment of Performance Objectives established by the Committee in accordance with the applicable provisions of Section 8 of this Plan regarding Performance Shares.

 

(vi) Each grant shall be evidenced by an agreement delivered to and accepted by the Participant and containing such terms and provisions as the Committee may determine consistent with this Plan. The terms and conditions of the agreements for Deferred Shares may change from time to time and need not be uniform with respect to Participants, and the terms and conditions of separate Deferred Shares need not be identical.

 

8. Performance Shares

 

A.           The Committee may authorize grants of Performance Shares, which shall become payable to the Participant upon the achievement of specified Performance Objectives, upon such terms and conditions as the Committee may determine in accordance with the following provisions:

 

(i) Each grant shall specify the number of Performance Shares to which it pertains, which may be subject to adjustment to reflect changes in compensation or other factors.

 

(ii) The Performance Period with respect to each Performance Share shall commence on the date established by the Committee and may be subject to earlier termination in the event of a change in control of the Corporation or similar transaction or event.

 

(iii) Each grant shall specify the Performance Objectives that are to be achieved by the Participant.

 

(iv) Each grant may specify in respect of the specified Performance Objectives a minimum acceptable level of achievement below which no payment will be made and may set forth a formula for determining the amount of any payment to be made if performance is at or above such minimum acceptable level but falls short of the maximum achievement of the specified Performance Objectives.

 

(v) Each grant shall specify the time and manner of payment of Performance Shares that shall have been earned, and any grant may specify that any such amount may be paid by the Corporation in cash, shares of Common Stock or any combination thereof and may either grant to the Participant or reserve to the Committee the right to elect among those alternatives.

 

(vi) Any grant of Performance Shares may specify that the amount payable with respect thereto may not exceed a maximum specified by the Committee on the date of grant.

 

(vii) Any grant of Performance Shares may provide for the payment to the Participant of dividend or other distribution equivalents thereon in cash or additional shares of Common Stock on a current, deferred or contingent basis.

 

(viii) If provided in the terms of the grant and subject to the requirements of Section 162(m) of the Code (in the case of awards intended to qualify for exception therefrom), the Committee may adjust Performance Objectives and the related minimum acceptable level of achievement if, in the sole judgment of the Committee, events or transactions have occurred after the date of grant that are unrelated to the performance of the Participant and result in distortion of the Performance Objectives or the related minimum acceptable level of achievement.

 

(ix) Each grant shall be evidenced by an agreement that shall be delivered to and accepted by the Participant, which shall state that the Performance Shares are subject to all of the terms and conditions of this Plan and such other terms and provisions as the Committee may determine consistent with this Plan. The terms and conditions of the agreements for Performance Shares may change from time to time and need not be uniform with respect to Participants, and the terms and conditions of separate Performance Shares need not be identical.

 

(x) Until the achievement of the Performance Objectives and the resulting issuance of the Performance Shares, the Participant shall not have any rights as a stockholder in the Performance Shares and shall not have any right to vote such shares, but the Committee may on or after the date of grant, authorize the payment of dividend or other distribution equivalents on such shares in cash or additional shares on a current, deferred or contingent basis.

 

9. Changes in Capital Structure

 

A.           No Limitations of Rights . The existence of outstanding Awards shall not affect in any way the right or power of the Corporation or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Corporation’s capital structure or its business, or any merger or consolidation of the Corporation, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Corporation, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

 

B.           Changes in Capitalization . If the Corporation shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of the Common Stock outstanding, without receiving consideration therefore in money, services or property, then (i) the number, class, and per share price of shares of Common Stock subject to outstanding Options and other Awards hereunder and (ii) the number of and class of shares then reserved for issuance under this Plan and the maximum number of shares for which Awards may be granted to a Participant during a specified time period shall be appropriately and proportionately adjusted. The conversion of convertible securities of the Corporation shall not be treated as effected “without receiving consideration.” The Committee shall make such adjustments, and its determinations shall be final, binding and conclusive.

 

C.           Merger, Consolidation or Asset Sale . If the Corporation is merged or consolidated with another entity or sells or otherwise disposes of substantially all of its assets to another company while Options or Stock Awards remain outstanding under this Plan, unless provisions are made in connection with such transaction for the continuance of this Plan and/or the assumption or substitution of such Options or Stock Awards with new options or stock awards covering the stock of the successor company, or parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, then all outstanding Options and Stock Awards which have not been continued, assumed or for which a substituted award has not been granted shall, whether or not vested or then exercisable, unless otherwise specified in the Stock Option Agreement or Stock Award Agreement, terminate immediately as of the effective date of any such merger, consolidation or sale.

 

D.           Limitation on Adjustment . Except as previously expressly provided, neither the issuance by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Corporation convertible into such shares or other securities, nor the increase or decrease of the number of authorized shares of stock, nor the addition or deletion of classes of stock, shall affect, and no adjustment by reason thereof shall be made with respect to, the number, class or price of shares of Common Stock then subject to outstanding Options or Stock Awards.

 

10. Withholding of Taxes

 

          The Corporation or an Affiliate shall have the right, before any certificate for any Common Stock is delivered, to deduct or withhold from any payment owed to a Participant any amount that is necessary in order to satisfy any withholding requirement that the Corporation or Affiliate in good faith believes is imposed upon it in connection with U.S federal, state, or local taxes, including transfer taxes, as a result of the issuance of, or lapse of restrictions on, such Common Stock, or otherwise require such Participant to make provision for payment of any such withholding amount. Subject to such conditions as may be established by the Committee, the Committee may permit a Participant to (i) have Common Stock otherwise issuable under an Option or Stock Award withheld to the extent necessary to comply with minimum statutory withholding rate requirements; (ii) tender back to the Corporation shares of Common Stock received pursuant to an Option or Stock Award to the extent necessary to comply with minimum statutory withholding rate requirements for supplemental income; (iii) deliver to the Corporation previously acquired Common Stock; (iv) have funds withheld from payments of wages, salary or other cash compensation due the Participant; (v) pay the Corporation or its Affiliate in cash, in order to satisfy part or all of the obligations for any taxes required to be withheld or otherwise deducted and paid by the Corporation or its Affiliate with respect to the Option of Stock Award; or (vi) establish a 10b5-1 trading plan for withheld stock designed to facilitate the sale of stock in connection with the vesting of such shares, the proceeds of which shall be utilized to make all applicable withholding payments in a manner to be coordinated by the Corporation’s Chief Financial Officer.

 

11. Compliance with Law and Approval of Regulatory Bodies

 

A.           General Requirements . No Option or Stock Award shall be exercisable, no Common Stock shall be issued, no certificates for shares of Common Stock shall be delivered, and no payment shall be made under this Plan except in compliance with all applicable federal and state laws and regulations (including, without limitation, withholding tax requirements), any listing agreement to which the Corporation is a party, and the rules of all domestic stock exchanges or quotation systems on which the Corporation’s shares may be listed. The Corporation shall have the right to rely on an opinion of its counsel as to such compliance. In the absence of an effective and current registration statement on an appropriate form under the Securities Act, or a specific exemption from the registration requirements of the Securities Act, shares of Common Stock issued under this Plan shall be restricted shares. Any share certificate issued to evidence Common Stock when a Stock Award is granted or for which an Option is exercised may bear such restrictive legends and statements as the Committee may deem advisable to assure compliance with federal and state laws and regulations. No Option or Stock Award shall be exercisable, no Stock Award shall be granted, no Common Stock shall be issued, no certificate for shares shall be delivered, and no payment shall be made under this Plan until the Corporation has obtained such consent or approval as the Committee may deem advisable from regulatory bodies having jurisdiction over such matters.

 

B.           Participant Representations . The Committee may require that a Participant, as a condition to receipt or exercise of a particular award, execute and deliver to the Corporation a written statement, in form satisfactory to the Committee, in which the Participant represents and warrants that the shares are being acquired for such person’s own account, for investment only and not with a view to the resale or distribution thereof. The Participant shall, at the request of the Committee, be required to represent and warrant in writing that any subsequent resale or distribution of shares of Common Stock by the Participant shall be made only pursuant to either (i) a registration statement on an appropriate form under the Securities Act of 1933, which registration statement has become effective and is current with regard to the shares being sold, or (ii) a specific exemption from the registration requirements of the Securities Act of 1933, but in claiming such exemption the Participant shall, prior to any offer of sale or sale of such shares, obtain a prior favorable written opinion of counsel, in form and substance satisfactory to counsel for the Corporation, as to the application of such exemption thereto.

 

12. General Provisions

 

A.           Effect on Employment and Service . Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall (i) confer upon any individual any right to continue in the employ or service of the Corporation or an Affiliate, (ii) in any way affect any right and power of the Corporation or an Affiliate to change an individual’s duties or terminate the employment or service of any individual at any time with or without assigning a reason therefor or (iii) except to the extent the Committee grants an Option or Stock Award to such individual, confer on any individual the right to participate in the benefits of this Plan.

 

B.           Use of Proceeds. The proceeds received by the Corporation from any sale of Common Stock pursuant to this Plan shall be used for general corporate purposes.

 

C.           Unfunded Plan . This Plan, insofar as it provides for grants, shall be unfunded, and the Corporation shall not be required to segregate any assets that may at any time be represented by grants under this Plan. Any liability of the Corporation to any Participant with respect to any grant under this Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Corporation shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Corporation.

 

D.           Rules of Construction . Headings are given to the Sections of this Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or other provision of law shall be construed to refer to any amendment to or successor of such provision of law.

 

E.            Choice of Law . This Plan and all Stock Option Agreements, Stock Award Agreements, and Performance Agreements (or any other agreements) entered into under this Plan shall be interpreted under the Corporation Law excluding (to the greatest extent permissible by law) any rule of law that would cause the application of the laws of any jurisdiction other than the Corporation Law.

 

F.            Fractional Shares . The Corporation shall not be required to issue fractional shares pursuant to this Plan. The Committee may provide for elimination of fractional shares or the settlement of such fractional shares in cash.

 

G.           Foreign Employees . In order to facilitate the making of any grant or combination of grants under this Plan, the Committee may provide for such special terms for Awards to Participants who are foreign nationals, or who are employed by the Corporation or any Affiliate outside of the United States, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of this Plan, as then in effect, unless this Plan could have been amended to eliminate such inconsistency without further approval by the stockholders of the Corporation.

 

13. Amendment and Termination

 

          The Board may amend or terminate this Plan from time to time; provided, however, stockholder approval shall be required for any amendment that (i) increases the aggregate number of shares of Common Stock that may be issued under this Plan, except as contemplated herein; (ii) changes the class of employees eligible to receive Incentive Stock Options; (iii) modifies the restrictions on Repricings set forth in this Plan; or (iv) is required by the terms of any applicable law, regulation or rule, including the rules of any market on which the Corporation shares are traded or exchange on which the Corporation shares are listed. Except as specifically permitted by this Plan, any Stock Option Agreement or any Stock Award Agreement or as required to comply with applicable law, regulation or rule, no amendment shall, without a Participant’s consent, adversely affect any rights of such Participant under any Option or Stock Award outstanding at the time such amendment is made; provided, however, that an amendment that may cause an Incentive Stock Option to become a Nonqualified Stock Option shall not be treated as adversely affecting the rights of the Participant. Any amendment requiring stockholder approval shall be approved by the stockholders of the Corporation within twelve (12) months of the date such amendment is adopted by the Board.

 

14. Effective Date of Plan; Duration of Plan

 

A.           This Plan shall be effective upon adoption by the Board, subject to approval within twelve (12) months by the stockholders of the Corporation. Unless and until the Plan has been approved by the stockholders of the Corporation, no Option or Stock Award may be exercised, no shares of Common Stock may be issued under this Plan. In the event that the stockholders of the Corporation shall not approve the Plan within such twelve (12) month period, the Plan and any previously granted Options or Stock Awards shall terminate.

 

B.           Unless previously terminated, this Plan will terminate ten (10) years after the earlier of (i) the date this Plan is adopted by the Board, or (ii) the date this Plan is approved by the stockholders, except that Awards that are granted under this Plan prior to its termination will continue to be administered under the terms of this Plan until the Awards terminate, expire or are exercised.

 
 

 

IN WITNESS WHEREOF , the Corporation has caused this Plan to be executed by a duly authorized officer as of the date of adoption of this Plan by the Board of Directors.

 

MASSROOTS, INC.

 

By: /s/ Isaac Dietrich    
  Isaac Dietrich    
  Cheif Executive Officer    

 

 

 

 

Exhibit 10.13

LEAK-OUT AGREEMENT

 

 

This LEAK-OUT AGREEMENT supercedes any and all other agreements whether in writing or orally communicated between MassRoots, Inc., a Delaware corporation (the “Company”), and Dutchess Opportunity Fund II LP, a Delaware limited partnership, 50 Commonwealth Ave., Suite 2, 02116, and its affiliates and related parties (herein referred to as the “Holder”).

 

March 18, 2014

MassRoots, Inc.

6525 Gunpark Drive,

Ste 370 #150

Boulder, CO 80301



Ladies and Gentlemen:

In consideration for the issuance of the shares of the Company’s common stock (“Common Stock”), for other good and valuable consideration, receipt of which is hereby acknowledged, the Holder hereby agrees for a period of six (6) months after the date of this Agreement (“Leak-Out Period”), not to publicly or privately offer to sell, contract to sell or otherwise sell, dispose of, loan, gift, donate, hypothecate, pledge or grant any rights with respect to (collectively, a "Disposition") 6,425,000 shares of common stock underlying those certain Warrants issued to Holder on or about the date hereof ("Warrant Shares"), now owned or hereafter acquired directly by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, otherwise than (i) as provided by the Leak-Out provision below or (ii) with the prior written consent of the Company’s board of directors. Subsequent to the Leak-Out Period, the Holder may effectuate any Disposition of the Warrant Shares with limitation.

During the Leak-Out Period but beginning the sooner of: (i) the applicability of the transferability exemption pursuant to Rule 144 taking effect on the Warrant Shares, or (ii) immediately upon the effectiveness of a registration statement as declared by the U.S. Securities and Exchange Commission, in which the Warrant Shares have been registered, the Holder shall have the right to effect open market sales of the Warrant Shares as outlined below:

 

Market Price (per share) Volume Limitation
  (based of prior three days average volume)
At or below $.10 No trading permitted
Above $.10 or at or below $.15 10%
Above $.15 or at or below $.20 15%
Above $.20 or at or below $.25 20%
Above $.25 No limit
   

[ Signatures on Following Page ]

 
 

 

 

Very truly yours,

 

Dutchess Opportunity Fund II LP

 

 

/s/ Douglas Leighton __________________

Douglas Leighton, Managing Partner

 

 


Accepted as of the date first set forth above:

By: MassRoots, Inc.

 

 

 

/s/ Isaac Dietrich _____________________

Isaac Dietrich, CEO

 

CONSULTING AGREEMENT

 

 

This Agreement is made this 1 day of May, 2014, by and between MassRoots Inc. , a corporation organized and existing under the laws of the State of Delaware (the “Company”) and JDE Development LLC a limited liability company organized and existing under the laws of the State of Florida (the “Consultant”).

 

WHEREAS, the Company desires that the Consultant provide it with financial consulting services and act in the capacity as its Chief Financial Officer (“CFO”), and;

 

WHEREAS, the Consultant desires to provide such services to the Company under the terms and conditions of this Agreement;

 

NOW, THEREFORE, the Company and the Consultant hereby agree as follows:

 

  1. The “Services” .

 

It is understood that Consultant is to provide the Company; (i) with guidance and assistance of its general record keeping, accounting, forecasting, budgeting, quarterly reviews and annual audit, as prescribed by the U.S. Securities and Exchange Commission (“SEC”), and (ii) in the preparation of its required SEC filings, which include but are not limited to, Forms 10Q, 10K and 8K, and (iii) formal certification of the Company’s financial statements and other SEC filings, as the Company’s CFO, where or when required. To that end, the Company shall provide Consultant with accurate, unbiased, timely and sufficient information for the Consultant to review the subject matter thereof, and shall promptly provide further information that the Consultant reasonably deems relevant to performing the Services.

 

  1. Compensation and reimbursement .

 

In consideration of the Services to be provided by Consultant to the Company hereunder, the Company shall pay to Consultant a cash retainer of two-thousand dollars ($2,000) per month, payable by the tenth (10 th ) day following the beginning of each month, commencing with the initial payment on or before May 10 th , 2014.

 

Further, the Company shall issue to the Consultant, one-hundred thousand (100,000) shares of its fully-paid and non-assessable restricted common stock (“Comp Stock”). The Comp Stock may be sold any time, only after the one year anniversary from the date of this Agreement (“Anniversary”). Prior to the Anniversary, the Consultant may not, offer, sell, contract to sell, pledge, give, donate, transfer or otherwise dispose of, directly or indirectly, any shares of the Comp Stock. The Company shall issue a certificate for the Comp Stock to the Consultant, within ten (10) days of this Agreement.

 

In addition, the Company shall reimburse Consultant for reasonable travel and other expenses Consultant incurs in connection with performing the Services. To obtain reimbursement, Consultant shall have received prior written authorization of the estimated expenses to be incurred, and following the occurrence of pre-approved expenses, submit to the President of the Company, or his or her designee, an invoice describing services rendered and expenses incurred under this Agreement. Company shall provide any documentation requirements and any travel policy restrictions to Consultant in writing in advance, or be foreclosed from relying on such requirements and restrictions to deny reimbursement. The Company shall pay to Consultant invoiced amounts within thirty (30) days after the date of invoice. Company will accommodate Consultant’s request to arrange, at Company’s expense, for all of Consultant’s travel and accommodations in connection with the Services.

 

  1. Independent contractor status .

 

The parties agree that this Agreement creates an independent contractor relationship, not an employment relationship. The Consultant acknowledges and agrees that the Company will not provide the Consultant with any employee benefits, including without limitation any employee stock purchase plan, social security, unemployment, medical, or pension payments, and that income tax withholding is Consultant’s responsibility. In addition, the parties acknowledge that neither party has, or shall be deemed to have, the authority to bind the other party.

 

  1. Indemnification .

 

Notwithstanding any other term of this Agreement, the Company agrees to indemnify and hold harmless Consultant and its affiliates and the respective officers, directors, agents, representatives and employees of Consultant and its affiliates, and each other person or entity controlling Consultant or any of its affiliates (collectively, the "Indemnified Parties"), from and against any claim, liability, cost, damage, deficiency, loss, expense or obligation of any kind or nature (including without limitation reasonable attorneys’ fees and other costs and expenses of litigation) incurred by or imposed upon the Indemnified Parties or any one of them in connection with any claims, suits, actions, demands or judgments arising out of this Agreement . The Company will also promptly reimburse any Indemnified Party for all expenses (including the reasonable fees, disbursements and other charges of legal counsel) as incurred in connection with any claim, liability, cost, damage, deficiency, loss, expense or obligation of any kind or nature, all to the extent that such expenses relate to indemnifiable claims hereunder. Notwithstanding the foregoing, the Company shall not be liable for indemnification under this paragraph to the extent that any such loss, claim, damage, or liability results from the Consultant’s bad faith or gross negligence.

 

  1. Confidentiality .

 

No advice rendered by Consultant pursuant to this Agreement may be disclosed publicly in any manner without Company’s prior written approval, except as may be required by law, regulation or court order but subject to the limitation below. If the Consultant is required or reasonably expects to be so required to disclose any advice, the Consultant shall provide Company with prompt notice thereof so that Company may seek a protective order or other appropriate remedy and take reasonable efforts to assure that all of such advice disclosed will be covered by such order or other remedy. Whether or not such a protective order or other remedy is obtained, the Company will and will cause its affiliates to disclose only that portion of such advice which the Company is so required to disclose. All Information, whether oral or written, will be kept confidential by Consultant and will not be used other than in connection with the performance of Consultant’s service; provided however, that Information may be disclosed by Consultant if (a) such Information is or becomes public other than as a result of disclosure by Consultant or any affiliate or employee of Consultant, (b) the Company agrees in writing that such information may be disclosed, (c) Consultant is required to disclose by applicable law, regulation or legal process, provided that if Consultant is required or reasonably expects to be so required to disclose any Information, Consultant shall provide the Company with prompt notice thereof so that the Company may seek a protective order or other appropriate remedy and take reasonable efforts to assure that all of the Information disclosed will be covered by such order or other remedy, (d) was available to Consultant on a non-confidential basis prior to its disclosure by the Company or (e) becomes available to Consultant on a non-confidential basis from a person other than the Company or a representative of the Company who is not known to Consultant to be otherwise bound by a confidentiality agreement with the Company or subject to confidentiality restrictions with respect to the Information.

 

Upon termination of the Agreement, or any other termination of Consultant’s services for the Company, all records and other documents pertaining to any Confidential Information of the Company, whether prepared by Consultant or others shall be returned to the Company, except Consultant may keep one copy of all documents for his or her files (which copy shall be subject to the confidentiality and non-use requirements set out in this Agreement).

 

  1. Term .

 

This Agreement shall remain in effect from the date of this Agreement until the Anniversary. This Agreement may be terminated by either party, with cause, upon ten (10) days prior written notice to the other. Upon termination of this Agreement for any reason, Consultant shall be entitled to receive such compensation and reimbursement, if any, accrued under the terms of this Agreement, but unpaid, as of the date Consultant ceases work under this Agreement.

 

7.       Representations, Warranties and Covenants of the Company .

 

The Company represents and warrants to, and covenants with, Consultant that it has full corporate power and authority to execute and deliver this Agreement on behalf of itself and its affiliates and to perform its obligations hereunder, and all consents, authorizations, approvals and orders required in connection with the execution, delivery and performance hereof have been obtained. This Agreement is a valid and binding obligation of the Company, enforceable in accordance with its terms, except to the extent that the enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors generally and general principles of equity. The execution, delivery and performance of this Agreement will not conflict with, result in a breach of any of the terms or provisions of, or constitute a violation or a default under any material agreement or instrument to which the Company is a party or by which the Company is bound.

 

8.       Survival of Certain Provisions .

 

The parties understand that Company's obligations set forth in Section 2 to pay Consultant cash retainer, Comp Stock and expense reimbursement (but only to the extent such fees, compensation and reimbursement amounts have accrued prior to the termination of this Agreement) and Section 4 to indemnify Consultant shall remain operative and in full force and effect regardless of (i) any withdrawal or termination of this Agreement, (ii) any investigation made by or on behalf of Consultant and (iii) any termination or the completion or expiration of this Agreement or Consultant’s engagement hereunder

 

  1. Miscellaneous .

 

(a)     Governing Law. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY IN SUCH STATE. Each party hereto hereby irrevocably submits for purposes of any action arising from this Agreement brought by the other party hereto to the exclusive jurisdiction of the Federal and/or State courts located in Kent County, Delaware.

 

(b)    Entire Agreement . This Agreement embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof.  If any provision of this Agreement is determined to be invalid or unenforceable in any respect, such determination will not affect such provision in any other respect or any other provision of this Agreement, which will remain in full force and effect.  This Agreement may not be amended or otherwise modified or waived except by an instrument in writing signed by both Consultant and the Company.

 

(c)     Any notice or other communication by one party to the other hereunder shall be in writing and shall be given, and be deemed to have been given, if either hand delivered or mailed, postage prepaid, certified mail (return receipt requested), or transmitted by facsimile, addressed as follows:

 

 

 

If to Consultant:

 

JDE Development LLC

ATTN: Jesus Quintero

16860 SW 1st Street,

Pembroke Pines, FL 33027

Ph (305) 450-5222

 

If to the Company:

 

MassRoots, Inc.

ATT: Isaac Dietrich

6525 Gunpark Drive, Ste. 370 #150

Boulder, CO 80301

Ph (720) 442-0052

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above.

 

 

 

 

MASSROOTS, INC.

 

 

/s/ Isaac Dietrich ______________________________

By: Isaac Dietrich

Title: President & CEO

 

 

JDE DEVELOPMENT LLC

 

 

/s/ Jesus Quintero ______________________________

By: Jesus Quintero

Title: President

 

 

 

 

EXHIBIT 23.1

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the use in this Registration Statement on Form S-1 of our report dated March 18, 2014 relating to the financial statements of MassRoots, Inc.

 

We also consent to the reference to our Firm under the caption "Experts" in the Registration Statement.

 

/s/ Bongiovanni & Associates, PA

Bongiovanni & Associates, PA

June 13, 2014