Exhibit 99.31
AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER (this “Amendment”) is made effective as of January 9, 2020, by and among Michicann Medical Inc., Mid-American Growers, Inc., RWB Acquisition Sub, Inc. and Arthur VanWingerden and Ken VanWingerden, as Sellers.
BACKGROUND
WHEREAS, the parties entered into that certain Agreement and Plan of Merger, dated as of October 9, 2019, as amended by that Amendment No. 1 to Agreement and Plan of Merger dated as of November 1, 2019 (as amended, the “Merger Agreement”); and
WHEREAS, the parties desire to amend certain terms and conditions of the Merger Agreement as set forth herein in accordance with the terms of Section 11.4 of the Merger Agreement and to provide for the joinder of certain additional parties to the Merger Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Waiver of RTO Closing Condition.
a. In exchange for the amendments to certain terms and conditions of the Merger Agreement as set forth herein, each of Buyer and Sellers hereby waives the closing condition set forth in Section 7.3(b) that requires completion of the RTO prior to Closing.
2. Hemp Operations Payable
a. Section 7.3(c) of the Merger Agreement is hereby deleted and replaced as Section 7.1(p) of the Merger Agreement as follows:
(p) Sellers shall provide evidence satisfactory to Buyer that the Hemp Operations Payable has been paid or satisfied by the Company in full prior to Closing.
b. Section 9.6 of the Merger Agreement is hereby amended and restated in its entirety as follows:
Hemp Operations Payable. Prior to Closing, the Sellers will cause the Company to pay in full or otherwise satisfy the Hemp Operations Payable and terminate that certain confirmation of payable agreement dated October 9, 2019, so that as of Closing, the Company shall not owe any payables or any other amounts or obligations to NZ Newco, LLC, a Kentucky limited liability company (“NZ”). Evidence of such payment or other satisfaction of the Hemp Operations
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Payable shall include, without limitation, acknowledgment by NZ in a separate letter agreement that such payable is deemed satisfied and the Company no longer owes any such amounts or obligations to NZ or its affiliates and the letter agreement is deemed terminated with no further force or effect. Without limiting the foregoing, but for the avoidance of doubt, the Hemp Operations Payable is an Excluded Liability that shall not remain a Company obligation following the Closing.
c. Section 10.1(f) of the Merger Agreement is hereby amended and restated in its entirety as follows:
(f) any Excluded Liabilities (including the Hemp Operations Payable);
3. Amendments Relating to Merger Consideration.
a. Section 2.2 of the Merger Agreement is hereby amended and restated in its entirety as follows:
(a) Within two (2) Business Days of execution of this Agreement, Buyer shall pay to Sellers a cash payment equal to $5,000,000 and (ii) on or around November 1, 2019, Buyer shall pay to Sellers a cash payment equal to $1,000,000 (together, the payments under clauses (i) and (ii), the “Deposit”), which Deposit shall be applied toward the Aggregate Purchase Price at Closing, or should the Closing not occur and this Agreement is terminated, such Deposit shall be fully refundable to Buyer by Sellers in accordance with Section 8.3.
(b) At the Closing, Sellers shall deliver and surrender to Buyer (or to Buyer’s agent) the Certificates formerly representing the issued and outstanding Company Capital Stock.
(c) At the Closing, Buyer shall deliver to the applicable party listed below the following:
(i) to Sellers, a cash payment equal to the Estimated Merger Consideration, minus the Deposit, by wire transfer of immediately available funds in accordance with the distribution schedule and to the account or accounts designated by Sellers on Schedule 2.2, subject to that Letter of Direction to be delivered by Sellers at Closing with respect to Bruce Daniel; and
(ii) At Buyer’s election, Buyer shall cause the refinancing of the Specified Indebtedness in connection with the Closing (or, if permissible, the parties shall cause the Company shall to retain the Specified Indebtedness at the Closing, in either case, Specified Indebtedness shall be deemed paid by Buyer as a result of such refinancing or assumption; and
(iii) Buyer shall pay, or cause to be paid, on behalf of Sellers, the
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Estimated Seller Transaction Expenses by wire transfer of immediately available funds as directed by Sellers.
(iv) [Intentionally Omitted].
(d) [Intentionally Omitted].
(e) Upon Closing, by virtue of this Section 2.2(e), Buyers shall be deemed to have issued to Sellers a non-transferrable, fully paid right (at the time specified below) to receive the shares of RWB Stock (pro rata in accordance with each Seller’s percentage set forth on Schedule 2.2) (the “RWB Stock Issuance Right”), which Stock Issuance Right entitles Sellers to the actual issuance of RWB Stock as follows:
(i) If the RTO will be completed prior to June 1, 2020, immediately prior to completion of the RTO, Buyer shall cause the issuance to Sellers of Michicann Stock in escrow (pro rata in accordance with each Seller’s percentage set forth on Schedule 2.2), without payment of any additional consideration by Sellers, and in connection with the completion of the RTO promptly thereafter, Sellers shall exchange such Michicann Stock for the shares issued in the RTO at the same exchange ratio available to other common stock holders of Michicann Stock, in accordance with the RTO exchange procedures and subject to and conditioned upon Sellers executing a mutually agreeable lock-up escrow agreement with Buyer, which will require a lock-up period expiring no later no later than six (6) months following the Closing Date for all of the RWB Stock (and, in any event, full lock-up in escrow of 20% of the RWB Stock for the later of 12 months after Closing or the date of the closure of the LUST Matter in accordance with this Agreement), and subject to the foregoing, will provide for the release of the RWB Stock to Sellers in accordance with a distribution schedule, with such legends as required by applicable securities laws. Buyer shall deposit directly with the escrow agent all shares of Michicann Stock and upon exchange of such shares in the RTO, all RWB Stock shall be deposited with the escrow agent accordingly.
(ii) If the RTO is not completed prior to June 1, 2020, then on June 1, 2020, (x) Buyer shall deliver to Sellers an aggregate cash payment equal to $5,000,000 by wire transfer of immediately available funds to the account or accounts designated by Sellers on Schedule 2.2 and (y) Buyer shall cause the issuance to Sellers of the shares of Michicann Stock (pro rata in accordance with each Seller’s percentage set forth on Schedule 2.2, as reduced by shares of Michicann Stock deposited in escrow as provided herein), subject to and conditioned upon Sellers and Buyer executing a mutually agreeable lock-up escrow agreement, which will require full lock-up in escrow of 20% of the RWB Stock for the later of 12 months
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after Closing or the date of the closure of the LUST Matter in accordance with this Agreement, and executing a shareholder’s agreement containing a drag-along provision in favor of the controlling shareholders substantially similar to the following:
In the event that shareholders of Michicann holding at least 51% of the issued and outstanding common shares of Michicann (the “Controlling Shareholders”) propose to sell or transfer all of their Common Shares to a third party on a share exchange, amalgamation, plan of arrangement or similar transaction in connection with an initial public offering, reverse takeover, qualifying transaction or other going public transaction involving Michicann or a sale of all of the shares of Michicann (the “Liquidity Event”), the Controlling Shareholders may, subject to compliance with all applicable securities laws, by written notice delivered to the Subscriber (the “Drag Along Notice”) require the Subscriber to transfer the Purchased Shares, and any additional shares of Common Shares which the Subscriber may own, for a consideration that is the same as the consideration per share of Common Shares at which the Controlling Shareholders propose to sell or transfer shares to the third party, all but not less than all the Common Shares owned by such Subscriber (the “Dragged Shares”). The delivery by the Controlling Shareholders of a Drag Along Notice shall bind the undersigned to sell or transfer the Dragged Shares. The date on which the sale or transfer is to close and the other closing arrangements (which shall be the same, mutatis mutandis, as those for the sale or transfer between the Controlling Shareholders and the third party) shall be as specified in the Drag Along Notice. Except as specifically provided for above, the Drag Along Notice shall contain only such terms and conditions, if any, as are identical to those pursuant to which the Controlling Shareholders propose to sell or transfer to the third party. This drag along shall terminate upon the earlier of (i) there being one beneficial owner of all of the shares of Michicann; and
(ii) the date of closing of the Liquidity Event.
Buyer shall deposit directly with the escrow agent all shares of Michicann Stock subject to such escrow arrangement.
(iii) Except as otherwise specifically provided in clauses (i) and (ii) above, prior to the issuance to Sellers of the RWB Stock, Sellers shall not be entitled to vote or receive dividends or be deemed the holder of shares of capital stock of Michicann or its successor in the RTO for any purpose, nor shall anything contained in the RWB Stock Issuance Right be construed to confer upon any Seller any of the rights of a shareholder of Michicann or its successor in the RTO or any right to vote, give or
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withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise. Notwithstanding the foregoing, Michicann shall provide the Sellers with copies of the same notices and other information given to the shareholders of Michicann generally, contemporaneously with the giving thereof to the shareholders. Sellers acknowledge the RWB Stock Issuance Right is not transferrable by Sellers. Without limiting the foregoing, Sellers further acknowledge and agree that the RWB Stock Issuance Right and the RWB Stock is not and at the time of issuance will not be registered under the Securities Act of 1933, as amended, or any state securities laws, and may not be transferred or sold except pursuant to the registration provisions of the Securities Act of 1933, as amended, or pursuant to an applicable exemption therefrom and subject to state securities laws and regulations, as applicable. The RWB Stock will be issued with such legends as required by applicable securities laws.
b. Section 2.6(i) (Lock-Up Escrow Agreements) in the Merger Agreement is hereby amended and restated in its entirety as follows: [Intentionally Omitted]
c. Section 5.4 of the Merger Agreement is hereby amended and restated as follows: “Upon issuance in accordance with this Agreement, the RWB Stock will be duly and validly issued, outstanding as fully paid and non-assessable.”
d. Section 11.9 of the Merger agreement is hereby amended to add the following new definitions (to be placed in alphabetical order accordingly):
(i) “Lock-Up Escrow Agreements” means those certain escrow agreements executed by the Sellers in form mutually agreeable to Buyer and Sellers as contemplated by Section 2.2(e).
(ii) “Michicann Stock” means 17,133,600 shares of common stock in Michicann (which is an aggregate number of shares of such common stock equal to the quotient of $64,900,000, multiplied by a 1.32 exchange rate, and then divided by the Fixed Stock Price).
e. Certain definitions in Section 11.9 of the Merger agreement are hereby amended and restated as follows:
“Cash Consideration” means $7,100,000.
“RWB Stock” means the Michicann Stock, unless and until it is exchanged by Sellers for stock in the RTO as contemplated by and in accordance with this Agreement, at which point, RWB Stock means the class of stock of Michicann’s successor to be listed on the Canadian
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Securities Exchange or other similar exchange following completion of the RTO.
f. The terms (and related definitions) of “Post-Closing Cash Consideration” and “Stock Consideration in the Merger agreement are deleted in their entirety.
4. Amendments Relating to Milestone Payment and Earn-Out Payment.
a. Section 2.4 of the Merger Agreement is hereby amended and restated in its entirety as follows:
(a) Milestone Payment.
(i) So long as Sellers have used commercially reasonable efforts to assist Buyer and the Company in achieving the Milestone Event, subject to offset under Section 10.8, (i) Buyer shall issue to Sellers an aggregate 2,640,000 additional shares of Michicann Stock (which is an aggregate number of shares of such common stock equal to the quotient of $10,000,000, multiplied by a 1.32 exchange rate, and then divided by the Fixed Stock Price), subject to applicable escrow agreements (the “Milestone Payment”), and (ii) only if the Milestone Event is achieved during calendar year 2020, Buyer shall pay to Sellers in the aggregate an additional $5,000,000 cash payment (the “Additional Milestone Payment”), upon the achievement by or on behalf of Buyer and the Company of the following (the “Milestone Event”):
If by the date which is twelve (12) months following the Closing, the State of Illinois Department of Agriculture and/or such other applicable regulatory authorities (acceptable to Buyer) shall have issued to the Company a commercial cultivation center license for the Illinois Facility, which license permits a minimum of 200,000 square feet of cultivation of cannabis products, including the packaging and processing of cannabis.
(ii) Buyer shall promptly notify Sellers after the Milestone Event has been achieved. Within five (5) Business Days of notification by Buyer to Sellers of the realization of the Milestone Event (but in no event less than ten (10) days following realization of the Milestone Event), Buyer shall (i) if the RTO is not yet completed at such time, issue the Milestone Payment in Michicann Stock to the account or accounts designated by Sellers on Schedule 2.2, subject to and conditioned upon Sellers executing an escrow agreement, which will require that 20% of such Milestone Payment is held in escrow for the later of 12 months after Closing or the date of the closure of the LUST Matter in accordance with this Agreement, or (ii) if the RTO has previously been completed, issue RWB Stock to Sellers in exchange for the Milestone Payment (which for
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clarity, was 2,640,000 shares of Michicann Stock) at the same exchange ratio that was available to other common stock holders of Michicann Stock upon the original RTO closing, subject to any applicable RTO exchange procedures, and subject to and conditioned upon Sellers executing a mutually agreeable lock-up escrow agreement with Buyer, which will require a lock-up period expiring no later than six (6) months following the Closing Date for all of the RWB Stock so issued (and, in any event, full lock-up in escrow of 20% of the RWB Stock for the later of 12 months after Closing or the date of the closure of the LUST Matter in accordance with this Agreement), and subject to the foregoing, will provide for the release of the RWB Stock to Sellers in accordance with a distribution schedule, with such legends as required by applicable securities laws. Buyer shall deposit directly with the escrow agent all shares of Michicann Stock or RWB Stock, as applicable, with the escrow agent accordingly in connection with realization of the Milestone Event. Additionally, if the Milestone Event is achieved in accordance with this Agreement during calendar year 2020, Buyer shall also pay to Sellers the Additional Milestone Payment by wire transfer in immediately available funds during the time period set forth above.
(iii) Upon Buyer’s payment of the Milestone Payment and any applicable Additional Milestone Payment, if any, all amounts due by Buyer under this Agreement with respect to the Milestone Event will be deemed paid in full.
(v) The right of Sellers to receive the Milestone Payment and Additional Milestone Payment (i) is solely a contractual right and is not a security for purposes of any federal or state securities Laws, (ii) will not be represented by any form of certificate or instrument, (iii) does not give Sellers any equityholder rights, including, without limitation, any dividend rights, voting rights, liquidation rights, preemptive rights or other rights common to holders of Buyer’s equity securities, (iv) is not redeemable and (v) may not be sold, assigned, pledged, gifted, conveyed, transferred or otherwise disposed of (a “Transfer”), except by operation of Law (and any Transfer in violation of this Section 2.4(d) shall be null and void).
(vi) Sellers and Buyer agree to treat and report any Milestone Payment and Additional Milestone Payment as additional consideration for the Company Capital Stock, unless otherwise required pursuant to a “final determination” within the meaning of Section 1313(a) of the Code.
(b) Earn-out.
(i)As additional Final Merger Consideration, so long as Sellers have used commercially reasonable efforts to continue to assist Buyer and the Company to produce and sell Company Hemp Products
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during the Earn-Out Period, subject to Buyer’s holdback and offset rights under Section 10.8, Buyer shall pay to Arthur VanWingerden, Ken VanWingerden and Bruce Daniel, collectively (the “Earn-Out Sellers”), with respect to each Calculation Period within the Earn-Out Period an aggregate amount, if any (each an “Earn-Out Payment”), equal to the product of (x) the Revenue for such Calculation Period multiplied by (y) twenty-three percent (23%).
(ii) During the Earn-Out Period, Buyer will prepare quarterly statements setting forth the calculations necessary to determine the amount of the actual Earn-Out Payments to be paid to such Sellers based on the Company’s fiscal quarters. Buyer shall deliver such statements within 30 days of the end of each corresponding Calculation Period. Each Earn-Out Payment, if any, is due within 45 days after the end of each Calculation Period based on the quarterly statement delivered by Buyer for that fiscal quarter provided the Earn-Out Sellers have provided applicable wire instructions to Buyer.
(iii) The Earn-Out Sellers shall have the right to audit the Company’s relevant books and records to ensure compliance with the terms of this Agreement with respect to the Earn-Out Payments. The audit shall be conducted only by a representative of a nationally recognized independent certified public accounting firm who signs a non-disclosure agreement reasonably acceptable to Buyer. Buyer shall be entitled to 30 days written notice to schedule the audit on a mutually convenient date. The audit shall be conducted during normal business hours in such a manner as not to interfere with normal business activities and shall occur only one time with respect to the Earn-Out Payments. The auditor’s report shall only confirm compliance or noncompliance with the terms of this Agreement with respect to the Earn-Out Payments and shall, in no event, include information considered by Buyer to be confidential. The Earn-Out Sellers shall be responsible for the costs of such audit.
(iv) The Earn-Out Payments are speculative in that Buyer (and the Company, after the Closing) make no representations, warranties, covenants, promises or guarantees as to the level of efforts they will expend in the production, marketing, distribution or sales of the Company Hemp Products. Similarly, Buyer (and the Company, after the Closing) make no representations, warranties, covenants, promises or guarantees as to the amount of resulting Revenue or the amount of any Earn-Out Payments that may be earned by Earn-Out Sellers during the Earn-Out Period. Sellers acknowledge that Buyer may elect not to release the Company Hemp Products for a period of time after Closing. Sellers also acknowledge that Buyer (and the Company, after the Closing) may market and sell the Company Hemp Products at their sole discretion and Buyer (and the Company, after the Closing) may discontinue all production,
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marketing, distribution and sales of the Company Hemp Products during the Earn-Out Period for any or no reason.
(c) Company Operations. Subsequent to the Closing, Buyer and the Company shall have sole discretion with regard to all matters relating to the operation of the Company and the Business; provided, that Buyer shall not, directly or indirectly, take any actions in bad faith that would have the purpose of avoiding the Milestone Payment or Earn-Out Payments hereunder.
b. Section 2.6(h) (Consulting Agreement) of the Merger Agreement is hereby amended and restated in its entirety as follows: [Intentionally Omitted]
c. Section 11.9 of the Merger agreement is hereby amended to add the following new definitions (to be placed in alphabetical order accordingly):
(i) “Company Hemp Products” means any product produced by the Greenhouse at the Illinois Facility that is hemp as defined in the 2018 Farm Bill or the Illinois 2019 Industrial Hemp Act.
(ii) “Earn-Out Period” means the period from April 1, 2020 through March 31, 2021.
(iii) “Revenue” means, with respect to any Calculation Period, the net amount of revenue attributable to the Company Hemp Products that are produced, sold and for which payment has been received by the Company, as recognized by Buyer and the Company in accordance with then-existing accounting and corporate policies, less product returns, customer and distributor discounts and excluding amounts invoiced for any other product, shipping, taxes, duties or other similar amounts.
(iii) “Calculation Period” means (a) the period beginning April 1, 2020 and ending on last day of June 2020, and (b) each of the Company’s fiscal quarters ending on September 30, 2020, December 31, 2020 and March 31, 2021, respectively.
2. Amendments Relating to Setoff and Holdback Rights.
a. Section 9.7 of the Merger Agreement is hereby amended and restated in its entirety as follows:
Escrow Agreement. Buyer and Sellers will enter into a mutually agreeable escrow agreement as a condition to the actual issuance of the RWB Stock underlying the RWB Stock Issuance Right as contemplated by Section 2.2(e). Such escrow agreement will include, among other things (as applicable), escrow indemnity provisions with respect to Buyer’s setoff rights against the RWB Stock under Section 10.8 substantially similar to the following:
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(a) Subject to the terms and conditions of the Merger Agreement, in addition to such other lock-up terms, as applicable, the escrow agent will hold in an escrow account (the “Escrow Account”) a number shares of RWB Stock issued to Sellers equal to an aggregate of 20% of all RWB Stock issued to Sellers pursuant to Section 2.2(e) and the RWB Stock issuable in connection with the Milestone Event) (the “Escrowed Property”).
(b) At any time and from time to time on or prior to (i) the twelve (12) month anniversary of the Closing or (ii) the date of closure of the LUST Matter in accordance with the Merger Agreement, whichever is later (the “Escrow Release Date”), if any Buyer Indemnified Party makes a claim for indemnity pursuant to and in accordance with Section 10.1 (a “Claim”), the Buyer Indemnified Party (or Buyer on its behalf) shall deliver to the escrow agent (the “Escrow Agent”) and any Seller a written notice (an “Escrow Notice”) setting forth in reasonable detail the amount, nature, and basis of the Claim by the Buyer Indemnified Party.
(c) If a Seller, in good faith, delivers to the Escrow Agent and Buyer a written objection (a “Dispute Notice”) to any Claim or portion thereof or the amount of such Claim within ten (10) business days following both the Escrow Agent’s and such Seller’s receipt of such Escrow Notice, then the Escrow Agent shall not distribute to Buyer any portion of the Escrow Property in the Escrow Account that is the subject of the Dispute Notice until the Escrow Agent receives either (i) joint written instructions signed by the Sellers and Buyer authorizing the release to Buyer of the portion of the Escrow Property in the Escrow Account that is agreed upon as the amount recoverable in respect of the Dispute Notice or (ii) a final and non-appealable order of any court of competent jurisdiction directing the release to Buyer of the portion of the Escrow Property in the Escrow Account that is determined to be the amount recoverable in respect of the Dispute Notice; provided, that notwithstanding the foregoing, if a Seller objects in part to the amount of the Claim, the Escrow Agent shall, after the lapse of the aforementioned time period, deliver to Buyer an amount from the Escrow Account equal to the portion of the Claim not objected to by such Seller (determined as a number of shares of RWB Stock equal to the quotient of the dollar amount of such undisputed portion of the Claim (multiplied by a 1.32 exchange rate) divided by the Fixed Stock Price. Upon receipt of such joint written instructions or such final and non-appealable order, as the case may be, the Escrow Agent shall release to Buyer such amount of the Escrow Property in the Escrow Account in accordance with such written instructions or final and non-appealable order.
(d) If Seller delivers to the Escrow Agent and Buyer a written notice (a “Cash Election Notice”) within ten (10) business days following both the Escrow Agent’s and such Seller’s receipt of an Escrow Notice, whereby Sellers elect to pay immediately available funds to such Buyer Indemnified Party (in lieu of Escrow Property) to satisfy such Claim, then Escrow Agent shall not release such Escrow Property in connection with such Escrow Notice, so long as Sellers make
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such cash payment in the amount of such Claim to Buyer Indemnified Party and provide evidence of such payment to Escrow Agent within five (5) business days after delivering the Cash Election Notice.
(e) If neither a Dispute Notice nor Cash Election Notice is received by Buyer and the Escrow Agent from Sellers within ten (10) business days after Buyer’s delivery of an Escrow Notice to the Escrow Agent and any Seller, then the entire amount set forth in the Claim shall be deemed valid, conclusive and binding upon Buyer and Sellers, and shall be satisfied by the Escrow Agent from the Escrow Property (or in part, if the Escrow Property is not sufficient to satisfy the Claim in full) on the next business day by return and release of such Escrow Property to Buyer of such number of shares of RWB Stock equal to the quotient of the dollar amount of such Claim identified in the Escrow Notice (multiplied by a 1.32 exchange rate) divided by the Fixed Stock Price.
b. Section 10.8 of the Merger Agreement is hereby amended and restated in its entirety as follows:
(a) Earn-Out Holdback. Buyer shall be entitled to holdback 20% of each Earn-Out Payment, if any, payable to the Earn-Out Sellers for a Calculation Period during the Earn-Out Period (the “Earn-Out Holdback”), as partial security for Losses payable to a Buyer Indemnified Party pursuant to Article X. Subject to the limitations set forth in Article X (including the Basket, the Cap and Environmental Cap), Buyer shall be entitled to satisfy any resulting Losses payable to a Buyer Indemnified Party pursuant to Article X from the Earn-Out Holdback in accordance with clause (b) below. Following (i) the twelve (12) month anniversary of the Closing or (ii) the date of closure of the LUST Matter, whichever is later (the “Holdback Period”) (but no later than 10 business days thereafter), Buyer shall pay to the Earn-Out Sellers any remaining Earn-Out Holdback (that was not previously used as offset by Buyer to satisfy Losses in accordance with clause (b) below), less the estimated amount of any unresolved Claim made by a Buyer Indemnified Party in accordance with Article X prior to expiration of the Holdback Period, which amount may continue to be held by Buyer and applied for offset in accordance with clause (b) below through resolution of such Claim.
(b) Manner of Payment. Subject to the limitations set forth in this Article X (including the Basket, the Cap and Environmental Cap), any Losses payable to a Buyer Indemnified Party pursuant to this Article X shall be satisfied: (i) (A) from the RWB Stock (including shares of RWB Stock to be issued pursuant to the RWB Stock Issuance Right) whether at such time only existing as a contractual RWB Stock Issuance Right under this Agreement or RWB Stock actually held in escrow after issuance directly to the escrow agent pursuant to an applicable lockup escrow agreement or otherwise, (x) prior to the actual issuance of such RWB Stock in accordance with Section 2.2(e) or Section 2.4, as applicable, Buyer shall cancel such number of shares of RWB Stock that would be issued pursuant to the
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RWB Stock Issuance Right determined by dividing the amount of such Loss (multiplied by 1.32 exchange rate) by the Fixed Stock Price (provided such setoff of RWB Stock shall not exceed in the aggregate twenty percent (20%) of the RWB Stock issuable to Sellers under 2.2(e) plus the RWB Stock issuable to Sellers in connection with the Milestone Payment) or (y) after the actual issuance of such RWB Stock directly to the escrow agent in accordance with Section 2.2(e) or Section 2.4, by Buyer requesting return of such RWB Stock to Buyer from the applicable escrow account for cancellation by Buyer (the number of shares of RWB Stock to be returned shall equal the quotient of the dollar amount of such Loss (multiplied by a 1.32 exchange rate) divided by the Fixed Stock Price) (provided such setoff of RWB Stock shall not exceed in the aggregate twenty percent (20%) of the RWB Stock issued to Sellers under Section 2.2(e) plus the RWB Stock issuable to Sellers in connection with the Milestone Payment) and (B) from the Earn-Out Holdback; and (ii) to the extent the amount of Losses exceeds the RWB Stock and Earn-Out Holdback available to the Buyer Indemnified Party for setoff, then directly from the Sellers. Notwithstanding the foregoing, at Sellers’ option (subject to Sellers providing prompt notice of the same to the Buyer Indemnified Party), Sellers may pay immediately available funds to such Buyer Indemnified Party for such Losses in lieu of such Buyer Indemnified Party exercising its setoff rights against the RWB Stock or Earn-Out Holdback under this Section 10.8.
3. Amendments Relating to Pre-Closing Restructuring Transactions and Affiliates.
a. The parties acknowledge and agree that the Merger Agreement is hereby generally amended so that (i) references to the Pre-Closing Restructuring Transactions involving RetainCo shall now be references to Color Point, LLC, (ii) the Restructuring Transaction Documents shall be executed between the Company and Color Point, LLC, with Color Point, LLC taking assignment of such assets and assuming all Liabilities of the non-hemp related business and indemnifying the Company, Buyer and Buyer Indemnified Parties for all such Liabilities, and (iii) that such Restructuring Transaction Documents shall survive the transactions contemplated by the Merger Agreement and will inure to the benefit of the Company, Buyer and Buyer Indemnified Parties (as direct parties or third party beneficiaries) following the Closing.
b. Article VI of the Merger Agreement is hereby amended to add the following Section 6.12:
Section 6.12 Affiliate Transactions. Sellers and the Company represent, warrant and confirm that (i) any intercompany arrangements between the Company, on the one hand, and Color Point LLC or any of its affiliates, on the other hand, are terminated and of no further force or effect, except for that certain Transition Services Agreement dated as of October 23, 2019 between the Company and Color Point LLC and that Bill of Sale and Assignment dated July 1, 2019 between the Company and Color Point LLC and the Pre-Closing Restructuring Documents, which agreements
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will remain in effect and survive Closing, and (ii) notwithstanding the foregoing, any intercompany obligations, liabilities or amounts owed to or payable now or in the future by the Company to Color Point LLC or any of its affiliates have been discharged, satisfied, terminated and are of no further force and effect (excluding only Company obligations under the Transition Services Agreement that arise or relate solely to post-Closing operations of the Company). For clarity, such intercompany obligations, liabilities and amounts are Excluded Liabilities under this Agreement, subject to indemnification by Sellers under Article X.
c. The parties acknowledge and agree that in the event the State of Delaware delays or denies the effectiveness of the Merger due to the nature of Merger Sub, Real Estate Buyer or the Company’s business, the parties will use commercially reasonable efforts to re-domicile Merger Sub, Real Estate Buyer and the Company in the State of Illinois.
4. Amendments Relating to Additional Sellers.
a. Section 6.10 of the Merger Agreement is hereby amended and restated in its entirety as follows:
Additional Sellers. It is anticipated that Sellers may transfer a portion of their Company Capital Stock to each of their respective spouses, and the Company may issue shares to Bruce Daniel (“Mr. Daniel”) prior to Closing; provided that the portion of Company Capital Stock issued to Mr. Daniel shall be less than 10% in the aggregate. Sellers shall provide evidence of such transfer satisfactory to Buyer, and each of Grace VanWingerden, Dawn VanWingerden (collectively, the “Additional Sellers”), and Mr. Daniel shall execute a counterpart signature page to this Agreement, whereby he or she will agree to be bound by the terms, conditions and obligations herein and make the representations of Sellers herein as though an original party hereto, and Sellers shall update Schedule 4.4 to reflect such issuance of Company Capital Stock. Sellers contemplate that in connection with the transfer of Company Capital Stock to Mr. Daniel, prior to Closing, the Sellers will make a loan to Mr. Daniel (the “Daniel Loan”), which loan arrangement shall be documented in a form reasonably acceptable to Buyer and on the condition that such Daniel Loan must be paid in full at Closing.
b. Section 7.1 of the Merger Agreement is hereby amended by adding the following clauses (q) and (r):
(q) Payoff of Daniel Loan. The Daniel Loan shall be paid in full at Closing in accordance with a Letter of Direction in a form substantially the same as the attached. Such payoff of the Daniel Loan shall satisfy the Daniel Loan in full or shall otherwise be satisfactory to Buyer.
(r) Stock Valuation. Sellers and the Company shall have delivered to Buyer a valuation report with respect to the Company Capital Stock prepared by Blue and Co. in a form satisfactory to Buyer, provided, however, that Buyer’s acceptance of such valuation shall not (i) indicate Buyer’s acceptance of the conclusions stated therein, (ii) bind Buyer to file any Tax Returns in a manner consistent with such valuation or to defend such valuation in any Tax audit or similar proceeding (provided that Sellers, at their
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cost, may defend such valuation in a Tax Audit or similar proceeding), (iii) preclude Buyer from obtaining a separate valuation of the Company Capital Stock, or (iv) preclude Buyer from causing the Company to file Tax Returns (including amended Tax Returns for pre-Closing Tax periods) reflecting the conclusions in the separate valuation obtained by Buyer; provided that Buyer may only file or cause to be filed such amended returns in connection with a Tax Audit or similar proceeding, after Sellers have been provided a good faith opportunity to defend in good faith Blue and Co.'s valuation. Sellers agree to cooperate with Buyer and its Affiliates in the filing of any amended Tax Returns as required by this Section 7.1(r).
(s) Schedule with Respect To Taxes. Sellers shall have delivered a schedule of any Taxes payable by the Company and Mr. Daniel with respect to the Company’s stock issuance and any bonus payment made to Mr. Daniel under that certain Grant and Cash Bonus Agreement between the Company and Mr. Daniel in accordance with Section 9.9 of this Agreement in a form satisfactory to Buyer; provided, however, that Buyer’s acceptance of such schedule shall not indicate Buyer’s acceptance of the amounts stated therein or limit Buyer’s rights under Section 7.1(r). At Closing, Sellers (including Mr. Daniel) shall deliver to Buyer a certificate (in form satisfactory to Buyer) certifying to Buyer and the Company that all Taxes indicated pursuant to such schedule have been paid in full prior to Closing.
c. The following Section 9.9 is hereby added to the Merger Agreement:
Section 9.9 Taxes on Payments to Mr. Daniel. The Sellers and Mr. Daniel are responsible for any and all Taxes (including, but not limited to any income Taxes, income Tax withholding and employment Taxes) relating to the Company’s stock issuance and any bonus payment made to Mr. Daniel under that certain Grant and Cash Bonus Agreement between the Company and Mr. Daniel. The Sellers and/or Mr. Daniel shall fund such Tax payments prior to or concurrent with the Closing (or, to the extent such funds provided by the Sellers and/or Mr. Daniel are insufficient, upon demand of Buyer), and shall also indemnify the Company and Buyer for all such Taxes (including, without limitation, any Taxes imposed as a result of any amended Tax Returns filed by the Company in compliance with Section 7.1(r)). The Sellers, Mr. Daniel, the Company, and the Buyer shall agree on the amount of such Taxes prior to the Closing, and the Sellers shall provide a schedule of such Tax calculations in a form satisfactory to Buyer in accordance
14
with Section 7.1(s) of this Agreement.
d. The following clause (iv) is added to Section 10.1(c) of the Merger Agreement:
and (iv) imposed on the Company with respect to any payments or stock issuances to Mr. Daniel described in this Agreement.
5. Amendments Relating to the LUST Matter.
The following Section 9.8 is hereby added to the Merger Agreement:
Sellers have informed Buyer that they do not anticipate needing to conduct further testing or remediation work at the Property after Closing in order to close the LUST Matter pursuant to Section 6.11. In the event that Sellers do require such access to the Property after Closing, Sellers will execute a customary access and indemnity agreement with Buyer and the Company in form reasonably acceptable to Buyer with respect to granting access for such further testing or remediation work to be conducted on the Property for closure of the LUST Matter.
6. Schedule Updates. As of prior to Closing, immediately upon the Additional Sellers joining the Merger Agreement as contemplated by Section 6.10 of the Merger Agreement, Schedule 2.2, Schedule 3.2 and Schedule 4.4 of the Merger Agreement shall be deemed to be amended as provided in the attached amended disclosure schedules and Buyer hereby consents to such amendments pursuant to Section 6.5.
7. Affirmation. This Amendment is to be read and construed with the Merger Agreement as constituting one and the same agreement. Except as specifically modified by this Amendment, all remaining provisions, terms and conditions of the Merger Agreement shall remain in full force and effect in accordance with their terms.
8. Defined Terms. All terms not herein defined shall have the meanings ascribed to them in the Merger Agreement.
9. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. Further, the parties agree that this Amendment may be executed and delivered by facsimile or e-mail transmission.
10. Entire Agreement. This Amendment, together with the Merger Agreement, constitutes the entire agreement of the parties with respect to the subject matter hereof and may not be amended or waived except as set forth in writing.
[Signature Page to Follow]
15
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 and Joinder to Agreement and Plane of Merger effective as of the date first written above.
BUYER: MICHICANN MEDICAL INC.
By: “Michael Marchese” Name: Michael Marchese Title: President
MERGER SUB: RWB ACQUISITION SUB, INC.
By: “Michael Marchese” Name: Michael Marchese Title: President
(Signature Page to Amendment No.2 to Agreement and Plan of Merger)
(Signature Page to Amendment No.2 to Agreement and Plan of Merger)
Schedule 2.2
Closing Distributions and Payments
For purposes of the cash payment payable pursuant to Section 2.2(b)(i):
|
Payee
|
$ Portion
|
Address
|
Wire Transfer Instructions
|
|
Arthur VanWingerden
|
$141,317.815
|
(REDACTED)
|
(REDACTED)
|
|
Kenneth VanWingerden
|
$141,317.815
|
(REDACTED)
|
(REDACTED)
|
|
Dawn VanWingerden
|
$141,317.815
|
(REDACTED)
|
(REDACTED)
|
|
Grace VanWingerden
|
$141,317.815
|
(REDACTED)
|
(REDACTED)
|
|
Bruce Daniel
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$100,000.00
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(REDACTED)
|
(REDACTED)
|
For other payments or RWB Stock issuances under the Merger Agreement:
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Payee
|
Pro Rata Percentage
|
Address
|
Wire Transfer Instructions
|
|
Arthur VanWingerden
|
24.35%
|
(REDACTED)
|
(REDACTED)
|
|
Kenneth VanWingerden
|
24.35%
|
(REDACTED)
|
(REDACTED)
|
|
Dawn VanWingerden
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24.35%
|
(REDACTED)
|
(REDACTED)
|
|
Grace VanWingerden
|
24.35%
|
(REDACTED)
|
(REDACTED)
|
|
|
|
|
|
|
Bruce Daniel
|
2.6%
|
(REDACTED)
|
(REDACTED)
|
This Schedule 2.2 is subject to that Letter of Direction to be delivered to Buyer by Arthur VanWingerden and Kenneth VanWingerden with respect to Bruce Daniel at or prior to Closing.
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO THE AGREEMENT AND PLAN OF MERGER (this “Amendment”) is made effective as of November 1, 2019, by and among Michicann Medical Inc., Mid-American Growers, Inc., RWB Acquisition Sub, Inc. and Arthur VanWingerden and Ken VanWingerden, the sellers.
BACKGROUND
WHEREAS, the parties entered into that certain Agreement and Plan of Merger, dated as of October 9, 2019 (as amended, the “Merger Agreement”); and
WHEREAS, the parties desire to amend certain terms and conditions of the Merger Agreement as set forth herein in accordance with the terms of Section 11.4 of the Merger Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Amendments to the Merger Agreement.
a. Section 2.2(a) of the Merger Agreement is hereby deleted and replaced by the following:
“(i) Within two (2) Business Days of execution of this Agreement, Buyer shall pay to Sellers a cash payment equal to $5,000,000 and (ii) on or around November 1, 2019, Buyer shall pay to Sellers a cash payment equal to $3,000,000 (together, the payments under clauses (i) and (ii), the “Deposit”), which Deposit shall be applied toward the Aggregate Purchase Price at Closing, or should the Closing not occur and this Agreement is terminated, such Deposit shall be fully refundable to Buyer by Sellers in accordance with Section 8.3.”
b. Section 8.1(d) of the Merger Agreement is hereby amended by replacing the date “October 31, 2019” with the date “December 31, 2019.”
2. Affirmation. This Amendment is to be read and construed with the Merger Agreement as constituting one and the same agreement. Except as specifically modified by this Amendment, all remaining provisions, terms and conditions of the Merger Agreement shall remain in full force and effect in accordance with their terms. The parties acknowledge that Buyer previously paid to Sellers the $5,000,000 portion of the Deposit referenced above.
3. Defined Terms. All terms not herein defined shall have the meanings ascribed to them in the Merger Agreement.
4. Counterparts. This Amendment may be executed in one or more counterparts, each of
1
which shall be deemed to be an original but all of which together shall constitute one and the same instrument. Further, the parties agree that this Amendment may be executed and delivered by facsimile or e-mail transmission.
5. Entire Agreement. This Amendment, together with the Merger Agreement, constitutes the entire agreement of the parties with respect to the subject matter hereof and may not be amended or waived except as set forth in writing.
[Signature Page to Follow]
2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.1 effective as of the date first written above.
3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.1 effective as of the date first written above.
4
EXECUTION VERSION
________________________________________________________________
AGREEMENT AND PLAN OF MERGER
by and among
MICHICANN MEDICAL INC.,
MID-AMERICAN GROWERS, INC.,
RWB ACQUISITION SUB, INC.,
and T
HE SELLERS PARTY HERETO
October 9, 2019
________________________________________________________________
1
TABLE OF CONTENTS
ARTICLE I. THE MERGER .....................................................................................................2
1.1. The Merger...............................................................................................................2
1.2. Conversion of Shares ...............................................................................................3
1.3. Dissenters’ Rights. ...................................................................................................4
1.4. Estimated Closing Statement ...................................................................................4
1.5. Purchase Price..........................................................................................................5
ARTICLE II. CLOSING; PAYMENT OF CONSIDERATION; CLOSING DELIVERABLES......................................................................................................................... 5
2.1. Closing .....................................................................................................................5
2.2. Aggregate Purchase Price Distributions and Payments ...........................................5
2.3. Post-Closing Cash Adjustments. ..............................................................................6
2.4. Consulting Payment.................................................................................................7
2.5. Tax Withholding ......................................................................................................8
2.6. Closing Deliveries of Sellers ...................................................................................8
2.7. Closing Deliveries of Buyer and Merger Sub........................................................11
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLERS............................11
3.1. Authority................................................................................................................11
3.2. Title to Company Capital Stock .............................................................................11
3.3. Noncontravention...................................................................................................11
3.4. Litigation ................................................................................................................12
3.5. Investment..............................................................................................................12
ARTICLE IV. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY.............................................................................................................................. 13
4.1. Authority................................................................................................................13
4.2. Organization and Qualification of the Company...................................................13
4.3. Noncontravention...................................................................................................13
4.4. Capitalization; Title to Company Capital Stock ....................................................14
4.5. Absence of Certain Developments.........................................................................14
4.6. Compliance with Applicable Laws........................................................................16
4.7. Financial Statements. .............................................................................................16
4.8. Assets. ....................................................................................................................17
4.9. Taxes ......................................................................................................................18
4.10. Contracts. ..............................................................................................................20
4.11. Real Property. ........................................................................................................21
4.12. Litigation ................................................................................................................22
4.13. Intellectual Property...............................................................................................23
4.14. Insurance Policies .................................................................................................24
4.15. Licenses and Permits..............................................................................................24
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4.16. Welfare and Benefit Plans. ....................................................................................24
4.17. Health, Safety and Environment ............................................................................26
4.18. Employees..............................................................................................................26
4.19. Affiliate Transactions.............................................................................................27
4.20. Books and Records ................................................................................................27
4.21. Broker Fees ............................................................................................................27
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB 28
5.1. Organization ...........................................................................................................28
5.2. Authorization .........................................................................................................28
5.3. Noncontravention...................................................................................................28
5.4. Capitalization .........................................................................................................29
5.5. Brokers or Finders..................................................................................................29
ARTICLE VI. COVENANTS PRIOR TO CLOSING ................................................................30
6.1. General...................................................................................................................30
6.2. Notices and Consents.............................................................................................30
6.3. Conduct of Business by the Parties........................................................................30
6.4. Access ....................................................................................................................31
6.5. Schedule Updates...................................................................................................31
6.6. Notice of Material Developments..........................................................................31
6.7. Exclusivity .............................................................................................................31
6.8. Tax Covenant .........................................................................................................32
6.9. Pre-Closing Restructuring Transactions ................................................................32
6.10. Additional Seller ....................................................................................................32
6.11. Open LUST File.....................................................................................................32
ARTICLE VII. CONDITIONS TO CLOSING ...........................................................................33
7.1. Conditions to Buyer’s and Merger Sub’s Obligations ...........................................33
7.2. Conditions to the Company’s and Sellers’ Obligations .........................................35
7.3. Mutual Conditions to the Parties’ Obligations.......................................................36
ARTICLE VIII. TERMINATION...............................................................................................36
8.1. Termination ............................................................................................................36
8.2. Effect of Termination.............................................................................................37
8.3. Return of Deposit...................................................................................................37
ARTICLE IX. POST-CLOSING COVENANTS ........................................................................37
9.1. Tax Matters. ...........................................................................................................37
9.2. Restrictive Covenants. ...........................................................................................40
9.3. Further Assurances.................................................................................................42
9.4. Release. ..................................................................................................................42
ii
9.5. Company Name .....................................................................................................44
9.6. Hemp Operations Payable......................................................................................44
9.7. Consulting Shares ..................................................................................................44
ARTICLE X. INDEMNIFICATION ......................................................................................44
10.1. Indemnification by the Sellers ...............................................................................44
10.2. Indemnification by Buyer ......................................................................................45
10.3. Third Party Claims................................................................................................46
10.4. Direct Claims .........................................................................................................47
10.5. Failure to Give Timely Notice ...............................................................................47
10.6. Survival of Representations and Warranties..........................................................47
10.7. Certain Limitations and Exceptions.......................................................................48
10.8. Manner of Payment................................................................................................49
10.9. Allocation of Indemnification Payments ...............................................................49
ARTICLE XI. MISCELLANEOUS.............................................................................................49
11.1. Notices, Consents, Etc ...........................................................................................49
11.2. Public Announcements ..........................................................................................50
11.3. Severability ............................................................................................................50
11.4. Amendment and Waiver ........................................................................................50
11.5. Counterparts...........................................................................................................51
11.6. Expenses ................................................................................................................51
11.7. Headings ................................................................................................................51
11.8. Assignment ............................................................................................................51
11.9. Definitions..............................................................................................................51
11.10. Entire Agreement...................................................................................................58
11.11. Third Parties ...........................................................................................................58
11.12. Interpretative Matters.............................................................................................58
11.13. Knowledge .............................................................................................................58
11.14. No Strict Construction ...........................................................................................59
11.15. Jurisdiction and Governing Law............................................................................59
11.16. Service of Process..................................................................................................59
11.17. WAIVER OF JURY TRIAL..................................................................................59
11.18. Schedules ...............................................................................................................59
11.19. Consent and Waiver...............................................................................................60
11.20. Special Rule for Fraud ...........................................................................................60
11.21. Specific Performance.............................................................................................60
iii
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EXHIBITS AND SCHEDULES
|
|
Exhibits:
|
|
|
Exhibit A
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Pre-Closing Restructuring Transactions
|
|
Exhibit B
|
Form of Real Estate Purchase Agreement
|
|
Schedules:
|
|
|
Schedule 2.2
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Closing Distributions and Payments
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|
Schedule 2.6
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Third Party Consents
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|
Schedule 3.2
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Title to Company Capital Stock
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|
Schedule 3.3
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Noncontravention
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|
Schedule 4.2
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Organization and Qualification of the Company
|
|
Schedule 4.3
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Noncontravention
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|
Schedule 4.4
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Capitalization; Title to Company Capital Stock
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|
Schedule 4.5
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Absence of Certain Developments
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|
Schedule 4.6
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Compliance with Applicable Laws
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|
Schedule 4.7
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Financial Statements
|
|
Schedule 4.7(e)
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Indebtedness
|
|
Schedule 4.8
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Assets
|
|
Schedule 4.9
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Taxes
|
|
Schedule 4.9(j)
|
Tax Returns
|
|
Schedule 4.10
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Contracts
|
|
Schedule 4.11
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Real Property
|
|
Schedule 4.12
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Litigation
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|
Schedule 4.13
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Intellectual Property
|
|
Schedule 4.14
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Insurance Policies
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|
Schedule 4.15
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Licenses and Permits
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|
Schedule 4.16
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Welfare and Benefit Plans
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|
Schedule 4.17
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Health, Safety and Environment
|
|
Schedule 4.18
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Employees
|
|
Schedule 4.19
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Affiliate Transactions
|
|
Schedule 4.21
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Broker Fees
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|
Schedule 5.4
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Capitalization
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|
Schedule 5.6
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Compliance with Applicable Laws
|
|
Schedule 5.7
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Financial Statements
|
|
Schedule 10.1(g)
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Specific Indemnity Items
|
iv
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”) is entered into as of October 9, 2019, by and among Mid-American Growers, Inc., a Delaware corporation (the “Company”), Michicann Medical Inc. (“Buyer” or “Michicann”), RWB Acquisition Sub, Inc., a Delaware corporation and a wholly owned Subsidiary of Buyer (“Merger Sub”), and each of Arthur VanWingerden and Ken VanWingerden (each a “Seller” and together, the “Sellers”).
PREAMBLE
WHEREAS, Sellers own all of the issued and outstanding Equity Interests of the Company.
WHEREAS, the Company is engaged in the business in the State of Illinois of large scale outdoor farming and indoor greenhouse cultivation facilities, including hemp cultivation and processing (the “Business”).
WHEREAS, prior to the Closing Date, the Company and Sellers entered into various restructuring transactions as more fully described on Exhibit A attached hereto (the “Pre-Closing Restructuring Transactions”), whereby Sellers caused the Company to transfer and assign certain assets of the Company to a newly formed subsidiary of the Company (“RetainCo”), caused RetainCo to assume and accept, certain assets and Liabilities of the Business, and caused the Company to distribute all of the equity interest in RetainCo to Sellers and Sellers caused the transfer of certain other assets used in the Business to the Company.
WHEREAS, Buyer, Sellers and the Company intend to effect a merger of Merger Sub with and into the Company upon the terms and conditions set forth in this Agreement and in accordance with the Delaware Corporation Law (the “Merger”). Upon consummation of the Merger, Merger Sub will cease to exist and the Company will become a wholly owned subsidiary of Buyer.
WHEREAS, the boards of directors (or equivalent governing body) of the Company, Buyer, and Merger Sub have approved this Agreement and the Merger.
WHEREAS, the board of directors of the Company has declared that it is advisable that this Agreement and the transactions contemplated hereby be adopted and approved by Sellers in their capacity as the stockholders of the Company.
WHEREAS, the board of directors of Merger Sub has determined that it is advisable that this Agreement and the transactions contemplated hereby be adopted and approved by Buyer in its capacity as the sole stockholder of Merger Sub. Merger Sub and the Company are hereinafter sometimes referred to collectively as the “Constituent Corporations.”
WHEREAS, the authorized Equity Interests of the Company consists of 1,000 shares of common stock, par value $5.00 per share (the “Company Capital Stock”).
WHEREAS, the authorized capital stock of Merger Sub consists of 5,000 shares of common stock, par value $0.01 per share (the “Merger Sub Common Stock”), 100 of which are issued and outstanding and owned by Buyer.
NOW, THEREFORE, in consideration of the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I.
THE MERGER
1.1. The Merger. On and subject to the terms and conditions contained herein, at the Effective Time, Merger Sub shall be merged with and into the Company, with the Company being the surviving corporation in the Merger (the Company, as the surviving corporation after the Merger, is sometimes referred to herein as the “Surviving Corporation”).
(a) Consummation of the Merger. On the Closing Date, subject to satisfaction or waiver of the conditions specified in ARTICLE VII hereof, the Company and Merger Sub shall, and Buyer shall cause Merger Sub to execute a certificate of merger (the “Certificate of Merger”) in accordance with the relevant provisions of Delaware Corporation Law and cause the Certificate of Merger to be filed with the Secretary of State of the State of Delaware. The Merger shall be effective at such time as may be specified in the Certificate of Merger by mutual agreement of Merger Sub and the Company (the “Effective Time”).
(b) Effect of the Merger. The Merger shall have the effects set forth herein and in the applicable provisions of Delaware Corporation Law. Without limiting the generality of the foregoing, from and after the Effective Time, the Surviving Corporation shall possess all properties, rights, privileges, powers and franchises of the Company and Merger Sub, and all of the claims, obligations, liabilities, debts and duties of the Company and Merger Sub shall become the claims, obligations, liabilities, debts and duties of the Surviving Corporation.
(c) Articles of Incorporation. At the Effective Time, the articles of incorporation of Merger Sub as in effect immediately prior to the Effective Time shall be the articles of incorporation of the Surviving Corporation until thereafter amended in accordance with the terms thereof or as provided by applicable Law; provided that the name of the corporation set forth therein shall be changed to the name of the Company.
(d) By Laws. At the Effective Time, the bylaws of Merger Sub as in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation until thereafter amended with the terms thereof or as provided by applicable Law; provided that the name of the corporation set forth therein shall be changed to the name of the Company.
(e) Directors. The directors of Merger Sub, as of the Effective Time, shall be the directors of the Surviving Corporation until their respective successors are duly elected and qualified in the manner provided in the articles of incorporation and bylaws of the Surviving Corporation or until their earlier resignation or removal or as otherwise provided by applicable Law.
(f) Officers. The officers of Merger Sub, as of the Effective Time, shall be the officers of the Surviving Corporation until their successors are duly elected and qualified in the
2
manner provided in the articles of incorporation and bylaws of the Surviving Corporation or until their earlier resignation or removal or as otherwise provided by applicable Law.
(g) Further Assurances. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any further deeds, assignments or assurances in Law or any other acts are necessary, desirable or proper to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation the title to any property or right of the Constituent Corporations acquired or to be acquired by reason of, or as a result of, the Merger or to otherwise carry out the purposes of this Agreement or effect the Merger, the Surviving Corporation and its officers and directors shall execute and deliver all such deeds, assignments and assurances in Law and do all acts necessary, desirable or proper to vest, perfect or confirm title to such property or right in the Surviving Corporation, and the officers and directors of the Constituent Corporations and the officers and directors of the Surviving Corporation are fully authorized in the name of the Constituent Corporations or otherwise to take any and all such action solely for the purposes set forth in this Section 1.1(g).
1.2. Conversion of Shares. At the Effective Time, by virtue of the Merger and without any action on the part of Buyer, Merger Sub, the Company or the holders of any of the securities described below:
(a) Each share of Merger Sub Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into one (1) validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of the Surviving Corporation.
(b) Except as otherwise provided herein, the Company Capital Stock issued and outstanding immediately prior to the Effective Time (other than (x) shares of Company Capital Stock cancelled pursuant to Section 1.2(c)) and (y) Dissenting Shares) shall be converted into the right to receive, upon delivery and surrender of the Certificates formerly representing the issued and outstanding Company Capital Stock, the Estimated Merger Consideration (subject to Sections 2.2, 2.3 and 2.4), and such share of Company Capital Stock after such conversion shall automatically be cancelled and retired and shall cease to exist.
(c) Each share of Company Capital Stock held in the treasury of the Company and each share of Company Capital Stock owned or held, directly or indirectly, by the Company immediately prior to the Effective Time shall be cancelled and retired and shall cease to exist without any conversion thereof and no payment of cash or any other consideration or distribution shall be made with respect thereto.
(d) As of the Effective Time, each holder of a certificate representing a share of Company Capital Stock (each such certificate, a “Certificate”) (other than a Certificate representing Dissenting Shares, the treatment of which is addressed in Section 1.3) shall cease to have any rights with respect thereto and any shares of Company Capital Stock that were represented thereby prior to the Effective Time, except the right to receive, upon surrender of such Certificate, a portion, without interest, in accordance with this Agreement, of the Estimated Merger Consideration (subject to Sections 2.2, 2.3 and 2.4). Surrendered Certificates shall forthwith be cancelled by the Surviving Corporation.
3
(e) None of the Surviving Corporation, Buyer, or Merger Sub shall be liable to any Person in respect of amounts paid to a public official to the extent required under any applicable abandoned property, escheat or similar Law.
1.3. Dissenters’ Rights.
(a) Each issued and outstanding share of Company Capital Stock that is held by a Person who has not voted in favor of the Merger or consented thereto in writing or executed an enforceable waiver of dissenters’ rights to the extent permitted by applicable Law and, in the case of any Person required to have exercised dissenters’ rights under Section 262 of the Delaware Corporation Law as of the Effective Time of the Merger in order to preserve such rights, with respect to which dissenters’ rights under the Delaware Corporation Law have been properly exercised, shall not be converted into the right to receive any portion of the Estimated Merger Consideration and shall be converted into the right to receive payment from the Surviving Corporation with respect thereto as provided by the Delaware Corporation Law, unless and until the holder of any such share shall have failed to perfect or shall have effectively withdrawn or lost his, her or its right to appraisal and payment under the Delaware Corporation Law, in which case such share shall thereupon be deemed, as of the Effective Time, to have been cancelled and retired and to have ceased to exist and been converted into the right to receive, upon surrender of such Certificate, a portion, without interest, in accordance with this Agreement, of the Estimated Merger Consideration. From and after the Effective Time, no stockholder who has demanded dissenters’ rights shall be entitled to vote his, her or its shares of Company Capital Stock for any purpose or to receive payment of dividends or other distributions on his, her or its shares (except dividends or other distributions payable to stockholders of record at a date prior to the Effective Time, or dividends that accrued thereon prior to the Effective Time). Any shares of Company Capital Stock for which dissenters’ rights have been properly exercised, and not subsequently withdrawn, lost or not perfected, are referred to herein as “Dissenting Shares.”
(b) The Company shall give Buyer (a) prompt notice and a copy of any Company stockholder’s demand for payment or objection to the Merger, of any request to withdraw a demand for payment and of any other instrument delivered to it pursuant to Delaware Corporation Law and (b) the opportunity to direct all negotiations and proceedings with respect to such demands, objections and requests. Except with the prior written consent of Buyer, the Company shall not make any payment with respect to any such demands, objections and requests and shall not settle (or offer to settle) any such demands, objections and requests or approve any withdrawal of the same.
1.4. Estimated Closing Statement. Sellers shall deliver to Buyer, at least three (3) business days prior to the Closing Date, a statement (the “Estimated Closing Statement”) setting forth its calculation of (i) the estimated Net Working Capital of the Company as of the Adjustment Calculation Time (the “Estimated Net Working Capital”), (ii) the estimated Seller Transaction Expenses (the “Estimated Seller Transaction Expenses”) and (iii) the resulting calculation of the Estimated Merger Consideration. The Estimated Closing Statement shall have been prepared in accordance with GAAP, and in good faith in accordance with the terms of this Agreement and shall be reasonably satisfactory to Buyer. Buyer and its representatives shall have been given reasonable access to the books and records of the Company relating to the Estimated Closing Statement.
4
1.5. Purchase Price. The aggregate purchase price for the Company Capital Stock (the “Aggregate Purchase Price”) is the Estimated Merger Consideration, subject to Sections 2.2, 2.3 and 2.4.
ARTICLE II.
CLOSING; PAYMENT OF CONSIDERATION; CLOSING DELIVERABLES
2.1. Closing. Subject to the conditions set forth herein, the consummation of the transactions that are the subject of this Agreement (the “Closing”) shall occur at the offices of Honigman LLP, 660 Woodward Avenue, 2290 First National Building, Detroit, Michigan 48226, or at such other place as Buyer and Sellers may mutually agree upon in writing, or remotely by mail, facsimile, e-mail and/or wire transfer, in each case to the extent acceptable to the parties hereto, at 10:00 a.m., Detroit time, on the second business day after satisfaction of the conditions set forth in Article VI (other than those to be satisfied at the Closing, but subject to their satisfaction or waiver at the Closing). The date on which the Closing is to occur is herein referred to as the “Closing Date.” Regardless of the actual time of the Closing, except as otherwise expressly provided herein, for tax and accounting purposes, the Closing shall be deemed effective as of close of the day immediately preceding the Closing Date (the “Tax Effective Time”).
2.2. Aggregate Purchase Price Distributions and Payments.
(a) Within two (2) Business Days of execution of this Agreement, Buyer shall pay to Sellers a cash payment equal to $5,000,000 (the “Deposit”), which Deposit shall be applied toward the Aggregate Purchase Price at Closing, or should the Closing not occur and this Agreement is terminated, such Deposit shall be fully refundable to Buyer by Sellers in accordance with Section 8.3.
(b) At the Closing, Sellers shall deliver and surrender to Buyer (or to Buyer’s agent) the Certificates formerly representing the issued and outstanding Company Capital Stock.
(c) At the Closing, Buyer shall deliver to the applicable party listed below the following:
(i) to Sellers, a cash payment equal to the Estimated Merger Consideration, minus the Deposit, minus the Post-Closing Cash Consideration by wire transfer of immediately available funds to the account or accounts designated by Sellers on Schedule 2.2; and
(ii) At Buyer’s election, Buyer shall cause the refinancing of the Specified Indebtedness in connection with the Closing (or, if permissible, the parties shall cause the Company shall to retain the Specified Indebtedness at the Closing, in either case, Specified Indebtedness shall be deemed paid by Buyer as a result of such refinancing or assumption; and
(iii) Buyer shall pay, or cause to be paid, on behalf of Sellers, the Estimated Seller Transaction Expenses by wire transfer of immediately available funds as directed by Sellers.
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(iv) Buyer will deliver to Sellers the Stock Consideration (which will equal the right to receive 19,800,000 shares of RWB Stock, pursuant to an instrument(s) reasonably and mutually acceptable to the Parties, which will provide for the actual issuance of RWB Stock on or after January 1, 2020 (the “RWB Stock Issuance Right”), subject to and following completion of the RTO, by depositing such RWB Stock Issuance Right into an escrow account subject and pursuant to the Lock-Up Escrow Agreement, and following the Closing, the RWB Stock Issuance Right, and any RWB Stock issued pursuant to the RWB Stock Issuance Right) will be released to Sellers pursuant to and in accordance with the distribution schedule set forth in the Lock-Up Escrow Agreement, with such legends as may be required by applicable securities laws. The RWB Stock Issuance Right will be reduced by the number of shares of RWB Stock issued to Anne Hyde as Consulting Shares.
(d) Additional Cash Payment. On the date that is thirty (30) days following the Closing Date, Buyer shall deliver to Sellers, a cash payment equal to the Post-Closing Cash Consideration by wire transfer of immediately available funds to the account or accounts designated by Sellers on Schedule 2.2.
2.3. Post-Closing Cash Adjustments.
(a) Final Closing Statement. As soon as practicable (but not later than one hundred twenty (120) days) following the Closing Date, Buyer shall prepare and deliver to Sellers a statement (the “Closing Statement”) setting forth its calculation of (i) the Net Working Capital of the Company as of the Adjustment Calculation Time (the “Final Net Working Capital”), and
(ii) the Seller Transaction Expenses (the “Final Seller Transaction Expenses”), along with the portion of such expenses attributable to the Company (the “Final Seller Transaction Expenses”) and (iv) the resulting calculation of the Final Merger Consideration. The Closing Statement shall be prepared in accordance with GAAP.
(b) Protest Notice. Within thirty (30) days following delivery of the Closing Statement, Sellers may deliver written notice (the “Closing Statement Protest Notice”) to Buyer of any disagreement that Sellers may have as to any amount included in or omitted from the Closing Statement. Such Closing Statement Protest Notice shall set forth in reasonable detail the basis of such disagreement together with the amount(s) in dispute. The failure of Sellers to deliver such Closing Statement Protest Notice within the prescribed time period will constitute Sellers’ acceptance of the Closing Statement as determined by Buyer and shall be deemed final and binding upon the parties hereto. Sellers and their representatives shall be given reasonable access to the books and records relating to the Closing Statement for the purpose of verifying the Closing Statement and Buyer shall use commercially reasonable efforts to make its financial staff and advisors (with respect to the Business) available to Sellers and their accountants and other representatives upon written request, and upon reasonable advance notice and during normal business hours during the review by them of the Closing Statement and the calculation of the Final Net Working Capital and Final Seller Transaction Expenses and the resolution by Buyer and Sellers of any objections thereto.
(c) Resolution of Protest. If Buyer and Sellers are unable to resolve any disagreement as to any amount included in or omitted from the Closing Statement within fifteen (15) days following Buyer’s receipt of the Closing Statement Protest Notice, then the amounts in
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dispute will be promptly referred to a nationally or regionally recognized firm of independent certified public accountants as mutually agreed upon by Buyer and Sellers (the “Accountants”) for final arbitration, to take place within forty-five (45) days after submitting the matter to the Accountants, which arbitration shall be final and binding on the parties hereto. The Accountants shall act as an arbitrator to determine, based solely on presentations by Buyer and Sellers, and not by independent review, only those amounts still in dispute. With respect to its determination of each disputed item, the Accountants will exercise its discretion independently to resolve only the disputed items submitted to it within the range of differences between Buyer and Sellers. Buyer and Sellers agree to execute, if requested by the Accountants, a reasonable engagement letter. The fees and expenses of the Accountants shall be paid by Sellers, on the one hand, and by Buyer, on the other hand, based upon the percentage that the amount actually contested but not awarded to Sellers or Buyer, respectively, bears to the aggregate amount actually contested by Sellers and Buyer. The term “Final Closing Statement,” as used in this Agreement, shall mean the definitive Closing Statement accepted by Sellers or agreed to by Sellers and Buyer in accordance with Section 2.3(b) or the definitive Final Closing Statement resulting from the determinations made by the Accountants in accordance with this Section 2.3(c) (in addition to those items theretofore accepted by Sellers or agreed to by Sellers).
(d) Payment. Within five (5) days of the determination of the Final Closing Statement:
(i) if the Final Merger Consideration as set forth on the Final Closing Statement is less than the Estimated Merger Consideration, Buyer and Sellers agree that the amount of such shortfall (the “Merger Shortfall Amount”) shall be paid by Sellers to Buyer by wire transfer of immediately available funds to the account(s) designated by Buyer; and
(ii) if the Final Merger Consideration as set forth on the Final Closing Statement is greater than the Estimated Merger Consideration, Buyer and Sellers agree that the amount of such excess (the “Merger Excess Amount”) shall be paid by Buyer to Sellers by wire transfer of immediately available funds to the account(s) designated by Sellers.
2.4. Consulting Payment.
(a) Subject to the terms and conditions set forth in the Consulting Agreement and this Section 2.4, following the Closing, a to-be-formed company directly owned by Sellers and certain other individuals acceptable to Buyer (provided that such each such individual is an “accredited investor” within the meaning of Rule 501(a) of Regulation D promulgated under the U.S. securities laws and each executes a certificate or other document pursuant to which such individual makes similar “Investment” representations as Sellers) (“Consulting Affiliate”) shall be eligible to receive 3,960,000 shares of RWB Stock, which is an aggregate number of shares of RWB Stock equal to the quotient of $15,000,000, multiplied by a 1.32 exchange rate) divided by the Fixed Stock Price, subject to satisfying the Milestones set forth in the Consulting Agreement (the “Consulting Payment”). The Consulting Payment, if any, shall be calculated as set forth in this Section 2.4.
(b) If the Milestones are satisfied, then Buyer shall make the Consulting Payment to Consulting Affiliate, subject to the terms of a Lock-Up Escrow Agreement; provided
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that the Consulting Payment will be made only in the form of whole shares and any fractional shares shall be rounded down to the nearest whole share.
(c) Subject to the terms of this Section 2.4, the issuance of the RWB Stock for the Consulting Payment shall occur as soon as reasonably practicable (subject to compliance with the requirements and procedures under applicable law) after satisfaction of the Milestones in accordance with this Section 2.4 and the Consulting Agreement.
(d) The right of Consulting Affiliate to receive any portion of the Consulting Payment (i) is solely a contractual right and is not a security for purposes of any federal or state securities Laws (and shall confer upon Sellers and Consulting Affiliate only the rights of a general unsecured creditor under applicable state Law), (ii) will not be represented by any form of certificate or instrument, (iii) does not give Sellers and Consulting Affiliate any dividend rights, voting rights, liquidation rights, preemptive rights or other rights common to holders of Buyer’s equity securities, (iv) is not redeemable and (v) may not be sold, assigned, pledged, gifted, conveyed, transferred or otherwise disposed of (a “Transfer”), except by operation of Law (and any Transfer in violation of this Section 2.4(d) shall be null and void).
2.5. Tax Withholding. Notwithstanding anything in this Agreement to the contrary, Buyer (or its designee) and the Company shall be entitled to withhold and deduct from the consideration otherwise payable pursuant to this Agreement such amounts as Buyer or the Company, as applicable, is required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local or foreign Tax law. If Buyer determines that Tax withholding is required pursuant to this Section 2.5, Buyer shall provide notice thereof to Sellers reasonably promptly following such determination. To the extent that amounts are so withheld and paid over to the appropriate Tax authority, such amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding were made. Buyer shall cooperate with any reasonable request from the Sellers to avoid or minimize any Tax withholding from the cash consideration payable pursuant to this Agreement; provided that Sellers shall reimburse Buyer for any reasonable expenses actually incurred by Buyer in providing such cooperation to the extent such cooperation is not otherwise contemplated by Buyer's covenants or deliveries hereunder.
2.6. Closing Deliveries of Sellers. At the Closing, Sellers will execute and deliver or cause to be executed and delivered, as applicable, to Buyer:
(a) Specified Indebtedness. Evidence that the Specified Indebtedness has been assumed by the Company to the satisfaction of Buyer or a payoff letter from the holder of the Specified Indebtedness for purposes of Buyer’s refinancing of such Specified Indebtedness, which in either case, includes evidence of the release or discharge of such financing statements and other Liens on or against or affecting the Company Capital Stock, the Company and any assets of the Business in connection with such Specified Indebtedness, in form and substance satisfactory to Buyer;
(b) Other Payoff Letters and Lien Discharges. A payoff letter from each holder of Indebtedness of the Company or by which the Company’s assets or properties or Company Capital Stock are affected or bound (other than the Specified Indebtedness and the Hemp
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Operations Payable), indicating that upon payment of a specified amount such holder such Indebtedness shall be paid in full and all security interests and Liens shall be release, including the filing of Uniform Commercial Code Termination Statements, or such other documents or endorsements necessary to release of record the security interests of all such holders, and evidence of the release or discharge of such financing statements and or other Liens of such holders, in form and substance satisfactory to Buyer;
(c) Lien Discharges. Evidence of the release or discharge of all Liens on or against or affecting the Company Capital Stock (including Liens on or against Sellers), the Company and on any assets of the Business, in form and substance satisfactory to Buyer;
(d) Resolutions. Certified copies of the resolutions of the board of directors (or equivalent governing body) and the Sellers approving the transactions contemplated by this Agreement and the Transaction Documents;
(e) Officer’s Certificate. A certificate executed by Sellers to the effect that on and as of the Closing Date: (i) the certificate of incorporation and bylaws (or similar organizational document) of the Company delivered to Buyer are true and correct; and (ii) the resolutions delivered to Buyer of the board and the Sellers of the Company approving the transactions contemplated by this Agreement and the Transaction Documents are in full force and effect;
(f) Good Standing Certificates. Certificates of each state of the United States where the Company is qualified to do business providing that the Company is in good standing in such state;
(g) Third Party Consents. Copies of all consents and approvals of any Person (including Governmental Authorities (as defined in Section 3.3), whether federal, state or local) necessary to the consummation of the Closing and which are identified on Schedule 2.6(g), in form and substance satisfactory to Buyer;
(h) Consulting Agreement. That certain Consulting Agreement by and between the Company (or other Buyer designee) and Consulting Affiliate in form satisfactory to Buyer, pursuant to which Consulting Affiliate will assist the Company (or other Buyer designee) in obtaining a cannabis production license issued by the State of Illinois Department of Agriculture and such other applicable regulatory authorities (acceptable to Buyer) and Consulting Affiliate will be entitled to receive the Consulting Payment as contemplated by this Agreement upon satisfaction of certain milestones set forth in the Consulting Agreement with respect to the procurement of such license (the “Milestones”).
(i) Lock-Up Escrow Agreements. Those certain escrow agreements executed by the Sellers in form mutually agreeable to Buyer and Sellers (the “Lock-Up Escrow Agreements”), pursuant to which Sellers will agree not to sell, transfer or dispose of the shares of RWB Stock received hereunder (whether directly or pursuant to the RWB Stock Issuance Right) for a certain lock-up period (which will require full lock-up of all RWB Stock in escrow for a minimum six-month period after Closing during which Sellers may not sell, transfer or otherwise dispose of any RWB Stock and subject to certain other conditions, and which will require full lockup in escrow of 20% of the RWB Stock for the later of 12 months following Closing or the date
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of closure of the LUST Matter in accordance with this Agreement) with partial release of such RWB Stock from the escrow account to Sellers at a rate of 7% per month of the aggregate number of shares of RWB Stock issued to Sellers hereunder, with such legends as required by applicable securities law.
(j) License Agreements. To the extent such Intellectual Property is not owned by or transferred to the Company through the Pre-Closing Restructuring Transactions prior to Closing, those certain License Agreements executed by the Sellers (or other applicable parties) in form satisfactory to Buyer (the “License Agreements”), pursuant to which the Company will receive a royalty-free, perpetual license to certain Intellectual Property.
(k) Transition Documents. A transaction services agreement executed by the Sellers (and any applicable Affiliates) in form satisfactory to Buyer, and such other documents and instruments to be delivered by Sellers at or prior to the Closing pursuant to this Agreement as necessary to address the existing intercompany/affiliate arrangements with the Company, which may include termination agreements, assignment agreements, transition services agreements or such other documents as Buyer may request.
(l) Bulk Sale Release. Sellers shall deliver to Buyer a release letter or certificate for the Owned Real Property from the Illinois Department of Revenue stating that no assessed but unpaid tax penalties or interest are due under Section 9-902(d) of the Illinois Income Tax Act, as amended, or 35 ILCS 120/5j of the Illinois Compiled Statutes, as amended; and (ii) a letter of clearance for the Owned Real Property from the State of Illinois Department of Employment Security stating that no assessed but unpaid tax penalties or interest are due under Section 2600 of the Illinois Unemployment Insurance Act (820 ILCS 405/2600), as amended (the release letters and clearances referred to in (i) – (ii) above are referred to collectively as the “Bulk Sale Releases” and individually as a “Bulk Sale Release”).
(m) Affidavits for Title Company. Sellers (and the Company) shall execute and deliver to the title company such affidavits with respect to the Owned Real Property as the title company shall require in order to delete from its title insurance policies those of the so-called “standard exceptions” that are removable by affidavit.
(n) Non-Foreign Person Affidavit. Sellers (and the Company) shall execute and deliver to Buyer (and Real Estate Buyer) a non-foreign person affidavit or a qualifying statement sufficient in form and substance to relieve Buyer of any and all obligation to deduct, withhold or pay any amount of tax pursuant to Section 1445 of the Code.
(o) Title Commitment. Seller shall cause the Title Company (as defined in the Real Estate Purchase Agreement) to provide Buyer with the proforma or marked-up title commitment as required under this Agreement.
(p) Other Documents. All other previously undelivered documents, instruments or writings required to be delivered by the Sellers to Buyer at or prior to the Closing pursuant to this Agreement and such other documents and instruments as Buyer or its counsel reasonably shall deem necessary to consummate the transactions contemplated hereby.
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All documents delivered to Buyer shall be in form and substance reasonably satisfactory to Buyer and its counsel.
2.7. Closing Deliveries of Buyer and Merger Sub. At the Closing, Buyer and Merger Sub will execute and deliver or cause to be executed and delivered to the Sellers simultaneously with delivery of the items referred to in Section 2.6 above:
(a) Resolutions. Certified copies of the resolutions of the board of directors (or equivalent governing body) of Buyer and the board of directors (or equivalent governing body) and equity holders of Merger Sub approving the transactions contemplated by this Agreement and the Transaction Documents;
(b) Other Documents. All other previously undelivered documents, instruments or writings required to be delivered by Buyer to Sellers at or prior to the Closing pursuant to this Agreement and such other documents and instruments as Sellers’ counsel reasonably shall deem necessary to consummate the transactions contemplated hereby.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller, severally and not jointly, represents and warrants to Buyer and Merger Sub as to itself only, as of the date of this Agreement and as of the Closing Date, as follows:
3.1. Authority. Each Seller has full power, right and authority to enter into and perform such Seller’s obligations under this Agreement and each of the Transaction Documents to which such Seller is a party. This Agreement and each of the Transaction Documents to which such Seller is a party has been duly executed and delivered by such Seller, and, assuming due and valid authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, constitute the valid and legally binding obligation of such Seller and are enforceable against such Seller in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) (the “Bankruptcy and Equity Exception”).
3.2. Title to Company Capital Stock. Sellers own of record and beneficially all of the Company Capital Stock, and Sellers have good and marketable title to the Company Capital Stock, free and clear of all Liens. Neither Seller is a party to (a) any option, warrant, purchase right or other contract or commitment (other than this Agreement) that could require such Seller to sell, transfer or otherwise dispose of any Company Capital Stock or (b) any voting trust, proxy, or other agreement or understanding with respect to the voting of any Company Capital Stock. Other than the Company Capital Stock set forth opposite such Seller’s name on Schedule 3.2, Seller owns no other Company Capital Stock of, securities, instruments or rights convertible into Company Capital Stock or options, warrants or other rights to acquire Company Capital Stock.
3.3. Noncontravention. Except as set forth on Schedule 3.3, the execution, delivery and performance by each Seller of this Agreement and the Transaction Documents to which such Seller
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is a party and the consummation of the transactions contemplated hereby or thereby will not, or would not: (a) violate or conflict with or result in a breach of or default under any provision of any law, statute, rule, regulation, order, permit, by law, enactment, ordinance, directive, judgment, injunction, decree or other decision of any Governmental Authority (each a “Law” and, collectively, “Laws”), in each case applicable to such Seller; (b) constitute (with or without due notice or lapse of time or both) a default under or an event which would give rise to any right of notice, modification, acceleration payment or cancellation under or permit any party to terminate under any material contract, agreement, indenture, mortgage, note, bond, license or other instrument or obligation of such Seller or by which the assets of such Seller may be bound or subject; (c) result in the creation or imposition of any Lien upon any of the Company Capital Stock or any other assets of the Business; or (d) require any material authorization, consent, order, approval, filing, registration, exemption or other action by, or notice to, any court, arbitral body, administrative or governmental body, department, commission, board, agency or instrumentality, legislative, executive or regulatory authority or agency (whether foreign or domestic) (each, a “Governmental Authority”) or other Person.
3.4. Litigation. There is no claim, action, cause of action or suit (whether in contract, tort, eminent domain, or otherwise), litigation (whether at law or in equity, whether civil or criminal), controversy, assessment, grievance, arbitration, investigation, hearing, charge, complaint, demand, notice, audit, inquiry, notice of violation, order, or other proceeding (each a “Proceeding” and, collectively “Proceedings”) pending or, to each Seller’s knowledge, threatened against or affecting such Seller in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with the transactions contemplated hereby
3.5. Investment. Each Seller, for itself and as the equity owner of Consulting Affiliate, represents and warrants that it is an “accredited investor” within the meaning of Rule 501(a) of Regulation D promulgated under the U.S. securities laws. Each Seller, for itself and as the equity owners of Consulting Affiliate, is acquiring the RWB Stock and RWB Stock Issuance Right for its own account for investment only, and not with a view to distribution or resale thereof and does not presently have any contract, agreement or arrangement with any Person to sell or transfer such RWB Stock or RWB Stock Issuance Right. Sellers acknowledge that the RWB Stock to be issued under this Agreement has not been, and will not be, registered under U.S. securities law, by reason of a specific exemption from the registration provisions of U.S. securities law, which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Sellers’ representations as expressed herein. Except for the representations specifically set forth in this Agreement by Buyer, Sellers acknowledge that no officer or other representative of Buyer or RWB, nor any other person or entity has made any representations of any kind or nature to induce Sellers to enter into this Agreement and that Sellers are relying solely on the representations in this Agreement and the publicly available information regarding RWB that Sellers have determined was useful in acquiring the RWB Stock and RWB Stock Issuance Right. Each Seller’s residence and Consulting Affiliate’s principal place of business (which shall be deemed its residence) is in the State of Kentucky.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
The Sellers, jointly and severally, represent and warrant to Buyer and Merger Sub, as of the date of this Agreement and as of the Closing Date, as follows:
4.1. Authority. The Company has full corporate power, right and authority to, enter into and perform its obligations under this Agreement and each of the Transaction Documents to which it is a party. The execution, delivery and performance of this Agreement and each of the Transaction Documents to which the Company is a party have been duly and properly authorized by the Company by all requisite action in accordance with applicable law and with the Charter Documents of the Company. This Agreement and each of the Transaction Documents to which the Company is a party have been duly executed and delivered by the Company, and, assuming due and valid authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, constitute the valid and legally binding obligations of the Company and are enforceable against the Company in accordance with their respective terms, except as may be limited by the Bankruptcy and Equity Exception.
4.2. Organization and Qualification of the Company. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company has full corporate power and authority to carry on its business as now being conducted and as currently proposed to be conducted and to own, lease or otherwise hold the properties and assets it now owns, leases or otherwise holds. The Company is duly qualified or licensed to do business and is in good standing as a foreign corporation in the State of Illinois and, as applicable, in each of the other jurisdictions listed on Schedule 4.2, and there are no other jurisdictions in which the conduct of the Company’s business or the ownership or lease of its assets requires such qualification under applicable law. The Company has no Subsidiaries. Complete and correct copies of the Charter Documents of the Company and all amendments thereto to date, certified (as applicable) by the Secretary of State of Illinois have been delivered to Buyer and will not be modified or amended prior to the Closing. Schedule 4.2 sets forth a list of all of the officers and directors (or similar persons) of the Company.
4.3. Noncontravention. Except as set forth on Schedule 4.3, the execution, delivery and performance by the Company and Sellers of this Agreement and the Transaction Documents and the consummation of the transactions contemplated hereby or thereby will not, or would not: (a) except with respect to federal Laws related to cannabis (other than Section 280E of the Code), violate or conflict with or result in a breach of or default under any provision of any Law, which is applicable to the Company or by which any of the Company Capital Stock are bound; (b) violate or conflict with or constitute a default under the Charter Documents of the Company; (c) constitute (with or without due notice or lapse of time or both) a material default under or an event which would give rise to any right of notice, modification, acceleration payment or cancellation under or permit any party to terminate any material Contract, Permit, agreement, indenture, mortgage, note, bond, license or other instrument or obligation of the Company or by which the assets of the Company may be bound or subject; (d) result in the creation or imposition of any Lien upon any of the Company Capital Stock or any assets of the Company; or (e) require any authorization, consent, order, approval, filing, registration, exemption or other action by, or notice to, any
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Governmental Authority or other Person, except in the case of clause (c) above, for the failure to obtain any such authorization, consent, order, approval, filing, registration, exemption or other action or to furnish any required notice.
4.4. Capitalization; Title to Company Capital Stock.
(a) The authorized issued and outstanding Company Capital Stock, the holders of such Company Capital Stock and the address of each such holder are set forth on Schedule 4.4. All of the issued and outstanding Company Capital Stock have been duly authorized, are validly issued, fully paid, and nonassessable, and are held of record and owned beneficially by Sellers, free and clear of all Liens, and are not subject to, nor issued in violation of, any preemptive rights, rights of first refusal, co-sale or participation right, preemptive right, subscription right or any other similar right. The Company has not violated any securities Laws in connection with the offer, sale or issuance of the Company Capital Stock. There are no declared or accrued but unpaid dividends with respect to any of the Company Capital Stock.
(b) There are no outstanding securities, options, warrants, calls, rights, convertible or exchangeable securities or contracts or obligations of any kind (contingent or otherwise) to which the Company is a party or by which it is bound obligating the Company, directly or indirectly, to issue, deliver or sell, or cause to be issued, delivered or sold, additional equity interests of the Company or obligating the Company to issue, grant, extend or enter into any such security, option, warrant, call, right, contract or obligation. There are no outstanding obligations of the Company (contingent or otherwise) to repurchase, redeem or otherwise acquire, directly or indirectly, any equity interests (or options or warrants to acquire any such equity interests) of the Company, and there are no outstanding rights to cause the Company to register its securities or which otherwise relate to the registration of any securities of the Company. There are no outstanding equity-appreciation rights, equity-based performance units, “phantom” equity rights or other contracts or obligations of any character (contingent or otherwise) pursuant to which any Person is or may be entitled to receive any payment or other value based on the revenues, earnings or financial performance, equity value or other attribute of a Company or its businesses or assets or calculated in accordance therewith. Except as set forth on Schedule 4.4, there are no agreements among the Sellers with respect to the voting or transfer of the Company Capital Stock or with respect to any other aspect of a Company’s affairs. Except as set forth on Schedule 4.4, there are no bonds, debentures, notes or other indebtedness of the Company outstanding having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which any equityholders of the Company may vote.
4.5. Absence of Certain Developments. Except as set forth on Schedule 4.5, since January 1, 2019, the Company has conducted its business only in the ordinary course of business and (i) there has not been any (i) Company Material Adverse Effect and (ii) the Company has not:
(a) amended any of its Charter Documents;
(b) issued or sold any Equity Interests, securities convertible into Equity Interests or other equity securities, or warrants, options or other rights to purchase Equity Interests or other equity securities;
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(c) declared, set aside or made any payment or distribution of cash or other property to any of its equity holders with respect to its Equity Interests or otherwise, or purchased, redeemed or otherwise acquired any Equity Interests or other equity securities (including any warrants, options or other rights to acquire its Equity Interests or other equity securities);
(d) entered into, amended or terminated any material Contract;
(e) (i) acquired (by merger, consolidation, acquisition of securities or assets or otherwise) or organized any Person, (ii) acquired any material rights, assets or properties or (iii) acquired any Equity Interest or other securities of any Person, in each case, other than in the ordinary course of business;
(f) other than the sale of inventory in the ordinary course of business, sold, assigned, transferred, leased or licensed any of its material tangible assets;
(g) sold, assigned, transferred, leased, licensed or otherwise encumbered any Intellectual Property (other than by granting nonexclusive licenses of Intellectual Property to customers pursuant to written agreements in connection with the sale of products or the provision of services);
(h) disclosed any Confidential Information to any Person except on terms requiring that Person to maintain the confidentiality of, and preserving all rights of the Company in, such Confidential Information;
(i) to the Company’s Knowledge, taken or failed to take any action that could reasonably be expected to result in the loss, lapse or abandonment of any material Intellectual Property or Confidential Information;
(j) mortgaged or encumbered or permitted any of its assets (including the Owned Real Property) to become subject to any Liens;
(k) made or granted any bonus or any compensation or salary increase to any former or current employee or group of former or current employees, or made or granted any increase in any employee benefit plan or arrangement, or amended or terminated any existing employee benefit plan or arrangement or employment or severance agreement or adopted any new employee benefit plan or arrangement or employment or severance agreement, in each case, outside of the ordinary course of business;
(l) suffered any material damage, destruction or other casualty loss with respect to property owned by the Company or waived any rights of material value;
(m) accelerated the collection of accounts receivable, delayed the purchase of supplies, delayed any material capital expenditures, repairs or maintenance, or delayed payment of accounts payable or accrued expenses;
(n) changed its accounting policies or cash management practices or canceled any debts owed to it or claims held by it;
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(o) (i) made or changed a Tax election that is not consistent with the Company's past practices in making tax elections or changed any method of tax accounting, (ii) settled or compromised any federal, state, local or foreign Tax liability or assessment, (iii) filed any amended Tax return (excluding for this purpose the income Tax Returns for Company's 2016 and 2017 Tax years), (iv) entered into any closing agreement relating to any Tax, (v) agreed to an extension or waiver of a statute of limitations period applicable to any Tax claim or assessment, (vi) surrendered any right to claim a Tax refund, (vii) incurred any liability for Taxes outside the ordinary course of business, (viii) failed to pay any Tax that becomes due and payable (including any estimated tax payments), or (ix) prepared or filed any Tax Return in a manner inconsistent with past practice;
(p) failed to maintain in full force and effect any insurance policy in effect, except for any policy replaced by a new or successor policy of substantially similar coverage;
(q) terminated, amended, failed to renew or preserve or failed to maintain in full force and effect any (i) material permit or (ii) registration or application for any Intellectual Property, except for amendments completed in the ordinary course of business;
(r) taken any action to cause a change in the title to the Owned Real Property except to cure title defects as permitted under this Agreement; or
(s) agreed, whether orally or in writing, to do any of the foregoing.
4.6. Compliance with Applicable Laws. Except as set forth on Schedule 4.6, the Company is and has been in material compliance with all Laws applicable to it or the operation, use, occupancy or ownership of its assets or properties or conduct of the Business, and none of the Company or Sellers has received written notice (and to the Company’s Knowledge, any oral notice) from any Governmental Authority regarding any failure to so comply. None of the Company or Sellers have (i) been subject to any adverse inspection, finding, investigation, penalty assessment, audit or other compliance or enforcement action or (ii) made any bribes, kickback payments or similar payments of cash or other consideration or paid any remuneration, in cash or in kind, in violation of 42 U.S.C. § 1320a-7b(b) or similar provisions of applicable Law, that is capable of forming the basis of criminal prosecution of, or civil action against, the Company or the Sellers. The Company has not certified, represented or otherwise indicated (either orally or in writing) to any Person, including any Governmental Authority, that it is a woman-or minority-owned business, small business or any other similar designation that entitles the Company or the Business to a favored status or benefits.
4.7. Financial Statements.
(a) Schedule 4.7 contains true and complete copies of the following financial statements of the Company (the “Financial Statements”):
(i) the unaudited consolidated balance sheets of the Company as of December 31, 2017 and December 31, 2018, and the related statements of income and cash flows for the years then ended; and
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(ii) the unaudited consolidated balance sheet of the Company as of August 31, 2019 (the “Latest Balance Sheet”), and the related statements of income and cash flows for the 8-month period then ended (the “Interim Financials”).
(b) Each of the Financial Statements is complete and correct in all material respects, is consistent with the books and records of the Company and accurately and completely, in all material respects, present the Company’s financial condition, assets and Liabilities as of their respective dates and the results of operations and cash flows for the periods related thereto in accordance with GAAP consistently applied throughout the periods covered thereby, and except that the Interim Financials are subject to normal year-end adjustments or accruals and lack the footnote disclosure otherwise required by GAAP. The reserves reflected in the Financial Statements are reasonable and have been calculated in a consistent manner.
(c) The internal controls of the Company over financial reporting are effective in providing reasonable assurance regarding the reliability of financial reporting and preparation of financial statements in accordance with GAAP.
(d) The Company has no debts, Liabilities or obligations of any nature (whether accrued, absolute, contingent, direct, indirect, perfected, inchoate, unliquidated or otherwise and whether due or to become due), including, without limitation, Liabilities or obligations on account of Taxes or governmental charges or penalties, interest or fines thereon or in respect thereof, except
(i) to the extent reflected and accrued for or reserved against in the Financial Statements, (ii) for Liabilities and obligations incurred in the ordinary and usual course of business consistent with past custom and practices since January 1, 2019, which, individually or in the aggregate, are not reasonably expected to be material to the Business, (iii) Liabilities (which are current) relating to future performance under the assumed Contracts, but in no event any Liability arising out of any breach, nonperformance or defective performance by the Company of any such Contract and (iv) Liabilities under this Agreement and the Transaction Documents to which the Company is a party.
(e) Except as set forth on Schedule 4.7(e), the Company has no Indebtedness.
(f) All accounts receivable of the Company (i) are bona fide and valid receivables arising from sales actually made or services actually performed and were incurred in the ordinary course of business, (ii) are properly reflected on the Company’s books and records and balance sheets in accordance with GAAP consistently applied and (iii) to the Company’s Knowledge, are not subject to any setoffs, counterclaims, credits or other offsets, and are current and collectible and will be collected in accordance with their terms at their recorded amounts within ninety (90) days, subject only to the reserve for bad debts set forth on the face of the Latest Balance Sheet (rather than in the notes thereto). No Person has any Lien on any accounts receivable or any part thereof, and no agreement for deduction, free goods or services, discount or other deferred price or quantity adjustment has been made by the Company with respect to any accounts receivable other than in the ordinary course of business.
4.8. Assets.
(a) Personal Property. Schedule 4.8(a) is a list of the (i) depreciable fixed assets owned by the Company and (ii) other tangible assets owned by the Company, including such
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assets, facilities and personal property owned by the Company and located at the Illinois Facility. Schedule 4.8(a) also identifies each item of personal property leased by the Company with a remaining lease term longer than twelve (12) months.
(b) Title and Condition. The Company has good and valid title to, a valid leasehold interest in, or a valid license to use all machinery, equipment, personal properties, vehicles and other tangible assets used in or related to the Business as conducted as of the Closing and as presently proposed to be conducted following Closing. Such personal property and tangible and intangible assets are sufficient in all material respects for the conduct of the Business as presently conducted and as proposed to be conducted following Closing. All of the Company’s machinery, equipment, personal properties, vehicles and other tangible assets are operated in conformity with all applicable Laws and regulations, are structurally sound (in the case of the buildings and improvements), are in good condition and repair, except for reasonable wear and tear, and are usable in the ordinary course of business.
4.9. Taxes. Except as set forth on the attached Schedule 4.9:
(a) All Tax Returns required to be filed by or with respect to the Company have been duly and timely filed in all required jurisdictions, and all such Tax Returns are true, correct and complete in all material respects and were prepared in substantial compliance with all applicable laws and regulations. The Company has duly and timely paid all Taxes (including estimated taxes) due and payable (whether or not shown on any Tax Return).
(b) The Company has deducted, withheld and timely paid to the appropriate Governmental Authority all Taxes required to be deducted, withheld or paid in connection with amounts paid or owing to any employee, independent contractor, creditor, owner or other third party, and the Company has timely and accurately complied in all material respects with all reporting and record keeping requirements related thereto, including filing of Forms W–2 and 1099s (or other applicable forms).
(c) There are no Liens with respect to Taxes (other than Permitted Liens) upon any of the Company Capital Stock or assets of the Company. No Governmental Authority has threatened in writing that it is in the process of imposing any Lien for Taxes on the Company Capital Stock or assets of the Company.
(d) The Company has not waived any statute of limitations in respect of Taxes, agreed to any extension of time with respect to a Tax assessment or deficiency, or consented to extend the period in which any Tax may be assessed or collected by any Tax authority, in each case with respect to an open Tax period, and no such request to waive or extend is outstanding. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return for any open Tax period.
(e) No federal, state, local, or non-U.S. tax audits or administrative or judicial Tax proceedings are being conducted or, to the Company’s Knowledge, are threatened with respect to the Company. The Company has not received from any federal, state, local, or non-U.S. taxing authority (including jurisdictions where the Company has not filed Tax Returns) any (i) notice indicating an intent to open an audit or other review, or (ii) notice of deficiency or proposed
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adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against the Company.
(f) No claim has ever been made to the Company by a Governmental Authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by that jurisdiction.
(g) The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (i) change in method of accounting for a taxable period ending on or prior to the Closing Date; (ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of income Tax Law) executed on or prior to the Closing Date; (iii) installment sale or open transaction disposition made on or prior to the Closing Date; (iv) prepaid amount received or deferred revenue accrued on or prior to the Closing Date, (v) election by the Company under Section 108(i) of the Code (or any corresponding or similar provision of income Tax Law) or (vi) any use of an improper method of accounting for a taxable period ending on or prior to the Closing Date.
(h) The Company is not a party to or bound by any Tax allocation, indemnification or sharing agreement, other than pursuant to Contracts entered into in the ordinary course of business the principal subject matter of which is not Taxes. The Company is not a party to any agreement, contract, arrangement or plan that has resulted or could result, separately or in the aggregate, as a result of, or in connection with, the consummation of the transactions contemplated by this Agreement (either alone or in combination with any other event) in the payment of (i) any “excess parachute payment” within the meaning of Section 280G of the Code (or any corresponding provision of state, local, or non-U.S. Tax law) or (ii) any amount that will not be fully deductible as a result of Section 162(m) of the Code (or any corresponding provision of state, local, or non-U.S. Tax law).
(i) The Company (i) has not been a member of an Affiliated Group filing a consolidated federal income Tax Return or (ii) has no Liability for the Taxes of any Person under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or non-U.S. law), as a transferee or successor, by Contract, or otherwise, other than pursuant to Contracts entered into in the ordinary course of business, the principal subject matter of which is not Taxes.
(j) Schedule 4.9(j) lists all the states with respect to which the Company has filed any Tax Returns since January 1, 2016.
(k) The Company has at all times been on the cash receipts and disbursements method of accounting for federal or applicable state and local income Tax purposes.
(l) The Company is not and has not been a party to any “reportable transaction,” as defined in Section 6707A(c)(1) of the Code.
(m) The Company is not subject to Tax in any jurisdiction outside of the United States by virtue of (i) having a permanent establishment or other place of business or (ii) having a source of income in that jurisdiction.
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(n) The Company is and has been, at all times since its formation, been an “S” corporation within the meaning of Section 1361(a)(1) of the Code.
4.10. Contracts.
(a) Except as set forth on Schedule 4.10, there are no written or oral Contracts to which the Company is a party, or by which any of the assets of the Business are bound or affected, that: (i) involves performance of services or delivery of goods or materials either to or from the Company of an amount or value in excess of $25,000 individually during any 12-month period; (ii) was not entered into in the ordinary course of business; (iii) cannot be terminated by the Company upon less than sixty (60) days’ notice without penalty; (iv) requires the Company to purchase its total requirements of a good or service from another Person or that includes a “take or pay” or similar provision; (v) is a collective bargaining agreement or otherwise involves a labor union or other representative of a group of employees relating to wages, hours or conditions of employment; (vi) restricts the Company’s business activities or limits the right or ability of the Company to engage in any line of business or to compete with another Person; (vii) involves the grant of a power of attorney of the Company to another Person; (viii) relates to a joint venture, partnership, strategic alliance or similar arrangement or that involves a sharing of profits, losses, costs or Liabilities with another Person; (ix) is an employment or consulting agreement or involves the engagement of an independent contractor; (x) provides for payment to or by a Person based on sales, purchases, profits or other metrics other than direct payment for goods or services; (xi) is a franchise agreement or a sales promotion, market research, marketing, advertising or similar Contract; (xii) is a loan, credit or similar Contract or that otherwise relates to Indebtedness; (xiii) grants a Lien on any of the assets of the Company; (xiv) is with a Governmental Authority; (xv) involves or relates to the acquisition or divestiture of a business or a material amount of assets, properties or securities of another Person (whether by merger, sale of stock, sale of assets, lease, license or otherwise); (xvi) provides for the indemnification by the Company of another Person or the assumption or guaranty by the Company of a Liability or obligation of another Person; (xvii) grants another Person “most favored nation status” or any similar type of Contract; or (xviii) relates to the maintenance, operation or administration of the Business but the Company is not a direct party to such Contract.
(b) Correct and complete copies of the Contracts required to be set forth on Schedule 4.10 have previously been furnished or otherwise been made available to Buyer. Except as set forth on Schedule 4.10, all of the Contracts required to be listed in Schedule 4.10 will remain enforceable against the counterparty thereto upon consummation of the transactions contemplated by this Agreement without the consent, approval, novation or waiver of any third party. The Company is not in default nor, has any event occurred which, with the giving of notice or the passage of time or both, would constitute a default, under any Contract required to be listed in Schedule 4.10, and, to the Company’s Knowledge, no event has occurred which, with the giving of notice or the passage of time or both, would constitute a default by any other party to any such Contract or obligation. Each of the Contracts required to be listed in Schedule 4.10 is in full force and effect with respect to the Company and, to the Company’s Knowledge, the other party thereto, is valid and enforceable in accordance with its terms, subject to the Bankruptcy and Equity Exception, and, to the Company’s Knowledge, is not subject to any claims, charges, setoffs or defenses.
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4.11. Real Property.
(a) Schedule 4.11(a) sets forth the address of each parcel, tax parcel identification number and legal description of all real property owned by the Company (the “Owned Real Property”). The Company (i) has good and valid fee simple title to each parcel of Owned Real Property, free and clear of all Liens, except Permitted Exceptions and (ii) the Owned Real Property is comprised of approximately 124 acres making up a portion of the real property commonly known as 14240 Greenhouse Avenue, Granville, Illinois. With respect to each parcel of Owned Real Property: (i) the Company has not leased or otherwise granted to any Person the right to use or occupy such Owned Real Property or any portion thereof; and (ii) there are no outstanding options, rights of first offer or rights of first refusal to purchase such Owned Real Property or any portion thereof. Sellers have made available to Buyer true, complete and correct copies of the deeds and other instruments (as recorded) by which the Company acquired such Owned Real Property, and copies of all title insurance policies, opinions, abstracts and surveys in the possession of Sellers or the Company relating to the Owned Real Property.
(b) Schedule 4.11(b) contains a complete list of all real property leased or subleased by the Company (individually “Leased Real Property” and collectively, the “Leased Realty”). The Company has a valid leasehold interest in each Leased Real Property, subject only to Permitted Liens. The Company has previously delivered to Buyer correct and complete copies of (or, in the case of non-written arrangements, accurately and completely described) each of the leases (including all amendments, extensions, renewals, guaranties and other agreements with respect thereto) for the Leased Realty (the “Realty Leases”). With respect to each Realty Lease: (i) the Realty Lease is legal, valid, binding, enforceable and in full force and effect (subject to the Bankruptcy and Equity Exception); (ii) the Company nor, to the Company’s Knowledge, any other party to the Realty Lease is in material breach or default, and to the Company’s Knowledge no event has occurred which, with notice or lapse of time or both, would constitute such a breach or default or permit termination, modification or acceleration under the Realty Lease; (iii) the Realty Lease has not been modified, except to the extent that such modifications are disclosed by the documents delivered to Buyer; (iv) the Company is exclusively entitled to all rights and benefits as lessee under the Realty Lease and has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the Realty Lease; and (v) the term of the Realty Lease ends on December 31, 2019; (vi) the real property leased under the Realty Lease is shown on Schedule 4.11(b), which is the remaining portion of the real property consisting of approximately 106 acres commonly known as 14240 Greenhouse Avenue, Granville, Illinois (together with the Owned Real Property, the “Illinois Facility”); (vii) there exist no subleases with respect to the Illinois Facility and the Company is the sole party in possession of the Illinois Facility; and (vii) the terms and conditions of the Realty Lease will not be affected by, nor will the Realty Lease be in default as a result of, the completion of the transactions contemplated by this Agreement; provided, however, the parties acknowledge that the Realty Lease shall be terminated at Closing pursuant to the Real Estate Purchase Agreement.
(a) The Owned Real Property and Leased Real Property constitutes all of the real property currently owned, leased, occupied or otherwise utilized in connection with the Business as currently conducted and as proposed to be conducted following the Closing. Other than the landlords under the Leased Real Property, there are no other parties in possession or parties having any current or future right to occupy any of the Owned Real Property or Leased
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Real Property and at Closing the Company will be the only party with possession and current occupancy rights.
(b) With respect to the Owned Real Property and Leased Real Property (including the Illinois Facility): (i) all buildings, structures, improvements, fixtures, building systems and equipment, and all components thereof, at the Owned Real Property and Leased Real Property (the “Improvements”) are in good condition and repair (normal wear and tear excepted) and are sufficient for the conduct of the Business as currently conducted and as proposed to be conducted following Closing, (ii) there are no structural deficiencies or latent defects affecting any of the Improvements and there are no facts or conditions affecting any of the Improvements which would, individually or in the aggregate, interfere with the use or occupancy of the Improvements, or any portion thereof in the operation by the Company or the Business, (iii) the Owned Real Property, Leased Real Property and Improvements and the Company’s use thereof conform to all applicable building, zoning and other Laws, and (iv) there is no pending or, to the Company’s Knowledge, threatened condemnation or other Proceeding affecting any portion of the Owned Real Property or Leased Real Property or the Company’s use thereof. The Company owns and has good and valid title to the Improvements at the Illinois Facility.
(c) The tax parcel numbers that are assigned to the Owned Real Property and Leased Real Property and Improvements do not affect or include any other land or improvements and there are not any pending appeals for the reduction or relief from the payment of any real estate taxes. Neither the Company, nor any Seller has received any notice and or has any knowledge of (i) any special assessments affecting the Owned Real Property and Leased Real Property and Improvements; (ii) any tax deficiency, lien or assessment against the Owned Real Property and Leased Real Property and Improvements, in each case, which has not been paid or the payment for which adequate provision has not been made; (iii) any violations of Laws with respect to the Owned Real Property and Leased Real Property and Improvements; (iv) any condemnations or imminent domain proceedings; (v) any pending zoning or subdivision changes that would affect the Owned Real Property and Leased Real Property and Improvements.
(d) No work has taken place on the Owned Real Property or Leased Real Property in the last one hundred twenty (120) days that would create in any party a right to a lien against any of such properties, except for such work that has been fully paid for by the Company or Sellers and for which the Company or Sellers will obtain lien waivers and affidavits if requested by the title company
4.12. Litigation. Except as set forth on Schedule 4.12, there is no Proceeding pending or, to the Company’s Knowledge, threatened against the Company, the Business or the Company Capital Stock (or to the Company’s Knowledge, pending or threatened against any of the officers, managers, directors or key employees of the Company with respect to the Business), or to which the Company is otherwise a party. The Company is not subject to, and the Business and the Company Capital Stock are not bound by, any judgment, order or decree of any court or Governmental Authority. The Company is not currently engaged in any Proceeding to recover monies due it or for damages sustained by it. Schedule 4.12 sets forth a list of all closed litigation matters relating to the Company (including predecessors) or the Business to which the Company was a party during the three (3) years preceding the date hereof, the date such litigation was
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commenced or concluded, and the nature of the resolution thereof (including amounts paid in settlement or judgment).
4.13. Intellectual Property.
(a) Schedule 4.13(a) sets forth a true, correct, and complete list and description of all (i) IP Registrations, (ii) Intellectual Property constituting common law trademarks and Trade Secrets, in each case that are not registered but that are material to the Business as currently conducted and presently proposed to be conducted following Closing and (iv) other Intellectual Property (including Software) that is material to the Business as currently conducted and, to the Company’s Knowledge, as proposed to be conducted following Closing. All filings and fees related to the IP Registrations that are required to have been paid by the date of this Agreement and at Closing have been timely filed with and paid to the relevant Governmental Authorities and authorized registrars, and all IP Registrations are otherwise in good standing. If any terminal disclaimers exist or are reasonably expected to be made with respect to or affect the IP Registrations (including under 35 U.S.C. § 253 or 37 CFR 1.321 or the equivalent laws or regulation of any other patent authority), all patents or patent applications subject to such terminal disclaimer are also included in Schedule 4.13(a). The Company has provided Buyer with copies of file histories, documents, certificates, office actions and correspondence, chain of title documents, assignment recordings and other materials related to all IP Registrations.
(b) Schedule 4.13(b) sets forth a true, correct, and complete list of all material IP Agreements to which the Company is a party or that relate to Intellectual Property that is material to the Business. The Company has made available to Buyer true, correct, and complete copies of all such IP Agreements, including all modifications, amendments and supplements thereto and waivers thereunder. Each such IP Agreement that is material to the Business as currently conducted is valid, subsisting, and binding on the Company in accordance with its terms and is in full force and effect.
(c) Except as set forth on Schedule 4.13(c), the Company is the sole and exclusive legal and beneficial, and with respect to the IP Registrations, the record owner of all right, title and interest in and to the IP Registrations, and has the valid right to use all other Intellectual Property used in or necessary for the conduct of the Business as currently conducted and as proposed to be conducted following the Closing, in each case, free and clear of all Liens (other than Permitted Liens) and exclusive licenses.
(d) The rights of the Company in the IP Registrations are (i) subsisting, enforceable, in full force and effect, and valid; (ii) have not (to the extent applicable) expired, been cancelled, or abandoned; and (iii) are not subject to any order, judgment, injunction, decree, ruling or agreement (other than as set forth in the IP Agreements) that would materially affect the enforceability of, or the Company’s use of or rights to, the Intellectual Property.
(e) Neither the execution, delivery nor performance of this Agreement, nor the consummation of the transactions contemplated hereby, will result in the loss or impairment of, or require the consent of any other Person in respect of, the Company’s right to own or use any Intellectual Property or IP Agreements.
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(f) Prior to and as of the Closing Date: (i) the conduct of the Business as conducted on and prior to the date of this Agreement (including the related products, processes and services of the Business and the Company’s use of Intellectual Property in the Business) has not infringed, misappropriated, diluted or otherwise violated, the Intellectual Property or other rights of any Person; (ii) to the Company’s Knowledge, no Person has infringed, misappropriated, diluted or otherwise violated, or is currently infringing, misappropriating, diluting or otherwise violating, any Intellectual Property; and (iii) to the Company’s Knowledge, no Person has breached the provisions of a non-disclosure agreement between such Person and the Company.
4.14. Insurance Policies. Schedule 4.14 is a correct and complete list and description, including policy number, coverage and deductible, of all insurance policies owned by the Company (the “Insurance Policies”), correct and complete copies of which policies have previously been delivered to Buyer. The Company has not received any written (or, to the Company’s Knowledge, oral) notice of cancellation or intent to cancel or increase or intent to increase premiums in any material respect with respect to such Insurance Policies. Schedule 4.14 also contains a list of all pending claims and any claims in excess of $5,000 individually or for a series of related claims in the past three (3) years with any insurance company by the Company (including predecessors) and, to the Company’s Knowledge, any instances within the previous three (3) years of a denial of coverage relating to the Business or the Company (including predecessors) by any insurance company. Each Insurance Policy is in full force and effect and the Company is not in default with respect to its obligations under any of such Insurance Policies. The Company is current in all premiums or other payments due under the Insurance Policies and has otherwise complied in all material respects with all of its obligations under each Insurance Policy. The Company has given timely notice to the insurer of all material claims that may be insured thereby, and insurance coverage of such claims has not been denied or disputed by any insurer. To the Company’s Knowledge, no Insurance Policy provides for any retrospective premium adjustment or other experience based Liability on the part of the Company.
4.15. Licenses and Permits. The Company owns, holds, possesses or lawfully uses all the permits, licenses, registrations, authorizations, industry certifications, consents, certificates, orders, franchises, variances and approvals of Governmental Authorities or other Persons necessary for the ownership, use, occupancy or operation of the Business and the conduct and operation of the Business as currently conducted, all of which are identified on Schedule 4.15, including, without limitation, Industrial Hemp Cultivation Licenses and an industrial hemp processor/handler registration issued by the State of Illinois Department of Agriculture (collectively, the “Permits”). The Company is in compliance with all such Permits, all of which are in full force and effect, and none of the Company or Sellers has received any written notices (or to the Company’s Knowledge, any oral notice) to the contrary. Neither the execution, delivery nor performance of this Agreement, nor the consummation of the transactions contemplated hereby, will result in the loss or impairment of, or require the consent of any other Person in respect of, the Company’s right to own or use any Permit.
4.16. Welfare and Benefit Plans.
(a) Schedule 4.16 is a true and complete list of all employment, change in control or similar agreements, equity or equity based plans or agreements, severance pay, vacation, sick leave, fringe benefit, medical, dental, life insurance, disability or other welfare plans,
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programs or agreements, savings, profit sharing, pension or other retirement plans, programs or agreements and all bonus or other incentive plans, Contracts, agreements, arrangements, policies, programs, practices or other employee benefits or remuneration of any kind, whether formal or informal, funded or unfunded, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA (collectively, the “Employee Benefit Plans”) sponsored, maintained or contributed to by the Company and in which any one or more of the current or former employees or directors of the Company participates or is eligible to participate or has previously participated in and for which the Company has any current or future Liability. Sellers have furnished or otherwise made available to Buyer true and complete copies of all Employee Benefit Plans that have been reduced to writing; written summaries of the material terms of all unwritten Employee Benefit Plans; and related trust agreements, annuity contracts, IRS determination letters and rulings, the most recent determination letter request, copies of all material applications and material correspondence to or from the IRS or Department of Labor, summary plan descriptions, all material communications to employees regarding any Employee Benefit Plan; and annual reports on Form 5500, Form 990, actuarial reports, and PBGC Forms 1 for the most recent three
(3) Plan years.
(b) No Liability under Title IV or Section 302 of ERISA has been incurred by the Company or by any Person or any trade or business, whether or not incorporated, that together with the Company would be deemed a “single employer” within the meaning of Section 4001(b) of ERISA (an “ERISA Affiliate”) that has not been satisfied in full, and, to the Company’s Knowledge, no condition exists that is reasonably likely to create such a Liability to the Company or any ERISA Affiliate.
(c) Except as set forth on Schedule 4.16(c), the consummation of the transactions contemplated by this Agreement will not, either alone or in combination with another event, (i) entitle any current or former employee or officer of the Company to severance pay, unemployment compensation or any other payment, except as expressly provided in this Agreement, or (ii) result in forfeiture, accelerate the time of payment or vesting, or increase the amount of compensation due any such employee or officer, (iii) limit or restrict the right of the Company to merge, amend, or terminate any Employee Benefit Plan or (iv) increase the amount payable or result in any other material obligation pursuant to any Employee Benefit Plan.
(d) Each Employee Benefit Plan has been maintained, in form and operation, in compliance in all material respects with its terms and all applicable Laws, including, without limitation, ERISA and the Code. There has been no material failure of an Employee Benefit Plan that is a group health plan (as defined in Section 5000(b)(1) of the Code) to meet the requirements of Section 4980B(f) of the Code with respect to a qualified beneficiary (as defined in Section 4980B(g) of the Code). The Company has not contributed to a nonconforming group health plan (as defined in Section 5000(c) of the Code).
(e) There are no pending, or to the Company’s Knowledge, threatened or reasonably anticipated claims by or on behalf of any Employee Benefit Plan, by any employee or beneficiary covered under any such Employee Benefit Plan, or otherwise involving any such Employee Benefit Plan (other than routine claims for benefits). All Employee Benefit Plans providing welfare benefits are fully insured.
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(f) The Company does not have any obligation to provide post-employment welfare benefits other than as required under Section 4980B of the Code or any similar provision of state law.
4.17. Health, Safety and Environment. Except as set forth on the attached Schedule 4.17: (a) the Company has complied and is in compliance with all Environmental Laws; (b) the Company has not received any written notice, report, order, directive or other information regarding any actual or alleged violation of Environmental Laws, or any Liabilities, including any investigatory, remedial or corrective obligations, relating to any of them, their businesses, or their past or current facilities arising under Environmental Laws; (c) to the Company’s Knowledge, none of the following exists at any Owned Real Property or Leased Real Property: (i) underground storage tanks, (ii) asbestos containing material in any form or condition, (iii) materials or equipment containing polychlorinated biphenyls, (iv) landfills, surface impoundments, or disposal areas, or (v) groundwater monitoring wells, potable drinkable water wells, petroleum wells or production water wells; (d) neither the Company nor, to the Company’s Knowledge, any of its predecessors or Affiliates has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, manufactured, distributed, released or exposed any Person to any substance, including any hazardous substance, or owned or operated any property or facility which is or has been contaminated by any such substance, in a manner that has given or could give rise to any current or future Liabilities (including any Liability for response costs, corrective action costs, personal injury, property damage, natural resources damages or attorney fees, or any investigatory, corrective or remedial obligations) pursuant to any Environmental Laws; (e) no third party has used the Owned Real Property or Leased Real Property in violation of any Environmental Law for the purpose of treating, generating, manufacturing, producing, storing, handling, treating, transferring, releasing, processing or transporting any petroleum, hazardous waste or hazardous substance and/or toxic waste or toxic substance, as such terms are defined in RCRA, CERCLA, the Superfund Amendments and Reauthorization Act, Public Law 99 499 as amended, or any other federal, state or local environmental law, regulation, code or ordinance; (f) neither the Company nor Sellers has received any written notice, claim, report, order, directive, or other information regarding any actual or alleged violation of Environmental Laws, or any Liability, including any investigatory, remedial or corrective obligation, arising under Environmental Laws and relating to the Owned Real Property or Leased Real Property; (g) neither this Agreement nor the consummation of the transactions contemplated hereby will result in any obligations for site investigation or cleanup, or notification to or consent of Governmental Authorities or third parties, pursuant to any of the so called “transaction triggered” or “responsible property transfer” Environmental Laws; (h) neither the Company nor the Sellers have, either expressly or by operation of law, assumed, undertaken, or provided an indemnity with respect to any Liability (including any investigative, corrective or remedial obligation) of any other Person relating to Environmental Laws; and (i) the Company and Sellers have furnished to Buyer all environmental audits, reports and other environmental documents materially bearing on environmental, health or safety matters relating to the current and former operations and facilities of the Company, or their respective predecessors or Affiliates, which are in their possession, custody or control.
4.18. Employees. Except as set forth on Schedule 4.18, (a) the Company is not a party to or obligated with respect to any outstanding contracts or arrangements with current or former employees, agents, consultants, advisers, sales representatives or independent contractors that are not terminable by the Company without penalty on less than sixty (60) days’ notice; (b) the
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Company is not a party to any collective bargaining agreement or other contract or relationship with any labor organization; (c) the Company has not engaged in any unfair labor practices within the meaning of the National Labor Relations Act; (d) the Company has complied in all material respects with all Laws relating to the employment of labor, including (without limitation) provisions thereof relating to employee classification, wages, hours, vacation, affirmative action, human rights, immigration, employment standards, workplace safety, equal opportunity, collective bargaining, the payment of all required Taxes and other withholdings; (e) there are no Proceedings pending or, to the Company’s Knowledge, threatened against the Company concerning any matters relating to the employment of labor; (f) no union organizing or decertification activities are underway or, to the Company’s Knowledge, threatened, and no such activities have occurred in the past three (3) years; and (g) there is no strike, slowdown, work stoppage, lockout or other material labor dispute pending or, to the Company’s Knowledge, threatened, and no such dispute has occurred in the past three (3) years. Within the past three (3) years, the Company has not implemented any layoffs that are reasonably likely to implicate the Worker Adjustment and Retraining Notification Act of 1988, as amended, and any similar or related Law. As of Closing (following the Pre-Closing Restructuring Transactions), all employees of the Business are employed by the Company. To the Company’s Knowledge, there are no consensual or non-consensual sexual relationships between any legal or beneficial owner, officer or supervisor-level employee of the Company, on the one hand, and any direct report or other subordinate of any of the foregoing individuals, on the other hand.
4.19. Affiliate Transactions. Except as set forth in Schedule 4.19, no present Affiliate of the Company: (i) owns any property or right, whether tangible or intangible, which is used in connection with the Business as currently conducted or proposed to be conducted; (ii) has any claim or cause of action against the Company; (iii) owes any money to the Company or is owed money from the Company; (iv) is a party to any Contract or other arrangement, written or oral, with the Company; or (v) provides services or resources to the Company or is dependent on services or resources provided by the Company. Schedule 4.19 sets forth every business relationship (other than normal employment relationships) between the Company, on the one hand, and such member of the Company’s present or former equityholders, partners, officers, managers, directors, employees or, to the Company’s Knowledge, members of their families (or any entity in which any of them has a material financial interest, directly or indirectly), on the other hand.
4.20. Books and Records. The minute books and stock record books of the Company, all of which have been made available to Buyer, are complete and correct and have been maintained in accordance with sound business practices. The minute books of the Company contain accurate and complete records of all meetings, and actions taken by written consent of, the stockholders, the board of directors and any committees of the board, and no meeting, or action taken by written consent, of any such stockholders, board or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of the Company.
4.21. Broker Fees. Except as set forth on Schedule 4.21, the Company has not employed any broker, finder or agent or has incurred or will incur any obligation or Liability to any broker, finder or agent with respect to the transactions contemplated by this Agreement or otherwise, and all fees and expenses and other obligations payable in connection with or as a result of such agreements will be paid by Sellers, and Buyer will have no obligations in respect thereof.
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ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB
Except as set forth in any Buyer disclosure schedules attached to this Agreement, Buyer and Merger Sub hereby represents and warrants to Sellers, as of the date of this Agreement and as of the Closing Date, as follows:
5.1. Organization. As of the date of this Agreement, Buyer is a corporation organized, validly existing and in good standing under the laws of the province of Ontario. Buyer has all requisite corporate power and authority to own, operate and lease its properties and carry on its businesses as now conducted. Buyer is duly licensed and qualified to do business in and is in good standing under the laws of each jurisdiction where the failure to do so would have a Buyer Material Adverse Effect. Merger Sub is a corporation organized, validly existing and in good standing under the laws of the State of Delaware. Merger Sub is a newly formed entity that has been formed solely for the purposes of the Merger and has not carried on any business or engaged in any activities other than those reasonably related to the Merger.
5.2. Authorization. Buyer and Merger Sub have the full corporate power, right and authority to enter into and perform its obligations under this Agreement and each of the Transaction Documents to which it is a party. The execution, delivery and performance of this Agreement and each of the Transaction Documents to which Buyer and Merger Sub is a party have been duly and properly authorized by Buyer or Merger Sub, as applicable, by all requisite action in accordance with applicable law and with the Charter Documents of such party. This Agreement and each of the Transaction Documents to which Buyer and Merger Sub is a party have been duly executed and delivered by Buyer and Merger Sub, as applicable, and, assuming due and valid authorization, execution and delivery hereof and thereof by the other parties thereto, constitute the valid and legally binding obligation of Buyer and Merger Sub and are enforceable against Buyer and Merger Sub in accordance with their respective terms, except as may be limited by the Bankruptcy and Equity Exception.
5.3. Noncontravention. The execution, delivery and performance by Buyer and Merger Sub of this Agreement and the Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby or thereby will not: (a) except with respect to federal Laws related to cannabis, violate or conflict with or result in a breach of or default under any provision of any Laws; (b) constitute a default under the Charter Documents of Buyer or Merger Sub; (c) constitute a default or an event which would permit any party to terminate, or accelerate the maturity of any indebtedness or other obligation under, any material Contract, agreement, indenture, mortgage, note, bond, license or other instrument to which Buyer or Merger Sub is a party or by which Buyer or Merger Sub, or Buyer’s or Merger Sub’s properties, are bound or subject; or (d) except for the filing of the Certificate of Merger as contemplated by this Agreement, the Requisite Approval, such authorizations and filings as may be required under the HSR Act and other antitrust laws applicable to the transactions contemplated by this Agreement and such authorizations, exemptions, filings and other actions as may be required under applicable securities laws, require any material authorization, consent, order, approval, filing, registration, exemption or other action by, or notice to, any Governmental Authority or other Person, except in the case of clauses (a), (b) or (c), other than such violations, conflicts, breaches, defaults or rights to terminate
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or accelerate that individually or in the aggregate would not reasonably be expected to have a Buyer Material Adverse Effect.
5.4. Capitalization. On the Closing Date, the RWB Stock will be duly and validly issued, outstanding as fully paid and non-assessable.
5.5. Brokers or Finders. Buyer has not employed any broker, finder or agent or has incurred or will incur any obligation or Liability to any broker, finder or agent with respect to the transactions contemplated by this Agreement or otherwise, and all fees and expenses and other obligations payable in connection with or as a result of such agreements will be paid by Buyer, and Seller will have no obligations in respect thereof.
5.6. Compliance with Applicable Laws. Except as set forth on Schedule 5.6 as to Michicann and except as set forth in the public record for RWB (as of Closing), (i) Buyer and Merger Sub are and have been in material compliance with all Laws applicable to them or the operation, use, occupancy or ownership of their assets or properties or conduct of their business, and none of the Buyer or Merger Sub has received written notice (and to the Buyer’s and Merger Sub’s Knowledge, any oral notice) from any Governmental Authority regarding any failure to so comply; (ii) none of the Buyer or Merger Sub have (x) been subject to any adverse inspection, finding, investigation, penalty assessment, audit or other compliance or enforcement action or (y) made any bribes, kickback payments or similar payments of cash or other consideration or paid any remuneration, in cash or in kind, in violation of 42 U.S.C. § 1320a-7b(b) or similar provisions of applicable Law, that is capable of forming the basis of criminal prosecution of, or civil action against, the Buyer or Merger Sub. The Buyer and Merger Sub have not certified, represented or otherwise indicated (either orally or in writing) to any Person, including any Governmental Authority, that either of them is a woman-or minority-owned business, small business or any other similar designation that entitles the Buyer or Merger Sub, or their respective businesses, to a favored status or benefits.
5.7. Financial Statements.
(a) Schedule 5.7 contains true and complete copies of the following financial statements of the Buyer as of the date of this Agreement (the “Buyer Financial Statements”):
(i) the unaudited consolidated balance sheets of the Buyer as of December 31, 2018, and the related statements of income and cash flows for the years then ended; and
(ii) the unaudited consolidated balance sheet of the Buyer as of June 30, 2019, and the related statements of income and cash flows for the six-month period then ended (the “Buyer Interim Financials”).
(b) Each of the Buyer Financial Statements is complete and correct in all material respects, is consistent with the books and records of the Buyer and accurately and completely, in all material respects, presents the Buyer’s financial condition, assets and Liabilities as of their respective dates and the results of operations and cash flows for the periods related thereto in accordance with GAAP consistently applied throughout the periods covered thereby, and except that the Buyer Interim Financials are subject to normal year-end adjustments or accruals and lack
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the footnote disclosure otherwise required by GAAP. The reserves reflected in the Financial Statements are reasonable and have been calculated in a consistent manner.
ARTICLE VI.
COVENANTS PRIOR TO CLOSING
Each of the parties hereto covenants and agrees as follows with respect to the period between the date of this Agreement and the Closing:
6.1. General. Subject to the terms of this Agreement, each party hereto shall use reasonable commercial efforts to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the conditions set forth in ARTICLE VII). Without limiting the foregoing, each of the parties shall execute and deliver all agreements and other documents required to be delivered by or on behalf of such party under ARTICLE VII.
6.2. Notices and Consents.
(a) Each Seller and the Company shall give all required notices to third parties and use commercially reasonable efforts to obtain all required third party consents in connection with the matters contemplated by this Agreement.
(b) Each of the parties hereto shall give any notices to, make any filings with, and use commercially reasonable efforts to obtain any authorizations, consents and approvals of all Governmental Authorities in connection with the transactions contemplated by this Agreement (including, if applicable, those under the HSR Act).
6.3. Conduct of Business by the Parties.
(a) Except as required by Law or as otherwise expressly permitted or specifically contemplated by this Agreement, the Buyer covenants and agrees to and Sellers covenant and agree to cause the Company to, during the period from the date of this Agreement until the earlier of either the Effective Time or the time that this Agreement is terminated by its terms, unless the other party shall otherwise agree in writing, conduct its business and maintain its assets (including the Owned Real Property) in the usual and ordinary course of business.
(b) Without limiting the generality of the foregoing:
(i) Sellers shall (and shall cause the Company to) use commercially reasonable efforts to preserve the goodwill and organization of its businesses and the relationships with its customers, suppliers, employees and other business relations; and
(ii) Sellers shall not (and shall cause the Company not to) take or omit to take any action that would have required disclosure pursuant to Section 4.5 if such action had been taken after January 1, 2019 and prior to the date hereof or would otherwise result in a breach of the representations and warranties in Section 4.17 with respect to the Company in this Agreement.
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6.4. Access. From the date hereof through Closing: Sellers shall cause the Company to grant telephonic, email and other reasonable access to Buyer during normal business hours and upon reasonable notice to the real properties, assets, books and records and other information relating to the Company and its operations and such other financial and operating data as Buyer and its representatives may reasonably request. In addition, upon Buyer’s request and Sellers’ consent (not to be unreasonably withheld, conditioned or delayed), Sellers shall cooperate with Buyer to facilitate the orderly transition of the Company and its business to Buyer (including, without limitation, by providing reasonable access to the premises, books and records and employees of the Company and discussing the affairs, finances and business of the Company). Without limiting the foregoing, Sellers shall provide to Buyer copies of existing environmental reports including Phase I and/or Phase II environmental studies; copies of existing geotechnical reports and soil testing reports and analyses in the possession of the Company or Sellers with respect to the Owned Real Property and Leased Real Property and the Company’s operations thereon and also, subject to the limitations set forth in Section 10.1(h), permit Buyer and its representatives to conduct environmental due diligence of the Company and the Owned Real Property and Leased Real Property (including but not limited to a Phase I environmental study)(such historical reports and new reports obtained by Buyer, collectively, the “Environmental Assessment Reports”).
6.5. Schedule Updates. If any event, condition, fact or circumstance that is required to be disclosed pursuant to Section 6.6 requires any change in any Schedule to this Agreement, or if any such event, condition, fact or circumstance would require such a change assuming the Schedule were dated as of the date of the occurrence, existence or discovery of such event, condition, fact or circumstance, then Sellers or Buyer, as applicable, shall promptly deliver to the other party an update to the Schedules specifying such change, which update shall be deemed to have been provided for informational purposes only and shall not be deemed to supplement or amend the Schedules for purposes of determining the accuracy of any of the representations and warranties contained in this Agreement or determining whether any of the conditions of Section
7.1 has been satisfied, unless Sellers or Buyer, as applicable, has consented in writing to such supplement or amendment, which consent shall not be unreasonably withheld, delayed or conditioned.
6.6. Notice of Material Developments. Each party hereto shall give prompt written notice to the other parties of (a) any material variances in any of its representations or warranties contained in ARTICLE III, ARTICLE IV or ARTICLE V, as the case may be, (b) any material breach of any covenant or agreement hereunder by such party and (c) any other material development affecting the ability of such party to consummate the transactions contemplated by this Agreement. Delivery of any such notice by any party hereto shall have no effect on the rights and obligations of the parties hereunder.
6.7. Exclusivity. None of the Sellers nor the Company shall (and the Sellers and the Company shall cause their respective Affiliates, officers, directors, managers, employees, agents, consultants, financial advisors, accountants, legal counsel and other representatives not to), directly or indirectly, (a) submit, solicit, initiate, encourage or discuss any proposal or offer from any Person (other than Buyer and its Affiliates in connection with the transactions contemplated hereby) or enter into any agreement or accept any offer relating to or consummate any (i) reorganization, liquidation, dissolution or recapitalization of the Company or the Owned Real
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Property or the Leased Real Property, (ii) merger or consolidation involving the Company, (iii) purchase or sale of any assets or Equity Interests (or any rights to acquire, or securities convertible into or exchangeable for, any such Equity Interests) of the Company or of the Owned Real Property or Leased Real Property, or (iv) similar transaction or business combination involving the Company or its business or assets or the Owned Real Property or Leased Real Property (each of the foregoing transactions described in clauses (i) through (iv), a “Company Transaction”) or (b) furnish any information with respect to, assist or participate in or facilitate in any other manner any effort or attempt by any Person (other than Buyer and its Affiliates) to do or seek to do any of the foregoing. The Sellers and the Company agree to notify Buyer immediately if any Person after the date hereof makes any proposal, offer, inquiry or contact with respect to a Company Transaction.
6.8. Tax Covenant. Without the prior written consent of Buyer (which consent shall not be unreasonably withheld, conditioned or delayed), the Company shall not make or change any Tax election that is not consistent with the Company's past practices in making tax elections, change a Tax accounting method or period, file any amended Tax Return (excluding for this purpose the income Tax Returns for the Company's 2016 and 2017 tax years), fail to pay any Tax when it becomes due and payable, enter into any closing agreement, settle any Tax claim or assessment relating to the Company, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Company.
6.9. Pre-Closing Restructuring Transactions. On the date that is no later than ten (10) business days prior to the Closing Date, Sellers shall cause the creation of RetainCo and the consummation of the Pre-Closing Restructuring Transactions in accordance with this Agreement and the Restructuring Transaction Documents.
6.10. Additional Seller. It is anticipated Sellers may transfer a portion (less than 10% in the aggregate) of their Company Capital Stock to Bruce Daniel prior to Closing. Sellers shall provide evidence of such transfer satisfactory to Buyer and Mr. Daniel shall execute a counterpart signature page to this Agreement, whereby he will agree to be bound by the terms, conditions and obligations herein and make the representations of Sellers herein as though an original party hereto, and Sellers shall update Schedule 4.4 to reflect such issuance of Company Capital Stock.
6.11. Open LUST File . As soon as practicable, but commencing prior to Closing, (i) Sellers will take all actions necessary to cause the closure from the Illinois Environmental Protection Agency (or such other governmental authority with jurisdiction) (collectively, “IEPA”) of that certain open LUST file (No. 941345) with respect to the previously removed underground storage tanks at the Owned Real Property and Leased Real Property (the “LUST Matter”), and will use their best efforts to obtain such closure within one (1) year of Closing, it being recognized and understood that IEPA closure may be delayed to due to required sampling and analysis that lengthens the IEPA closure timing, or bureaucratic delays which add to or lengthen the IEPA closure timing. Buyer understands, consents and agrees that, notwithstanding the IEPA closure of the LUST Matter, hazardous substances will remain and be present at, in, on, upon, under, beneath and/or migrating to or from the Property, and that the IEPA closure of the LUST Matter, as a consequence of the hazardous substances which remain and are present after the IEPA closure of the LUST Matter, may include conditions such as installation, maintenance and inspection of a
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cap or cover, as well as a recorded notice or restriction against the title of the Property due to and regarding the continued presence of hazardous substances at, in, on, upon, and/or beneath and migrating to or from the Property after the IEPA closure of the LUST Matter.
ARTICLE VII.
CONDITIONS TO CLOSING
7.1. Conditions to Buyer’s and Merger Sub’s Obligations. The obligation of Buyer and Merger Sub to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions at or prior to the Closing:
(a) Each of the representations and warranties contained in ARTICLE III or ARTICLE IV of this Agreement (i) that is qualified as to or by materiality or Company Material Adverse Effect shall, subject to such qualification be true and correct in all respects at and as of the Closing as if made anew at such time (except to the extent any such representation and warranty expressly relates to an earlier time or date (in which case it shall be true and correct in all respects as of such earlier time or date)) and (ii) that is not qualified as to or by materiality or Company Material Adverse Effect shall be true and correct in all material respects at and as of the Closing as if made anew at such time (except to the extent any such representation and warranty expressly relates to an earlier time or date (in which case it shall be true and correct in all material respects as of such earlier time or date)), in each case, without taking into account any disclosures to Buyer and Merger Sub pursuant to Section 6.6.
(b) Each Seller and the Company shall have performed in all material respects all of the covenants and agreements required to be performed by them hereunder prior to the Closing;
(c) No Proceeding shall be pending or to the Company’s Knowledge overtly threatened by or before any Governmental Authority or any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge could reasonably be expected to (i) prevent the performance of this Agreement or the consummation of any of the transactions contemplated hereby or declare unlawful any of the transactions contemplated hereby, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (iii) affect adversely the right of Buyer to own the Company Capital Stock or operate the businesses of or control the Company, (iv) affect adversely the right of the Company to own their respective assets or control their respective businesses or (v) result in any material damages being assessed against the Company; and no such injunction, judgment, order, decree or ruling shall have been entered or be in effect;
(d) Since the date hereof, no fact, event or circumstance has occurred or arisen that, individually or in combination with any other fact, event or circumstance, has had or would reasonably be expected to have a Company Material Adverse Effect;
(e) At the Closing, Sellers shall have delivered to Buyer and Merger Sub a certificate dated the date of the Closing and signed by Sellers, stating that the conditions specified in Section 7.1(a) and Section 7.1(b) have been satisfied as of the Closing;
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(f) Buyer shall have received from Sellers the Closing deliveries of Sellers as set forth in Section 2.6 hereof;
(g) Buyer or its Affiliate shall have entered into a Real Estate Purchase Agreement with VW Properties, Inc. with respect to the purchase of the remaining portion of the Illinois Facility (the “Real Estate Purchase Agreement”), satisfactory to Buyer (or its Affiliate), but substantially in the form attached hereto as Exhibit B, and the closing provided for in such Real Estate Purchase Agreement shall have occurred contemporaneously with the Closing contemplated by this Agreement;
(h) The environmental condition of the Owned Real Property and Leased Real Property is acceptable to Buyer, including but not limited to a Phase I;
(i) Buyer shall have the right to conduct title and survey work on the Owned Real Property and Leased Real Property (in accordance with and on the same terms set forth in the Real Estate Purchase Agreement, and such terms are incorporated herein by reference) and the title and survey conditions shall be acceptable to Buyer;
(j) Buyer (and RWB, following consummation of the RTO) shall have received approval of the transactions contemplated by this Agreement and the Transaction Documents from the board and the shareholders of Buyer (and of RWB, following consummation of the RTO) and the Canadian Securities Exchange (following consummation of the RTO), as applicable (the “Requisite Approval”);
(k) All intercompany/affiliate arrangements providing services, benefits or assets to the Company necessary for the conduct of the Business shall have been addressed in a manner acceptable to Buyer (which may include termination of such arrangements and the direct assignment and transfer of such rights, interests and/or assets to the Company pursuant to the Pre-Closing Restructuring Transactions or the provision of transition services to the Company after Closing pursuant to transition services agreements);
(l) Buyer shall have received evidence that the Pre-Closing Restructuring Transactions have been consummated and is acceptable to Buyer;
(m) The Specified Indebtedness shall have been refinanced (or assumed, at Buyer’s election) to the satisfaction of Buyer (including receipt of a payoff letter and Lien release from the holder of the Specified Indebtedness with respect to the Company, any assets of the Business and the Company Capital Stock, for purposes of the refinancing or assumption of such Specified Indebtedness as contemplated herein);
(n) Receipt of all governmental and regulatory consents, approvals, licenses and authorizations and making of notices and filings that are necessary for (i) Buyer (or, RWB, following the RTO) to consummate the transactions contemplated at the Closing hereby, (ii) Buyer (or, RWB, following the RTO) to own all of the shares of stock in the Surviving Corporation and to operate the Business of and control the Surviving Corporation following the Closing as proposed to be conducted (including, the right to use the Permits), in each case, in form and substance satisfactory to Buyer, and (iii) the issuance of the RWB Stock and RWB Stock Issuance Right to
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Sellers and deposit of the RWB Stock and RWB Stock Issuance Right into escrow pursuant to Lock-Up Escrow Agreements as contemplated hereby; and
(o) If the LUST Matter has not been closed pursuant to Section 6.11 by Closing, the Parties have executed a customary access and indemnity agreement in form reasonably acceptable to the Parties, with respect to Sellers’ remediation work to be conducted on the Property with respect to the LUST Matter after the Closing pursuant to Section 6.11.
Any condition specified in this Section 7.1 may be waived by Buyer if such waiver is set forth in a writing duly executed and delivered to Seller by Buyer.
7.2. Conditions to the Company’s and Sellers’ Obligations. The obligation of the Company and the Sellers to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions at or prior to the Closing:
(a) Each of the representations and warranties contained in ARTICLE V hereof shall be true and correct in all material respects at and as of the Closing as if made anew at such time (except to the extent any such representation and warranty expressly relates to an earlier time or date (in which case it shall be true and correct in all material respects as of such earlier time or date)), without taking into account any disclosures to the Company and the Sellers pursuant to Section 6.6;
(b) Buyer and Merger Sub shall have performed in all material respects all the covenants and agreements required to be performed by it hereunder prior to the Closing;
(c) No Proceeding shall be pending before any Governmental Authority or any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge could reasonably be expected to (i) prevent the performance of this Agreement or the consummation of any of the transactions contemplated hereby or declare unlawful any of the transactions contemplated hereby or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation; and no such injunction, judgment, order, decree or ruling shall be in effect;
(d) Since the date hereof, no fact, event or circumstance has occurred or arisen that, individually or in combination with any other fact, event or circumstance, has had or would reasonably be expected to have a Buyer Material Adverse Effect;
(e) At the Closing, Buyer shall have delivered to Sellers a certificate dated the date of the Closing and signed by an authorized officer of Buyer, stating that the conditions specified in Section 7.2(a) and Section 7.2(b) above have been satisfied;
(f) The closing provided for in the Real Estate Purchase Agreement shall have occurred contemporaneously with the Closing contemplated by this Agreement;
(g) The Specified Indebtedness shall have been refinanced or assumed in its entirety as contemplated by this Agreement, which refinancing or assumption, for the avoidance of doubt, shall expressly provide for the removal of all Guarantees of Sellers in connection with such specified indebtedness;
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(h) Sellers shall have received from Buyer and Merger Sub the Closing deliveries of Buyer and Merger Sub as set forth in Section 7.2 hereof; and
Any condition specified in this Section 7.2 may be waived if such waiver is set forth in a writing duly executed and delivered to Buyer or Merger Sub by Sellers.
7.3. Mutual Conditions to the Parties’ Obligations. The obligation of the parties to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions at or prior to the Closing:
(a) The filings of the Parties pursuant to the HSR Act, if any, shall have been made and the applicable waiting period and any extensions thereof shall have expired or been terminated.
(b) The completion of the reverse takeover transaction currently proposed between Buyer and Tidal Royalty Corp. pursuant to that Business Combination Agreement dated as May 8, 2019 (the “RTO”) and subsequent assignment by Buyer of this Agreement to Red White & Bloom Inc. (the resulting issuer in the RTO) (“RWB”).
(c) Buyer and Sellers shall mutually agree upon the calculation of the final Hemp Operations Payable.
Any condition specified in this Section 7.3 may be waived if such waiver is set forth in a writing duly executed by Buyer and Sellers.
ARTICLE VIII.
TERMINATION
8.1. Termination. This Agreement may be terminated at any time prior to the Closing only as follows:
(a) By the mutual written consent of Buyer, on the one hand, and Sellers, on the other hand;
(b) By Buyer if (i) at any time any of the representations or warranties of the Company or the Sellers in this Agreement becomes untrue or inaccurate such that the condition set forth in Section 7.1(a) would not be satisfied (treating such time as if it were the Closing for purposes of applying this Section 8.1(b)) or (ii) there has been a breach on the part of the Company or the Sellers of any of their covenants or agreements contained in this Agreement such that the condition set forth in Section 7.1(b) would not be satisfied (treating such time as if it were the Closing for purposes of applying this Section 8.1(b)), and, in the case of any covenant breach, such breach (if curable) has not been cured within fifteen (15) days after delivery of notice thereof by Buyer to Sellers;
(c) By Sellers if (i) at any time any of the representations or warranties of Buyer or Merger Sub in this Agreement becomes untrue or inaccurate such that the condition set forth in Section 7.2(a) would not be satisfied (treating such time as if it were the Closing for purposes of
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applying this Section 8.1(c)) or (ii) there has been a breach on the part of Buyer or Merger Sub of any of its covenants or agreements contained in this Agreement such that the condition set forth in Section 7.2(b) would not be satisfied (treating such time as if it were the Closing for purposes of applying this Section 8.1(c)), and, in the case of any covenant breach, such breach (if curable) has not been cured within fifteen (15) days after delivery of notice thereof by Sellers to Buyer;
(d) By either Buyer or Sellers, on thirty (30) days’ prior written notice to the other party, if the transactions contemplated hereby have not been consummated by October 31,
(e) By Buyer if either of the conditions in Section 7.1(h) or (i) are not, or become incapable of being satisfied, for Closing.
8.2. Effect of Termination. In the event of termination of this Agreement as provided above, this Agreement shall immediately terminate and have no further force and effect, except that (a) this Section 8.2, Section 8.3, Section 9.2(d) and ARTICLE XI (Miscellaneous) shall survive such termination indefinitely and (b) nothing in Section 8.1 or this Section 8.2 shall be deemed to release any party from any Liability for any breach by such party of the terms and provisions of this Agreement. In the event of the Real Estate Purchase Agreement is terminated prior to Closing in accordance with its terms, the Parties agree that this Agreement shall automatically terminate concurrently therewith without any further action by either party.
8.3. Return of Deposit. In the event that the transactions contemplated under this Agreement shall fail to close as provided herein for any reason whatsoever and this Agreement is terminated, Sellers shall return the Deposit to Buyer in full in cash (without setoff, deduction or counterclaim) within twelve months of the date of termination of this Agreement and in no event shall Sellers have the right to retain any portion of such Deposit. If requested by Buyer (prior to termination or any time thereafter), Sellers shall execute an installment payment agreement, promissory note or other documentation to further evidence such repayment obligation to Buyer.
ARTICLE IX.
POST-CLOSING COVENANTS
9.1. Tax Matters.
(a) For purposes of this Agreement, in the case of any Taxable period that includes (but does not end on) the Tax Effective Time (the “Straddle Period”), the amount of any Taxes of the Company that are not based on or measured by income, receipts, profits, wages, or that are not imposed in connection with any sale or other transfer or assignment of property or any other specifically identifiable transaction or event for the Straddle Period which relate to the Pre-Closing Tax Period will be deemed to be the amount of such Tax for the entire Straddle Period multiplied by a fraction the numerator of which is the number of days in the Straddle Period up to and including the Tax Effective Time and the denominator of which is the total number of days in such Straddle Period, and the amount of any Taxes of the Company that are based on or measured by income, receipts, profits, wages, or that are imposed in connection with any sale or other transfer or assignment of property or any other specifically identifiable transaction or event for the Straddle Period
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which relates to the Pre-Closing Tax Period will be determined based on an interim closing of the books as of the Tax Effective Time; provided however, that exemptions, allowances or deductions that are calculated on an annual basis (including depreciation and amortization deductions) shall be allocated pro-rata between the period ending on the Tax Effective Time and the period after the Tax Effective Time. All determinations necessary to give effect to the foregoing allocations shall be made in a manner consistent with the prior practices of the Company.
(b) Sellers shall prepare or cause to be prepared and shall timely file or cause to be filed, all income Tax Returns for the Company for all Tax periods ending on or before the Tax Effective Time, including those which are due to be filed after the Closing Date, which Tax Returns shall be prepared consistent with the past practices of the Company to the extent consistent with applicable Law. Sellers shall submit each such Tax Return to Buyers at least thirty (30) days prior to their due date, for Buyers’ review and comment. Buyer and Seller shall negotiate in good faith to resolve any dispute or disagreement with respect to any Tax Return prepared under this Section 9.1(b). If Buyer and Seller cannot, through such good-faith negotiation, resolve any dispute or disagreement over any of Buyer's comments within thirty (30) days, then their disagreement shall be resolved by a qualified tax professional employed by the Independent Accountant. The resolution of any such dispute shall not delay the filing of any such Tax Return beyond its due date and such Tax Return shall be filed in a manner Sellers deem correct. Following resolution of such dispute or disagreement, such Tax Return shall be amended if and as necessary to conform to the resolution of such disagreement.
(c) Except for those income Tax Returns that the Sellers are responsible for preparing under Section 9.1(b), Buyer shall prepare and file all Tax Returns for the Company which relate in whole or in part to any Pre-Closing Tax Period, and which are filed after the Closing Date, which Tax Returns shall be prepared consistent with the past practices of the Company to the extent consistent with applicable Law. Buyer shall submit each such Tax Return to Sellers at least thirty (30) days prior to their due date, for Sellers’ review and comment. Buyer and Seller shall negotiate in good faith to resolve any dispute or disagreement with respect to any Tax Return prepared under this Section 9.1(c). If Buyer and Seller cannot, through such good-faith negotiation, resolve any dispute or disagreement over any such other comment within thirty (30) days, then their disagreement shall be resolved by a qualified tax professional employed by the Independent Accountant. The resolution of any such dispute shall not delay the filing of any such Tax Return beyond its due date and such Tax Return shall be filed in a manner the Buyer deems correct. Following resolution of such dispute or disagreement, such Tax Return shall be amended if and as necessary to conform to the resolution of such disagreement.
(d) Each party hereto will provide to each of the other parties hereto such cooperation and information as any of them reasonably may request in filing any Tax Return, determining a Liability for Taxes or in conducting any audit or other Proceeding in respect of Taxes. Such cooperation and information shall include signing any Tax Return, amended Tax Return, and claims or other documents necessary to settle any Tax controversy, providing copies of all relevant portions of relevant Tax Returns, together with relevant accompanying schedules and relevant work papers, relevant documents relating to rulings or other determinations by any Governmental Authority and relevant records concerning the ownership and Tax basis of property, which any such party may possess, Sellers shall turn over to Buyer copies of all Tax Returns, schedules and work papers, and all material records or other documents in its possession, relating
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to Taxes of the Company, and shall make employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.
(e) Any refund of Taxes of the Company, or any amounts credited against such Taxes, (including any interest actually received or credited with respect thereto) attributable (or treated as attributable) to any period occurring on or before the Closing Date shall be the property of Sellers, shall be paid reasonably promptly to the Sellers and, if received by, or credited to, Buyer, the Company or any other affiliated entity of Buyer, shall be payable reasonably promptly to the Sellers.
(f) All Tax sharing agreements or similar agreements and powers of attorney with respect to or involving the Company shall be terminated as of the Closing Date and, after the Closing Date, the Company shall not be bound thereby or have any Liability thereunder.
(g) All transfer, documentary, sales, use, stamp, registration and other such Taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) incurred in connection with the consummation of the transactions contemplated by this Agreement shall be paid by one-half by Sellers and one-half by Buyer, and the Company shall file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees, and, if required by applicable Law, Buyer and Sellers shall join in the execution of any such Tax Returns and other documentation.
(h) Sellers and Buyer agree to treat (and have the Company treat) any Seller Transaction Expenses paid on or before the Tax Effective Time as deductible in a Pre-Closing Tax Period to the extent permissible by applicable Law.
(i) Tax Proceedings.
(i) If Buyer or the Company receives notice of any audit, assessment, examination, action, claim, suit, investigation or other inquiry (a “Tax Proceeding”) with respect to Taxes for a Pre-Closing Tax Period, Buyer shall promptly inform Sellers of such notice (which notice shall include copies of any corresponding received from any Tax authority); provided, however, that the failure to provide such notice will not affect any right of Buyer to indemnification hereunder except to the extent that Sellers’ defense of a Tax Proceeding is prejudiced by such failure.
(ii) At their election, Sellers shall control any Tax Proceeding of the Company solely with respect to a Pre-Closing Tax Period (“Seller Tax Proceeding”), at Sellers’ sole expense; provided that, Sellers shall notify Buyer, in writing, of Sellers’ election to control any Seller Tax Proceeding within 15 days of receiving Buyer’s notice delivered pursuant to Section 9.1(i)(i). Sellers shall keep Buyer reasonably informed regarding any Seller Tax Proceeding, provide Buyer with material information and documents related thereto, permit Buyer or its representative, at Buyer's sole expense, to participate in the defense of any Seller Tax Proceeding, and not settle any issue therein without the consent of Buyer (which consent shall not be unreasonably withheld, conditioned or delayed) if such action would adversely affect the Tax-related liabilities of the Company or Buyer for any Tax period commencing after the Closing Date.
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In the event that Sellers do not elect to control a Seller Tax Proceeding or fail to notify Buyer pursuant to the first sentence of this Section 9.1(i)(ii), Buyer shall control such Seller Tax Proceeding, shall consult with Sellers regarding any Seller Tax Proceeding, provide Sellers with information and documents related thereto, permit Sellers or their representatives to participate in the defense any Seller Tax Proceeding, and not settle any issue therein without the consent of Sellers (which consent shall not be unreasonably withheld, conditioned or delayed).
(j) Without the prior written consent of Sellers, such consent not to be unreasonably withheld, conditioned or delayed, Buyer will not, and will cause the Company not to, (i) amend any Tax Return relating to a Pre-Closing Tax Period, (ii) change an annual accounting period, adopt or change any accounting method, or file or amend any Tax election, in each case concerning the Company with respect to a Pre-Closing Tax Period, (iii) extend or waive the applicable statute of limitations with respect to a Tax of the Company for a Pre-Closing Tax Period, or (iv) initiate or participate in any voluntary disclosure program with any Government Authority regarding any Tax (or potential Tax) or Tax Returns of the Company for a Pre-Closing Tax Period.
(k) To the extent that any obligation or responsibility pursuant to ARTICLE X may overlap with an obligation or responsibility pursuant to this Section 9.1, the provisions of this Section 9.1 shall govern.
9.2. Restrictive Covenants.
(a) Sellers’ Acknowledgment. At the Closing, each Seller will receive valuable consideration as a result of Sellers direct or indirect ownership of Company Capital Stock, and each Seller therefore has a material economic interest in the consummation of the transaction contemplated by this Agreement. Each Seller’s obligations under this Agreement, including this Section 9.2, are each essential parts of the transactions contemplated by this Agreement, and in order to protect the goodwill related to the business and operations of the Business and the Company Capital Stock, each such Person has agreed to the restrictive covenants set forth in this Section 9.2.
(b) Non-Compete. Each Seller hereby agrees that from and after the Closing Date and continuing for two (2) years from the Closing Date (the “Restricted Period”), he, she or it shall not directly or indirectly, as an employee, agent, consultant, director, equityholder, manager, co-partner or in any other individual or representative capacity, own, operate, manage, control, engage in, invest in, be employed by or participate in any manner in, act as a consultant or advisor to, render services for (alone or in association with any Person), or otherwise assist any Person that engages in or owns, invests in, operates, manages or controls any venture or enterprise that directly or indirectly engages or proposes to engage (i) in the business of cannabis production in Canada or in any State in which Buyer is currently conducting such business and/or (ii) in the business of indoor and outdoor hemp cultivation, processing and/or handling (including possessing, storing or transporting) anywhere in the State of Illinois (collectively, the “Restricted Business”); provided, however, that nothing contained herein shall be construed to prevent (i) a Seller or its Affiliates from engaging Marquis Extraction Technology, LLC and its affiliates to provide processing services with respect to its Kentucky operations described below, or (ii) a Seller or Consulting Affiliate from holding its shares of RWB Stock issued pursuant to the transactions contemplated hereby or otherwise investing in the stock of any competing corporation listed on a
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national securities exchange or traded in the over the counter market so long as such party is not involved in the business of said corporation and such party does not own more than five percent (5%) of the stock of such corporation. For clarity, Sellers’ ownership, management and participation in Color Point, LLC’s (and its affiliates) business of hemp cultivation and processing in the State of Kentucky will not be deemed a violation of Section 9.2(b)(ii) so long as such business is not conducted directly or indirectly anywhere in the State of Illinois. Notwithstanding the foregoing, the parties agree that Sellers’ ownership, management and participation in AgTech Scientific Corp., a Nevada corporation (or any successor thereto by virtue of merger, share exchange, or other business combination) (“ASC”) shall not be deemed a violation of this Section so long as ACS does not enter into contracts with agricultural producers located in Illinois to grow hemp products; provided, however, that in the event the Sellers are no longer members of the Board of Directors of ASC, or Sellers do not collectively control over 20% of the shares of ASC, the parties agree that Sellers’ ownership of ASC shall not be deemed a violation of this Section.
(c) Non-Solicitation of Employees. During the Restricted Period, no Seller shall (and shall cause his Affiliates not to), directly or indirectly, as an employee, agent, consultant, director, equityholder, manager, co-partner or in any other capacity, without the prior written consent of Buyer, employ, engage, recruit or solicit for employment or engagement, any Person who is (or was within twelve (12) months of the Closing Date) employed or engaged by Buyer or the Company or otherwise seek to influence or alter any such Person’s relationship with any of the foregoing.
(d) Non-Disparagement. Each Seller agrees that he shall not (and shall cause his Affiliates not to), (i) make any negative statement or communication regarding Buyer, the Company or any of their respective Affiliates or employees with the intent to harm any such Person or (ii) make any derogatory or disparaging statement or communication regarding Buyer, the Company or any of their respective Affiliates or employees.
(e) Confidential Information. From the date hereof and thereafter, the Sellers shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of Buyer, furnish, make available or disclose to any third party or use for the benefit of itself or any third party, any Confidential Information; provided, however, that nothing contained herein shall be deemed to prevent the Sellers from making such disclosures as may be (x) required to be filed with or submitted to regulatory agencies or bodies (including pursuant to a Tax Return), (y) required by applicable Law; or (z) otherwise expressly permitted by other provisions of this Agreement. As used in this Section 9.2(c), “Confidential Information” shall mean any information relating to (i) this Agreement or the Transaction Documents or the transactions contemplated hereby or thereby or (ii) the business or affairs of Buyer, the Company and their respective Affiliates, including, without limitation, information relating to financial statements, client or customer identities, potential clients or customers, employees, suppliers, servicing methods, recipes, equipment, programs, strategies and information, analyses, profit margins or any other proprietary information; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes generally known in the public domain through no wrongful act on the part of any of the Sellers. The Sellers acknowledge that the Confidential Information is vital, sensitive, confidential and proprietary to the Buyer and the Company.
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(f) Enforceability; Blue Pencil. The Sellers recognize that the territorial, time and scope limitations set forth in this Section 9.2 are reasonable and are properly required for the protection of Buyer’s legitimate interest in client relationships, goodwill and trade secrets of the Business. In the event that any such territorial, time or scope limitation is deemed to be unreasonable by a court of competent jurisdiction, Buyer and the Sellers agree, and the Sellers submit, to the reduction of any or all of said territorial, time or scope limitations to such an area, period or scope as said court shall deem reasonable under the circumstances. If such partial enforcement is not possible, the provision shall be deemed severed, and the remaining provisions of this Agreement shall remain in full force and effect.
(g) Remedies. The Sellers and Buyer acknowledge and agree that the covenants set forth in this Section 9.2 hereof are reasonable and necessary for the protection of Buyer’s interests, that irreparable injury will result if a Seller breaches any of the terms of this Section 9.2, and that in the event of a Seller’s actual or threatened breach of any of the provisions contained in this Section 9.2, Buyer will have no adequate remedy at Law. The Sellers and Buyer accordingly agree that in the event of any actual or threatened breach by a Seller of any of the provisions contained in this Section 9.2, Buyer will be entitled to such injunctive and other equitable relief as may be deemed necessary or appropriate by a court of competent jurisdiction, without the requirement of posting a bond or other security or proving the lack or inadequacy of a remedy at Law. Nothing contained herein shall be construed as prohibiting such parties from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of any damages which it is able to prove.
9.3. Further Assurances. The Sellers and Buyer shall execute and deliver such further instruments of conveyance and transfer and take such additional actions as Buyer, on the one hand, or a Sellers, on the other hand, may reasonably request to effect, consummate, confirm or evidence the transfer to Buyer of the Company Capital Stock and the conduct by Buyer of the Business (including with respect to obtaining and maintaining all licenses, permits, authorizations, accreditations and consents necessary or desirable in connection therewith), and such other things necessary, proper or advisable under applicable Law as may reasonably be required to carry out the provisions of this Agreement, the Transactions Documents and to consummate the transactions contemplated, and each Seller shall execute such documents as may be reasonably necessary to assist Buyer in preserving or perfecting its rights in the Company Capital Stock and its ability to conduct the Business.
9.4. Release.
(a) Except as provided in Section 9.4(e) below, each Seller on behalf of itself and any Person who may be bound by it (collectively, the “Releasing Parties”), releases the Company, Buyer and each of their respective officers, directors, partners, members, managers, shareholders, Affiliates, Subsidiaries, agents, attorneys, employees, predecessors, successors, heirs and assigns (collectively, the “Released Parties”) from any and all Proceedings, controversies, cross-claims, counter-claims, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or Liabilities of any nature whatsoever in law and in equity, both past and present (from the beginning of the world through the Closing Date) and whether known or unknown, suspected, or claimed against any of its, his or her Released Parties which such Releasing Party, or any officer, director, manager,
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trustee, spouse, heir, executor, administrator, successor or assign of such Releasing Party, has or may have, which arise out of or are connected with the Company or any predecessor thereto, whether arising under any federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance, or under any public policy, Contract or tort, or under common law; or any claim for breach of Contract, infliction of emotional distress, defamation, or any claim for costs, fees, or other expenses, including, without limitation, attorneys’ fees incurred in these matters (all of the foregoing collectively referred to herein as such Releasing Party’s “Released Claims”).
(b) Each Releasing Party represents that he, she or it has made no assignment or transfer of any Released Claim and agrees to indemnify and hold harmless the Released Parties from and against any and all Losses arising from or in any way related to any such assignment. Each Releasing Party acknowledges and intends that his, her or its execution and delivery of this release shall be effective as a bar to each and every one of the Released Claims, and expressly consents and agrees that this release shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected Released Claims (notwithstanding any state statute that expressly limits the effectiveness of a general release of unknown, unsuspected and unanticipated Released Claims), if any, as well as those relating to any other Released Claims hereinabove mentioned or implied.
(c) Each Releasing Party hereby covenants not to sue or to institute or cause to be instituted any Proceeding in any federal, state or local agency or any court or other tribunal against the Released Parties that is related directly or indirectly to any of the matters released in this Section 9.4. If any Releasing Party sues or otherwise institutes any such Proceeding, that Proceeding shall be dismissed upon presentation of this Agreement to the applicable agency, court or tribunal.
(d) Each Releasing Party agrees that if he, she or it violates any provision of this Agreement, such Releasing Party will pay all costs and expenses of defending against any related or resulting suit or other Proceeding incurred by his, her or its Released Parties, including reasonable attorneys’ fees.
(e) Notwithstanding the foregoing, nothing herein shall operate to impair the rights and obligations under, or prevent the Releasing Party from asserting any claim against any Released Party that such Releasing Party may have, if any, arising under this Agreement or any other Transaction Document. However, each Seller hereby agrees that it shall not (and shall cause his, her or its Affiliates not to) make any claim for indemnification against Buyer, the Company or any of their respective Affiliates by reason of the fact that any Seller or any Affiliate of any Seller is or was a stockholder, member, director, manager, officer, employee or agent of the Company or any of its Affiliates or is or was serving at the request of the Company or any of its Affiliates as a partner, manager, trustee, director, officer, employee or agent of another entity (whether such claim is for judgments, damages, penalties, fines, costs, amounts paid in settlement, losses, expenses or otherwise and whether such claim is pursuant to any statute, charter document, bylaw, agreement or otherwise) with respect to any action, suit, proceeding, complaint, claim or demand brought by any of the Buyer Indemnified Parties against any Seller pursuant to this Agreement, and each Seller (on his, her or its own behalf and on behalf of his, her or its Affiliates) hereby acknowledges and agrees that he, she or it shall not have any claim or right to contribution
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or indemnity from the Company or any of its Affiliates with respect to any amounts paid by it pursuant to this Agreement. In no event shall the Company or any of its Affiliates have any Liability whatsoever to any Seller (or any Affiliate of any Seller) for breaches of the representations, warranties, agreements or covenants of the Sellers hereunder, and each Seller shall not (and each Seller shall cause his, her or its Affiliates not to) in any event seek contribution from the Company or any of its Affiliates in respect of any payments required to be made by such Seller pursuant to this Agreement.
9.5. Company Name. From and after the Closing, no Seller nor any of their Affiliates shall use the words “MAG” or “Mid-American Growers” or any derivative of or reference to such words in connection with conducting any business.
9.6. Hemp Operations Payable. The Company will retain the Hemp Operations Payable, and subject to and after consummation of the Closing, Buyer will cause the Company to pay such Hemp Operations Payable on standard commercial terms, and not later than December 31, 2019.
9.7. Consulting Shares. At Closing, Buyer or its Affiliate will enter into a consulting agreement with Anne Hyde for certain services, pursuant to which she will be entitled to receive 137,362 shares of RWB Stock pursuant to an equity incentive plan or otherwise (the “Consulting Shares”), providing a vesting schedule for issuance of such Consulting Shares in 2020, in form acceptable to the parties thereto and subject to any requirements of applicable laws.
ARTICLE X.
INDEMNIFICATION
10.1. Indemnification by the Sellers. Subject to the limitations and conditions contained in this ARTICLE X, the Sellers agree to jointly and severally indemnify, defend and hold harmless Buyer and its respective Affiliates (for the avoidance of doubt, including the Company after the Closing and Real Estate Buyer) and each of their respective officers, directors, employees, agents, and representatives (each, a “Buyer Indemnified Party”), from and against, and to promptly pay to a Buyer Indemnified Party or reimburse a Buyer Indemnified Party for, any and all Liabilities (whether contingent, fixed or unfixed, liquidated or unliquidated, or otherwise), obligations, diminution in value, deficiencies, demands, claims, suits, actions, causes of action, assessments, losses, costs, expenses, interest, fines, penalties, damages or costs, or expenses of any and all investigations, proceedings, judgments, environmental analyses, remediations, settlements and compromises (including, without limitation, reasonable fees and expenses of attorneys, accountants and other experts) (individually, a “Loss” and collectively, the “Losses”) sustained or incurred by any Buyer Indemnified Party relating to, resulting from or arising out of any of the following:
(a) any inaccuracy in or breach of a representation or warranty made herein or in the Transaction Documents by a Seller;
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(b) any non-compliance with or breach by a Seller of any of the covenants or agreements contained in this Agreement or the Transaction Documents to be performed by the Sellers, including, but not limited to, such covenants and agreements set forth in ARTICLE X hereunder;
(c) all Taxes (i) imposed on the Company for all Pre-Closing Tax Periods,
(ii) for a Pre-Closing Tax Period of any member of an Affiliated Group of which the Company is or was a member on or prior to the Closing Date, including pursuant to Treasury Regulation §1.1502-6 or any analogous or similar Law, and (iii) of any Person (other than the Company) imposed on the Company as a transferee or successor, by Contract or pursuant to Law, which Taxes relate to an event or transaction occurring before the Closing;
(d) any Indebtedness of the Company (excluding the assumption/refinancing of the Specified Indebtedness as contemplated herein);
(e) any Seller Transaction Expenses;
(f) any Excluded Liabilities (excluding the Hemp Operations Payable as contemplated herein);
(g) any of the items set forth on Schedule 10.1(g); and
(h) any environmental conditions at, under or on the Owned Real Property and Leased Real Property existing prior to Closing regardless of whether such conditions are actually discovered prior to the Closing (“Environmental Conditions”); provided, however, this subparagraph (h) shall not apply to any such condition discovered through laboratory analysis of environmental media (soil or groundwater) sampling conducted by or on behalf of a Buyer Indemnified Party after the Closing, except to the extent such sampling was either (i) required by a Governmental Authority pursuant to Law, (ii) conducted as part of an investigation of the 10,000 gallon underground storage tank or the 12,000 gallon underground storage tank disclosed on Schedule 4.17(ii), in the event either such tank has failed any mechanical or physical testing of the integrity of the UST system, including, but not limited to, hydrostatic testing or European suction testing (and such failure is not due to Buyer’s negligence or willful misconduct) or (iii) conducted as part of and to advance the IEPA closure of the LUST Matter in the event Buyer reasonably determines that Sellers have failed and/or refused to diligently pursue IEPA closure of the LUST Matter (the “Environmental Indemnity”). Except for the specific indemnities set forth on Schedule 10.1(g), this Environmental Indemnity shall be Sellers’ exclusive indemnification obligation to Buyer Indemnified Parties with respect to Environmental Conditions.
10.2. Indemnification by Buyer. Subject to the limitations and conditions contained in this ARTICLE X, Buyer agrees to indemnify, defend and hold harmless the Sellers, and each of their respective officers, directors, employees, agents, representatives, successors and assigns (each, a “Seller Indemnified Party”) harmless from and against, and to promptly pay to a Seller Indemnified Party or reimburse a Seller Indemnified Party for, any and all Losses sustained or incurred by a Seller Indemnified Party relating to, resulting from or arising out of any noncompliance with or breach by Buyer or Merger Sub of any of the covenants or agreements contained in this Agreement or the Transaction Documents to be performed by Buyer or Merger
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Sub, including, but not limited to, such covenants and agreements set forth in ARTICLE X hereunder.
10.3. Third Party Claims. In the event that subsequent to the Closing any Person entitled to indemnification under this Agreement (an “Indemnified Party”) receives notice of the assertion of any claim or of the commencement of any action or proceeding by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement (including, without limitation, any Federal, state or local domestic or foreign Governmental Authority) (a “Third Party Claim”) against such Indemnified Party, with respect to which a party to this Agreement is or may be required to provide indemnification under this Agreement (an “Indemnifying Party”), the Indemnified Party shall give written notice to the Indemnifying Party as promptly as practicable after learning of such claim. The Indemnifying Party shall not have the right to conduct the defense or compromise and settle any such Third Party Claim; however, any Indemnifying Party shall be entitled to participate in the defense of such Third Party Claim at such Indemnifying Party’s expense, and at its option (subject to the limitations set forth below) shall be entitled to assume the defense thereof by appointing reputable counsel reasonably acceptable to the Indemnified Party to be the lead counsel in connection with such defense; provided that, prior to the Indemnifying Party assuming control of such defense it shall first verify to the Indemnified Party in writing that such Indemnifying Party shall be fully responsible (with no reservation of any rights) for all Liabilities relating to such claim for indemnification and that such Indemnifying Party shall provide full indemnification to the Indemnified Party with respect to such action, lawsuit, proceeding, investigation or other claim giving rise to such claim for indemnification hereunder; and provided further, that:
(a) the Indemnified Party shall be entitled to participate in the defense of such claim and to employ counsel of its choice for such purpose; provided that the fees and expenses of such separate counsel shall be borne by the Indemnified Party (other than any fees and expenses of such separate counsel that are incurred prior to the date the Indemnifying Party effectively assumes control of such defense which, notwithstanding the foregoing, shall be borne by the Indemnifying Party, and except that the Indemnifying Party shall pay all of the fees and expenses of such separate counsel if the Indemnified Party has been advised by counsel that a reasonable likelihood exists of a conflict of interest between the Indemnifying Party and the Indemnified Party);
(b) the Indemnifying Party shall not be entitled to assume control of such defense (unless otherwise agreed to in writing by the Indemnified Party) and shall pay the fees and expenses of counsel retained by the Indemnified Party if (i) the claim for indemnification relates to or arises in connection with any criminal or quasi criminal proceeding, action, indictment, allegation or investigation; (ii) the Indemnified Party reasonably believes an adverse determination with respect to the action, lawsuit, investigation, proceeding or other claim giving rise to such claim for indemnification could be detrimental to or injure the Indemnified Party’s reputation or future business prospects; (iii) the claim seeks an injunction or equitable relief against the Indemnified Party; (iv) the Indemnified Party has been advised by counsel that a reasonable likelihood exists of a conflict of interest between the Indemnifying Party and the Indemnified Party; (v) upon petition by the Indemnified Party an appropriate court rules that the Indemnifying Party failed or is failing to vigorously prosecute or defend such claim; (vi) the claim is with respect to Taxes (and is not otherwise covered by Section 9.1(j) with respect to which party controls), (vii)
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the Indemnified Party reasonably believes that the Indemnifying Party lacks the financial resources to satisfy any Losses relating to the claim; or (viii) the Indemnified Party reasonably believes that the Loss relating to the claim could exceed the maximum amount that such Indemnified Party could then be entitled to recover under the applicable provisions of this ARTICLE X;
(c) if the Indemnifying Party shall control the defense of any such claim, the Indemnifying Party shall obtain the prior written consent of the Indemnified Party before entering into any settlement of a claim or ceasing to defend such claim if, pursuant to or as a result of such settlement or cessation, the Indemnified Party will be obligated to pay any monetary damages, injunctive or other equitable relief will be imposed against the Indemnified Party or such settlement does not expressly and unconditionally release the Indemnified Party from all Liabilities with respect to such claim, without prejudice; and
(d) if the Indemnifying Party is not entitled to, or does not, assume control of such defense pursuant to the preceding provisions of this Section 10.3, the Indemnified Party shall control such defense without waiving any right that the Indemnified Party may have against the Indemnifying Party for indemnification pursuant to this Section 10.3.
10.4. Direct Claims. Any claim under this ARTICLE X by an Indemnified Party for indemnification other than indemnification against a Third Party Claim (a “Direct Claim”) will be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, and the Indemnifying Party will have a period of thirty (30) calendar days within which to satisfy such Direct Claims. If the Indemnifying Party does not so respond within such thirty (30) calendar day period, the Indemnifying Party will be deemed to have rejected such claim, in which event the Indemnified Party will be free to pursue such remedies as may be available to the Indemnified Party under this ARTICLE X or otherwise. If an objection is timely interposed by the Indemnifying Party during such thirty (30) day period, then the Indemnified Party and the Indemnifying Party shall negotiate in good faith for a period of thirty (30) days from the date the Indemnified Party receives such objection (such period, or such longer period as agreed in writing by the parties, is hereinafter referred to as the “Negotiation Period”). If the Direct Claim that is the subject of such notice has not been resolved prior to the expiration of the Negotiation Period, the Indemnified Party or the Indemnifying Party will be free to pursue such remedies as may be available to them on the terms and subject to the provisions of this Agreement.
10.5. Failure to Give Timely Notice. A failure by an Indemnified Party to give timely, complete or accurate notice as provided in this ARTICLE X will not affect the rights or obligations of any party hereunder except and only to the extent that, as a result of such failure, any party entitled to receive such notice was materially damaged as a result of such failure to give timely notice vis à vis its rights and obligations hereunder or otherwise.
10.6. Survival of Representations and Warranties. All representations and warranties contained in ARTICLE III, ARTICLE IV and V shall survive the Closing for a period ending eighteen (18) months from the Closing Date, except that: (i) the representations and warranties set forth in Sections 3.1 (Authority), 3.2 (Title to Company Capital Stock), 4.1 (Authority), 4.2 (Organization and Qualification of the Company), 4.3 (Transaction Not a Breach), 4.4 (Capitalization; Title to Company Capital Stock), 4.9 (Taxes), 4.11(a) (Title to Owned Real Property), 4.21 (Broker Fees), 5.1 (Organization) and 5.2 (Authorization) (collectively, the
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“Fundamental Representations”), shall survive the Closing for the maximum period permitted by Law (including Del. C. 8106(c)) and (ii) all representations or warranties in Articles III, IV and V shall survive beyond the applicable period with respect to any inaccuracy therein or breach thereof, provided notice of which shall have been duly given within such applicable period in accordance with ARTICLE X hereof. Notwithstanding the foregoing, except as otherwise expressly provided herein, the covenants and agreements of the Sellers and Buyer contained herein shall survive the Closing for the periods set forth therein or, if no such period is set forth, for the maximum period permitted by Law (including Del. C. 8106(c)). For the avoidance of doubt, Sellers’ indemnification obligations under Section 10.1(f) (Excluded Liabilities) shall survive Closing for a period ending eighteen (18) months from the Closing Date and Sellers’ indemnification obligations under Section 10.1(h) (Environmental Conditions) shall survive the Closing for a period of thirty-six (36) months from the Closing Date; provided that any claims asserted in writing by notice from a Buyer Indemnified Party prior to the expiration date of such survival period shall not thereafter be barred by the expiration of the relevant survival period and such claims shall survive until finally resolved.
10.7. Certain Limitations and Exceptions. Notwithstanding the foregoing:
(a) The Buyer Indemnified Parties shall not be entitled to recover under the provisions of this ARTICLE X for any inaccuracy in or breach of a representation or warranty pursuant to Sections 10.1(a), until (i) the aggregate amount which all Buyer Indemnified Parties would be entitled to recover on account thereof, but for this Section 10.7(a), exceeds $500,000 in the aggregate (the “Basket”), in which event the Buyer Indemnified Parties shall be entitled to recover for all such Losses (and not merely the portion of the Losses exceeding the Basket); provided however, that the Basket shall not apply to (i) recovery for an inaccuracy in or breach of any Fundamental Representation; (ii) recovery for any amounts in connection with any action or claim based upon Fraud; or (iii) any claims pursuant to Sections 10.1(b) through 10.1(h).
(b) The Buyer Indemnified Parties shall not be entitled to recover Losses under the provisions of this ARTICLE X for inaccuracy in or breach of a representation or warranty pursuant to Sections 10.1(a) in excess of the Cap; provided however, that the Cap shall not apply to (i) recovery for an inaccuracy in or breach of any Fundamental Representation; (ii) recovery for any amounts in connection with any action or claim based upon Fraud; or (iii) any claims pursuant to Sections 10.1(b) through 10.1(h).
(c) The Buyer Indemnified Parties shall not be entitled to recover Losses under the provisions of this ARTICLE X for Environmental Conditions pursuant to Section 10.1(h) and the specific environmental indemnity on Schedule 10.1(g) in excess of $50,000,000 (“Environmental Cap”).
(d) The Buyer Indemnified Parties shall not be entitled to recover under the provisions of this ARTICLE X to the extent the Losses relating to the matter were included as a Liability in the calculation of the Final Net Working Capital.
(e) Payments by an Indemnifying Party pursuant to Section 10.1 or 10.2 in respect of any Loss shall be (i) reduced by the amount of any net Tax benefit actually realized by
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the Indemnified Parties in connection with the Loss and (ii) increased by the amount of any Tax imposed on receipt of such indemnity payment (which for purposes of clarity takes into account any Tax detriment to such Indemnified Party).
(f) For purposes of determining whether any Loss has occurred, or calculating any Losses arising, directly or indirectly, from or in connection with a breach of a representation, warranty, covenant or agreement, all references to “material,” “materiality,” “in all material respects,” “Material Adverse Effect” or similar phrases or qualifiers contained in such representations and warranties shall be disregarded.
10.8. Manner of Payment. Subject to the limitations set forth in this Article X (including the Basket, the Cap and Environmental Cap), any Losses payable to a Buyer Indemnified Party pursuant to this Article X shall be satisfied: (i) from RWB Stock (including shares of RWB Stock to be issued pursuant to the RWB Stock Issuance Right) held in escrow pursuant to the terms of this Agreement and the Lock-Up Escrow Agreements by cancelling such number of shares of the Stock Consideration and Consulting Payment determined by dividing the amount of such Loss by the Fixed Stock Price (provided such setoff of RWB Stock shall not exceed in the aggregate twenty percent (20%) of the RWB Stock originally deposited in escrow); and (ii) to the extent the amount of Losses exceeds the RWB Stock available to the Buyer Indemnified Party for setoff, from the Sellers. Notwithstanding the foregoing, at Sellers’ option (subject to Sellers providing prompt notice of the same to the Buyer Indemnified Party), Sellers may pay immediately available funds to such Buyer Indemnified Party Sellers for such Losses in lieu of such Buyer Indemnified Party exercising its setoff rights against the RWB Stock under this Section 10.8.
10.9. Allocation of Indemnification Payments. The parties hereto agree that any indemnification payment pursuant to this Agreement shall, to the extent permitted by applicable law, be treated as an adjustment to the Aggregate Purchase Price for Tax purposes and shall be allocated as set forth in Section 9.1.
ARTICLE XI.
MISCELLANEOUS
11.1. Notices, Consents, Etc. All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given (i) when personally delivered, sent by fax or email (with hard copy to follow) or sent by reputable overnight express courier (charges prepaid), or (ii) three (3) calendar days following mailing by certified or registered mail, postage prepaid and return receipt requested. Such notices, demands and other communications shall be sent to the addresses indicated below or such other address or to the attention of such other person as the recipient has indicated by prior written notice to the sending party in accordance with this Section 11.1:
(a) If to Sellers:
Arthur VanWingerden
(REDACTED)
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Kenneth VanWingerden
(REDACTED)
with a copy to:
Reinhart Boerner Van Deuren s.c. 1000 North Water Street, Suite 1700 Milwaukee, Wisconsin 53202 Attention: Lucien Beaudry
Email: (REDACTED)
(b) If to Buyer:
Michicann Medical Inc.
8820 Jane Street
Concord, Ontario L4K 2M9
Attention: Brad Rogers
Email: (REDACTED)
11.2. Public Announcements. Unless required by Law (including in connection with the filing of any Tax Return), the Sellers and their Affiliates shall not make any public announcement or filing with respect to the transactions provided for herein without the prior consent of Buyer; provided, however, that no such press, news or other public release or announcement shall refer to the purchase price or other material economic terms of the transactions contemplated hereby without the prior written approval of Buyer and Sellers. Notwithstanding the foregoing, Buyer (and following completion of the RTO, RWB) shall be allowed to disclose the terms of this Agreement and the transactions contemplated hereby (i) to Buyer’s representatives and employees of Buyer or its Affiliates, (ii) in connection with summary information about Buyer or Buyer’s Affiliates financial condition, (iii) to any of Buyer’s Affiliates, auditors, attorneys, financing sources, potential investors or other agents, (iv) to any bona fide prospective purchaser of the equity or assets of Buyer or its Affiliates, (v) to the Canadian Securities Exchange and (vi) as required to be disclosed by order of a court of competent jurisdiction, administrative body or governmental body, or by subpoena, summons or legal process, or by law, rule or regulation.
11.3. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable Law or rule in any jurisdiction, in any respect, such invalidity shall not affect the validity, legality and enforceability of any other provision or any other jurisdiction and, the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby, all of which shall remain in full force and effect, and the affected term or provision shall be modified to the minimum extent permitted by Law so as to achieve most fully the intention of this Agreement.
11.4. Amendment and Waiver. This Agreement may be amended, or any provision of this Agreement may be waived upon the approval, in a writing, executed by Buyer, the Company and Sellers. No course of dealing between or among the parties hereto shall be deemed effective
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to modify, amend or discharge any part of this Agreement or any rights or obligations of any such party under or by reason of this Agreement. A waiver by any party of any term or condition of this Agreement in any one instance shall not be deemed or construed to be a waiver of such term or condition for any other instance in the future (whether similar or dissimilar) or of any subsequent breach hereof.
11.5. Counterparts. This Agreement may be executed in one or more counterparts (including by means of telecopied signature pages or signature pages delivery by electronic transmission in portable document format (pdf)), all of which taken together shall constitute one and the same instrument. This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine or electronic transmission in portable document format (pdf), shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.
11.6. Expenses. Except as otherwise specifically provided herein, each of the parties shall pay all costs and expenses incurred or to be incurred by it in negotiating and preparing this Agreement and in closing and carrying out the transactions contemplated by this Agreement.
11.7. Headings. The subject headings of Articles and Sections of this Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions.
11.8. Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided that neither this Agreement nor any of the covenants and agreements herein or rights, interests or obligations hereunder may be assigned or delegated by any Seller, without the prior written consent of Buyer, and neither this Agreement nor any of the covenants and agreements herein or rights, interests or obligations hereunder may be assigned or delegated by Buyer or Merger Sub without the prior written consent of Sellers, except that Buyer may assign or convey its rights and obligations under this Agreement (a) to RWB following consummation of the RTO,
(b) to any existing Affiliate of Buyer, (c) in connection with a merger or consolidation involving Buyer or in connection with a sale of any equity interests or assets of Buyer or its Affiliates or other disposition of all or any portion of the Business, or (d) to lenders of Buyer or its Affiliates as collateral security for borrowings, at any time whether prior to or following the Closing Date; and in each such case Buyer will nonetheless remain liable for all of its obligations hereunder.
11.9. Definitions. For purposes of this Agreement, the following terms have the meaning set forth below:
“Adjustment Calculation Time” means 11:59 p.m. Eastern standard time on the day immediately prior to the Closing Date.
“Affiliate” of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where “control” means the possession, directly
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or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities or otherwise.
“Affiliated Group” means any affiliated group as defined in Section 1504 of the Code (or any analogous combined, consolidated or unitary group defined under state, local or foreign income Tax Law).
“Buyer Material Adverse Effect” means any event, occurrence, fact, condition or change that is materially adverse to (a) the business, results of operations, condition (financial or otherwise) or assets of the Buyer (or RWB, following consummation of the RTO), or (b) the ability of Buyer (or RWB, following consummation of the RTO) to consummate the transactions contemplated hereby; provided, however, that “Buyer Material Adverse Effect” shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting the industries in which Buyer (or RWB) operates; (iii) any changes or fluctuations in the price of RWB Stock; (iii) any other changes in financial or securities markets in general; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action required or permitted by this Agreement; (vi) any changes in applicable Laws or accounting rules, including GAAP; or (vii) the public announcement, pendency or completion of the transactions contemplated by this Agreement.
“Cap” means $25,000,000.
“Cash Consideration” means $18,000,000.
“Charter Documents” means any corporate, partnership or limited liability organizational documents, including, but not limited to, Certificates or Articles of Incorporation, By-laws and Certificates of Existence, as applicable.
“Code” means the Internal Revenue Code of 1986, as amended, and any successor law.
“Company Material Adverse Effect” means any event, occurrence, fact, condition or change that is, or could be reasonably expected to become, individually or in the aggregate, material adverse to (a) the business, results of operations, condition (financial or otherwise) or assets of the Company, or (b) the ability of the Sellers to consummate the transactions contemplated hereby on a timely basis.
“Contract” means any contracts and, agreements, leases, licenses, instruments, obligations, arrangements or other understandings (whether written or oral), including amendments and supplements, modifications, and side letters or agreements.
“Environmental Laws” means all federal, state, local and foreign Laws, including statutes, regulations, ordinances, rules, directives, orders, decrees and other provisions or common law having the force or effect of law, and all judicial and administrative orders and determinations that are binding upon the Company or the Sellers, concerning pollution or protection of the environment, including all those relating to the generation, handling, transportation, treatment, storage, disposal, distribution, labeling, discharge, release, threatened release, control, or cleanup of any hazardous substances, as such of the foregoing are promulgated and in effect on or prior to
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the Closing Date. By way of example and not limitation, the term “Environmental Laws” shall include (as may be amended from time to time prior to the Closing Date) the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Oil Pollution Act, the Endangered Species Act, the Safe Drinking Water Act, the Solid Waste Disposal Act, the Emergency Planning and Community Right to Know Act, the Federal Insecticide, Fungicide, and Rodenticide Act, the Clean Air Act and all regulations under such statutes.
“Equity Interests” means (i) in the case of a corporation, any and all shares (however designated) of capital stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (iii) in the case of a partnership or limited liability company, any and all partnership or membership interests (whether general or limited), (iv) in any case, any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, and (v) in any case, any right to acquire any of the foregoing.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“Estimated Merger Consideration” means an amount equal to the Cash Consideration minus (i) the Estimated Seller Transaction Expenses, minus (ii) if the Net Working Capital Target exceeds the Estimated Net Working Capital, the amount by which the Net Working Capital Target exceeds the Estimated Net Working Capital, plus (iii) if the Estimated Net Working Capital exceeds the Net Working Capital Target, the amount by which the Estimated Net Working Capital exceeds the Net Working Capital Target.
“Excluded Liabilities” means all Liabilities relating to, based upon or arising from the business, operations or assets of the Company, or otherwise based upon or arising from events or circumstances relating to the Company, in each case, that arise, or relate to events or circumstances that occur, on or prior to the Closing regardless of whether such Liabilities are actually discovered or incurred prior to the Closing, but specifically excludes Environmental Conditions.
“Final Merger Consideration” means an amount equal the Cash Consideration minus (i) the Final Company Seller Transaction Expenses, minus (ii) if the Net Working Capital Target exceeds the Final Net Working Capital, the amount by which the Net Working Capital Target exceeds the Final Net Working Capital, plus (iii) if the Final Net Working Capital exceeds the Net Working Capital Target, the amount by which the Final Net Working Capital exceeds the Net Working Capital Target.
“Fixed Stock Price” means CAN$5.00 per share of RWB Stock.
“Fraud” means actual fraud (with scienter).
“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or any successor authority) that are applicable as of the date of determination, consistently applied.
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“Hemp Operations Payable” means the payable owing by the Company to Color Point, LLC, in an amount equal to $2,708,724.45 (as of August 31, 2019) for the working capital needs of the Company in the operation of its hemp-related business, plus such additional amounts advanced by Color Point, LLC to the Company from September 1, 2019 through Closing for the same consistent with past practices, which is memorialized by that certain confirmation of payable dated October 9, 2019, between the Company and Color Point, LLC.
“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
“Indebtedness” means, with respect to any Person, (i) any indebtedness for borrowed money, (ii) any indebtedness evidenced by any note, bond, debenture or other debt security, (iii) any Liabilities or obligations for the deferred purchase price of property or services with respect to which such Person is liable, contingently or otherwise, as obligor or otherwise, (iv) contingent reimbursement obligations with respect to letters of credit or similar obligations and bankers’ acceptances issued for the account of a Person, (v) any indebtedness guaranteed in any manner by such Person (including guarantees in the form of an agreement to repurchase or reimburse), (vi) any obligations under capitalized leases (as defined by GAAP), (vii) any indebtedness or Liabilities secured by a lien on such Person’s assets, (viii) any amounts owed by such Person to any Person under any deferred compensation arrangements, (ix) any “success fees” or bonuses, change of control payments, phantom equity payments, or severance payments arising from or otherwise triggered by the transactions contemplated by this Agreement (including the employer’s share of payroll Taxes attributable thereto), and (x) any deferred purchase price obligations related to past asset or stock acquisitions by such Person or any equityholder of such Person with respect to the Business. For purposes of calculating Indebtedness, all interest, prepayment penalties, premiums, fees and expenses (if any) which would be payable if Indebtedness were paid in full at the Closing shall be treated as Indebtedness.
“Independent Accountant” means a nationally recognized independent public accounting firm or other financial services firm that (i) is jointly selected by Buyer and Seller and (ii) does not have an existing business relationship with any of Buyer, Buyer’s Affiliates, Sellers or Sellers’ Affiliates. An Independent Accountant selected to resolve dispute will consider only disputed items and must resolve the matter in accordance with the terms and provisions of this Agreement. The appointment and engagement of the Independent Accountant, and any fees, costs or expenses associated therewith, shall be borne fifty percent (50%) by Buyer and fifty percent (50%) by Seller. The determination the Independent Accountant shall be conclusive and binding upon the parties hereto, absent fraud or manifest error (it being understood that in making such determination, the Independent Accountant shall be functioning as an expert and not as an arbitrator).
“Intellectual Property” means any of the following which are owned by the Company or used in connection with the Business: (a) patents and patent disclosures, (b) all registered and unregistered copyrights, (c) Internet domain names and websites related to social media companies and the content found thereon, (d) trademarks, service marks, trade dress, trade names and corporate names, and similar designations of source or origin including all common law marks, together with all of the goodwill represented thereby, (e) trade secrets, know-how, designs, discoveries, inventions (whether patented or not), technical data and other proprietary or
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confidential information, (f) Software and (g) all registrations, renewals and applications for registration or any causes of action of any nature available to Sellers of any of the foregoing.
“IP Agreements” means all incoming and outgoing licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, permissions and other Contracts (including any right to receive or obligation to pay royalties or any other consideration), whether written or oral, (a) to which the Company is a party, beneficiary or otherwise bound, and
(b) under which the Company expressly grants to a third party, or expressly receives from a third party, any right or license under any Intellectual Property.
“IP Registrations” means all Intellectual Property that is subject to any issuance registration, application or other filing by, to or with any governmental authority or authorized private registrar in any jurisdiction, including registered trademarks, domain names and copyrights, issued and reissued patents and pending applications for any of the foregoing.
“IRS” means the United States Internal Revenue Service (or any successor agency).
“Liability” means any obligation or liability, whether absolute or contingent, asserted or unasserted, known or unknown, liquidated or unliquidated, due or to become due, fixed or unfixed, and regardless of when or by whom asserted.
“Liens” means any mortgages, pledges, security interests, deeds of trust, liens, charges, options, conditional sales contracts, claims, covenants, easements, rights of way, title defects, restrictions on use, voting, transfer, receipt of income, or the right to exercise any other attribute of ownership, or other encumbrances of any nature whatsoever.
“Net Working Capital” shall mean, with respect to the Company, as of the Adjustment Calculation Time, (A) the sum of the current assets of the Company related to the Company’s operations prior to July 1, 2019 set forth on the Net Working Capital Schedule as of such date, as determined in accordance with GAAP, minus (B) the sum of the current liabilities of the Company related to the Company’s operations prior to July 1, 2019 set forth on the Net Working Capital Schedule as of such date, as determined in accordance with GAAP; provided, that for this purpose,
(i) current assets will not include any intercompany assets, any deferred Tax assets, prepaid income Tax assets or refunds therefor or any income Tax receivables and (ii) current liabilities will not include any intercompany liabilities, deferred Tax liabilities or income Tax liabilities. For the avoidance of any doubt, Net Working Capital shall not include any Indebtedness of the Company or Seller Transaction Expenses. The Net Working Capital Schedule sets forth an illustrative calculation of Net Working Capital.
“Net Working Capital Target” $0.00.
“Permitted Exceptions” means (i) zoning ordinances and regulations; (ii) real estate taxes and assessments, both general and special, which are a lien but are not yet due and payable at the Closing Date; (iii) easements, conditions, restrictions and covenants of record relating to the Property not objected to by Buyer as contemplated by the title and survey review process pursuant to Section 7.1(i); and (iv) the rights of the public in and to any roadways or highways within the legal description of the Owned Real Property or Leased Real Property.
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“Permitted Liens” means (a) statutory and contractual landlord liens incurred in the ordinary course of business for sums (i) not yet due and payable or (ii) being contested in good faith, (b) liens for Taxes not yet due and payable, (c) statutory mechanic’s liens and materialmen’s liens for services or materials and similar statutory liens for amounts arising in the ordinary course of business that are not yet due and payable, (d) statutory liens of warehousemen and carriers and similar statutory liens securing obligations for amounts arising in the ordinary course of business that are not yet due and payable, and (e) zoning, entitlement, building and other land use regulations or restrictions which are not violated in any material respect by the current use and operation of such real property.
“Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated association, corporation, entity or government (whether Federal, state, county, city or otherwise, including, without limitation, any instrumentality, division, agency or department thereof).
“Pre-Closing Tax Period” means (i) any Tax period ending on or before the Tax Effective Time and (ii) with respect to a Taxable period that commences before but ends after the Tax Effective Time, the portion of such period through the Tax Effective Time.
“Post-Closing Cash Consideration” means $5,000,000.
“Restructuring Transaction Documents” means an asset contribution agreement, bill of sale, assignment of contract rights, assignment of IP, assignment of trademarks and the assumption of liabilities, including the Schedules thereto and such other documents necessary to evidence the Pre-Closing Restructuring Transactions as contemplated hereby, each in form mutually agreeable to Sellers and Buyer.
“RWB Stock” means the class of stock of Michicann’s successor (RWB) to be listed on the Canadian Securities Exchange following completion of the RTO.
“RWB Stock Issuance Right” has the meaning given to it in Section 2.2(c)(iv).
“Seller Transaction Expenses” means (without duplication), to the extent not paid before the Closing, the collective amount payable by Sellers or the Company (i) to accountants, lawyers, advisors, brokers and other third parties, arising in connection with the sale of the Company Capital Stock, and (ii) in respect of any fees and expenses associated with obtaining necessary or appropriate waivers, consents or approvals of any Governmental Authority or other third-party, including change of control or transfer payments.
“Software” means any and all computer software and code, including all new versions, updates, revisions, improvements and modifications thereof, whether in source code, object code, or executable code format, including systems software, application software (including mobile apps), firmware, middleware, programming tools, scripts, routines, interfaces, libraries, and databases, and all related specifications and documentation, including developer notes, comments and annotations, user manuals and training materials relating to any of the foregoing (other than shrink wrap, click-thru or like licenses for commercial off-the-shelf software).
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“Specified Indebtedness” means a portion of the principal and interest owing under that certain Amended and Restated Credit Agreement, dated December 13, 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among AG Credit, the Company, Color Point, LLC, VW Properties, LLC and Mid-American Trucking, Inc. in an aggregate amount not to exceed $15,000,000.
“Stock Consideration” means 19,800,000 shares of RWB Stock, which is an aggregate number of shares of RWB Stock equal to the quotient of $75,000,000 (multiplied by a 1.32 exchange rate) divided by the Fixed Stock Price; provided that, the Stock Consideration will be determined only in the form of whole shares and any fractional shares shall be rounded up to the nearest whole share.
“Subsidiaries” means, with respect to any Person (other than an individual), any corporation or other organization, whether incorporated or unincorporated, of which (a) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries or
(b) such Person or any other Subsidiary of such Person is a general partner.
“Tax” or “Taxes” means any and all federal, state, local and non-U.S. taxes, however denominated, the Liability for which is imposed by law, contractual agreement or otherwise, which taxes shall include, but not be limited to, all net income, gross income, gross receipts, franchise, excise, occupation, estimated, alternative minimum, add on minimum, premium, windfall profit, profits, gains, net worth, paid up capital, capital stock, greenmail, sales, use, ad valorem, value added, retailers’ occupation, stamp, natural resources, environmental, real property, personal property, custom, duty, transfer, recording, escheat or unclaimed property, registration, documentation, leasing, insurance, social security, employment, severance, workers’ compensation, impact, hospital, health, unemployment, disability, payroll, license, service, service use, employee or other withholding, or other tax or governmental charge, of any kind whatsoever, whether disputed or not, including any interest, penalties, fees, charges, levies, assessments, duties, tariffs, imposts or additions to Tax that may become payable in respect thereof, and any Liability in respect of such amounts arising as a result of being a member of any affiliated, consolidated, combined, unitary or similar group, as a successor to or transferee of another person or by contract.
“Tax Returns” means returns, declarations, reports, statements, elections, estimates, claims for refund, information returns or other documents (including any related or supporting schedules, statements or information, any amendment to the foregoing, and any sales and use and resale certificates) filed or required to be filed in connection with the determination, assessment, payment, deposit or collection of any Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes.
“Trade Secrets” means all nonpublic, confidential or proprietary information, and all technology, know-how, inventions, processes, formulae, algorithms, models, methodologies, ideas, compositions, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data,
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financial, business and marketing information and plans, customer and supplier lists, pricing and cost information and related information.
“Transaction Documents” means all agreements and instruments contemplated by and being delivered pursuant to or in connection with this Agreement, including without limitation, this Agreement, the Certificate of Merger, the Lock-Up Escrow Agreements and the Consulting Agreement.
11.10. Entire Agreement. This Agreement, the Preamble and the Exhibits and Schedules attached to this Agreement (all of which shall be deemed incorporated in the Agreement and made a part hereof) set forth the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, understandings or letters of intent among any of the parties hereto.
11.11. Third Parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give to any Person, other than the parties to this Agreement and their respective permitted successors and assigns, any rights or remedies under or by reason of this Agreement (other than in respect of the Indemnified Parties pursuant to ARTICLE X).
11.12. Interpretative Matters. Unless the context otherwise requires, (a) all references to Articles, Sections or Schedules are to Articles, Sections or Schedules in this Agreement, (b) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural, and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter, (d) all references to “dollars” or “$” are to United States dollars and (e) whenever the words “include,” “includes” or “including” are used in this Agreement they shall be deemed to be followed by the words “without limitation.” In addition, nothing in the Schedules hereto shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself). The parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any party has breached any representation, warranty, or covenant contained herein (or is otherwise entitled to indemnification) in any respect, the fact that there exists another representation, warranty, or covenant (including any indemnification provision) relating to the same subject matter (regardless of the relative levels of specificity) which the party has not breached (or is not otherwise entitled to indemnification with respect thereto) shall not detract from or mitigate the fact that the party is in breach of the first representation, warranty, or covenant (or is otherwise entitled to indemnification pursuant to a different provision).
11.13. Knowledge. Where any representation or warranty contained in this Agreement is expressly qualified by reference “to the knowledge of the Company,” “Company’s Knowledge,” or any similar term, it refers to the actual knowledge of each Seller, Anne Hyde, Bruce Daniel, and Johannes Pieterse and all knowledge that such listed persons should have assuming such persons have conducted a reasonable inquiry or investigation regarding the subject matter at issue,
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including inquiring of those employees of the Company whose duties would, in the normal course of the Company’s affairs, result in such employees having actual knowledge concerning such subject, area or aspect.
11.14. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto.
11.15. Jurisdiction and Governing Law. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Delaware, without giving effect to provisions thereof regarding conflict of laws. Each party hereby irrevocably submits to the exclusive jurisdiction of the state or federal courts located in the State of Delaware, in respect of any claim relating to the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement, or otherwise in respect of the transactions contemplated hereby and thereby, and hereby waives, and agrees not to assert, as a defense in any action, suit or proceeding in which any such claim is made that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in such courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts.
11.16. Service of Process. Each of the parties hereto irrevocably consents to the service of process outside the territorial jurisdiction of the courts referred to in Section 11.15 hereof in any such action or proceeding by giving copies thereof by hand delivery of air courier to his, her or its address as specified in or pursuant to Section 11.1 hereof. However, the foregoing shall not limit the right of a party to effect service of process on the other party by any other legally available method.
11.17. WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES (TO THE FULLEST EXTENT PERMITTED BY LAW) ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. THE PARTIES ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
11.18. Schedules. The disclosure of any facts or items in the Schedules accompanying this Agreement is not intended to imply that such items so included are or are not material, or that the occurrence or existence of any such violation, inaccuracy, breach, default, failure to comply, change in circumstances, loss, effect, fact, agreement arrangement, commitment, understanding or obligation, as a result of the occurrence or existence thereof, would individually or collectively, result in a Company Material Adverse Effect. The disclosure of any fact or item in the Schedules with respect to a particular paragraph or section of the Agreement shall be deemed to be disclosed
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with respect to such other paragraph or section of the Agreement to which an appropriate cross reference is made to another Schedule or to the extent it is reasonably apparent on its face that such disclosure is also applicable to any other paragraph or section of the Agreement. Each agreement, instrument and document described herein is incorporated herein by reference. All capitalized terms used in the Schedules and not otherwise defined in the Schedules will have the meanings assigned to them in this Agreement.
11.19. Consent and Waiver. By executing and delivering this Agreement, the Sellers consent to the Merger.
11.20. Special Rule for Fraud. Notwithstanding anything herein to the contrary, in no event shall any limit or restriction on any rights or remedies set forth in this Agreement limit or restrict the rights or remedies of any party for the Fraud by any other party or any Affiliate or representative of such other party.
11.21. Specific Performance. Each Seller acknowledges that the Business is unique and recognizes and affirms that in the event of a breach of this Agreement by a Seller, money damages may be inadequate and Buyer may have no adequate remedy at law. Accordingly, each Seller agrees that Buyer shall have the right, in addition to any other rights and remedies existing in its favor, to enforce its rights and the obligations of the Sellers hereunder not only by an action or actions for damages but also by an action or actions for specific performance, injunctive and/or other equitable relief. If any such action is brought by Buyer to enforce this Agreement, each Seller hereby waives the defense that there is an adequate remedy at law.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESSWHEREOF, the parties hereto have executed this Agreement and Plan of Merger as of the date first above written.
Signature Pate to Agreement and Plan of Merger
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Signature Pate to Agreement and Plan of Merger
Exhibit A
Pre-Closing Restructuring Transactions
Prior to Closing, the Company has employed the following individuals, each of whom was previously employed by Salary, LLC:
[REDACTED}
Prior to Closing, the Company has discontinued all operations and sales arrangements and agreements with customers of its non-hemp related business.
Prior to Closing, the Company transferred the assets listed on Exhibit A-1 to Color Point, LLC.
The ERP system and proprietary formulations for hemp will be transferred to the Company (or otherwise, the Company and its post-closing affiliates will have a royalty-free perpetual license to use such IP.
Exhibit B
Form of Real Estate Purchase Agreement
[See attached.]
REAL ESTATE PURCHASE AGREEMENT
THIS REAL ESTATE PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of [●], 2019, between [BUYER ENTITY], whose address is [●] (“Buyer”), and VW Properties, Inc., a [●] corporation (“Seller”), each of Arthur VanWingerden and Ken VanWingerden (each a “Shareholder” and collectively, and jointly and severally, the “Shareholders”). Buyer, Seller and the Shareholders are sometimes referred to herein individually as a “Party” and collectively as the “Parties”, as the case may be.
RECITALS:
A. Seller owns the land consisting of approximately 106 acres located at 14240 Greenhouse Ave., Granville, Illinois 61326, which is legally described on Exhibit A attached to this Agreement, (the “Land”), together with (i) the buildings, plant facilities, structures, building systems, fixtures and improvements located thereon (collectively, the “Improvements” together with the Land are collectively referred to as the “Real Property”) (ii) all right, title and interest of Seller, if any, in and to all and singular the rights, benefits, privileges, easements, tenements, hereditaments, rights of way and appurtenances thereon or appertaining thereto and any air rights and/or development rights appurtenant to the Land or the Improvements, (iii) all right, title and interest of Seller, if any, in and to the equipment, furnishings, furniture, fixtures, machinery, inventory, appliances and other personal property, if any owned by Seller and now located on or about the Land or Improvements, including without limitation the personal property listed on Schedule 1 attached hereto and made a part hereof (collectively, the “Personal Property”) and (iv) all intangible property related to the Land or Improvements owned or in the name of Seller, including, without limitation, all assignable warranties and guaranties, all plans, specifications, consents, authorizations, variances, licenses, permits and approvals from any governmental or quasi-governmental agency, department, board, commission, bureau or other entity or instrumentality if any, relating to the Land and Improvements (collectively, the “Intangibles”) (all of the foregoing, collectively, the “Property”).
B. Seller desires to sell to Buyer and Buyer desires to purchase from Seller the Property upon and subject to the terms and conditions set forth in this Agreement and that certain Agreement and Plan of Merger dated as of the date hereof, by and among Michicann Medical Inc., RWB Acquisition Sub, Inc., Mid-American Growers, Inc. and the Shareholders (as amended, restated, supplemented or otherwise modified from time to time, the “Merger Agreement”).
C. The Shareholders own Seller and will benefit from sale of the Property to Buyer.
NOW, THEREFORE, in consideration of the mutual covenants, promises, and agreements set forth herein and subject to the terms and conditions contained herein, the parties agree as follows:
1. Sale and Conveyance. At the Closing (as hereinafter defined), subject to the terms and conditions of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, the Property for the purchase price of Two Million and No/100ths Dollars ($2,000,000) (“Purchase Price”). As part of any Closing under this Agreement, the Property
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would be conveyed by a limited warranty deed free and clear of any and all Liens and subject only to the Permitted Exceptions.
2. Closing; Closing Deliverables. Subject to the conditions set forth herein, the consummation of the transactions that are the subject of this Agreement (the “Closing”) shall occur at the offices of Honigman LLP, 660 Woodward Avenue, 2290 First National Building, Detroit, Michigan 48226, or at such other place as Buyer, Seller and Shareholders may mutually agree upon in writing, or remotely by mail, facsimile, e-mail and/or wire transfer, in each case to the extent acceptable to the parties hereto, at 10:00 a.m., Detroit time, on the second business day after satisfaction of the conditions set forth in Section 7 (other than those to be satisfied at the Closing, but subject to their satisfaction or waiver at the Closing). The date on which the Closing is to occur is herein referred to as the “Closing Date.” Regardless of the actual time of the Closing, except as otherwise expressly provided herein, for tax and accounting purposes, the Closing shall be deemed effective as of close of the day immediately preceding the Closing Date. At the Closing, the parties will execute and deliver or cause to be executed and delivered, as applicable, the following:
(a) Seller shall execute and deliver to the Title Company in escrow an originally executed special warranty deed (the “Deed”), in form approved by Buyer, conveying to Buyer fee simple title to the Property, subject only to the Permitted Exceptions, and otherwise mutually acceptable to Seller and Buyer.
(b) Seller shall deliver to the Title Company in escrow all transfer and other tax declarations for the Property (or MyDec filing) as may be required by law in connection with the transaction contemplated by this Agreement duly executed and sworn to by Seller and, to the extent required, by the Title Company and any other certification from the Town and County where the Property is located, required to record the Deed with the County Recorder’s Office.
(c) To the extent the Parties reasonably determine necessary or advisable, Seller shall deliver to Buyer a release letter or certificate for the Property from the Illinois Department of Revenue stating that no assessed but unpaid tax penalties or interest are due under Section 9-902(d) of the Illinois Income Tax Act, as amended, or 35 ILCS 120/5j of the Illinois Compiled Statutes, as amended; and (ii) a letter of clearance for the Property from the State of Illinois’ Department of Employment Security stating that no assessed but unpaid tax penalties or interest are due under Section 2600 of the Illinois Unemployment Insurance Act (820 ILCS 405/2600), as amended (the release letters and clearances referred to in (i) – (ii) above are referred to collectively as the “Bulk Sale Releases” and individually as a “Bulk Sale Release”). Concurrent with the execution and delivery of this Agreement, Seller has completed, signed and delivered to Buyer (i) the Illinois Department of Revenue Form ITR-1 Request for Tax Clearance and (ii) the State of Illinois Department of Employment Security Request For Letter of Clearance and acknowledges that Buyer shall process the same with the Illinois Department of Revenue and the Illinois Department of Employment Security, respectively.
(d) Seller shall deliver to the Title Company in escrow a bill of sale and general assignment conveying title to Buyer to the Personal Property and the Intangible Property;
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(e) Buyer shall deliver to the Title Company the Purchase Price, as adjusted by the adjustments and prorations provided for in this Agreement in accordance with a closing statement to be prepared by the Title Company (the “Closing Statement”).
(f) Seller shall terminate the Service Contracts, except those Service Contracts, if any, which Buyer has elected to continue and assume as of the Closing pursuant to Section 5(a). Seller shall execute and deliver to Buyer such documents or instruments of conveyance and transfer for the purpose of assigning such Service Contracts to Buyer.
(g) Seller shall deliver to Buyer all keys in Seller’s possession or control to all locks on the Property.
(h) Seller and Buyer shall execute and deliver the Closing Statement setting forth the Purchase Price and reflecting all credits, adjustments and prorations provided for in this Agreement.
(i) Seller shall execute and deliver to the Title Company such affidavits with respect to the Property as the Title Company shall require in order to delete from its title insurance policies those of the so-called “standard exceptions” that are removable by affidavit and Seller shall deliver to the Title Company documents evidencing its existence, authority and good standing as required by the Title Company.
(j) Seller shall execute and deliver to Buyer a non-foreign person affidavit or a qualifying statement sufficient in form and substance to relieve Buyer of any and all obligation to deduct, withhold or pay any amount of tax pursuant to Section 1445 of the Internal Revenue Code of 1986, as amended (“Code”).
(k) Seller shall cause the Title Company to provide Buyer with the proforma or marked-up Title Commitment as required under this Agreement.
(l) Seller shall have terminated all leases currently in effect concerning the Property (except as otherwise requested by Buyer) and shall have entered into binding terminations of any Service Contracts on the Property with respect to those Service Contracts that Buyer (in its sole discretion) has not elected to continue pursuant to Section 5(a), so that such are no longer in effect as of the date of Closing, in each case to the satisfaction of Buyer.
(m) Seller shall deliver to Buyer exclusive possession of the Property in the condition existing on the date of this Agreement (subject to normal wear and tear), subject to the rights of no persons whatsoever except Buyer.
(n) Buyer and Seller shall execute and deliver to each other such other documents as are contemplated to be executed and/or delivered pursuant to the provisions of this Agreement, or as reasonably requested by the other party hereto.
3. Representations and Warranties of Shareholders.
(a) Each Shareholder, severally and not jointly, represents and warrants to Buyer as to itself only, as of the date of this Agreement and as of the Closing Date, as follows:
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(i) Authority. Each Shareholder has full power, right and authority to enter into and perform such Shareholder’s obligations under this Agreement and each of the related transaction documents to which such Shareholder is a party. This Agreement and each of the related transaction documents to which such Shareholder is a party has been duly executed and delivered by such Shareholder, and, assuming due and valid authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, constitute the valid and legally binding obligation of such Shareholder and are enforceable against such Shareholder in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) (the “Bankruptcy and Equity Exception”).
(ii) Noncontravention. The execution, delivery and performance by each Shareholder of this Agreement and the related transaction documents to which such Shareholder is a party and the consummation of the transactions contemplated hereby or thereby will not, or would not: (a) violate or conflict with or result in a breach of or default under any provision of any law, statute, rule, regulation, order, permit, by law, enactment, ordinance, directive, judgment, injunction, decree or other decision of any Governmental Authority (each a “Law” and, collectively, “Laws”), in each case applicable to such Shareholder; (b) constitute (with or without due notice or lapse of time or both) a default under or an event which would give rise to any right of notice, modification, acceleration payment or cancellation under or permit any party to terminate under any material contract, agreement, indenture, mortgage, note, bond, license or other instrument or obligation of such Shareholder or by which the assets of such Shareholder may be bound or subject; (c) result in the creation or imposition of any Lien upon any of the Property; or (d) require any material authorization, consent, order, approval, filing, registration, exemption or other action by, or notice to, any court, arbitral body, administrative or governmental body, department, commission, board, agency or instrumentality, legislative, executive or regulatory authority or agency (whether foreign or domestic) (each, a “Governmental Authority”) or other Person.
(iii) Litigation. There is no claim, action, cause of action or suit (whether in contract, tort, eminent domain, or otherwise), litigation (whether at law or in equity, whether civil or criminal), controversy, assessment, grievance, arbitration, investigation, hearing, charge, complaint, demand, notice, audit, inquiry, notice of violation, order, or other proceeding (each a “Proceeding” and, collectively “Proceedings”) pending or, to each Shareholder’s knowledge, threatened against or affecting such Shareholder in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with the transactions contemplated hereby.
(iv) Broker Fees. Neither Shareholder has employed any broker, finder or agent or has incurred or will incur any obligation or Liability to any broker, finder or agent with respect to the transactions contemplated by this Agreement or otherwise, and all fees and expenses and other obligations payable in connection with or as a result of such agreements will be paid by Shareholders and Seller, and Buyer will have no obligations in respect thereof.
4. Representations and Warranties of Seller.
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(a) Seller and the Shareholders, jointly and severally, represent and warrant to Buyer, as of the date of this Agreement and as of the Closing Date, as follows:
(i) Authority. Seller has full power, right and authority to enter into and perform its obligations under this Agreement and each of the Transaction Documents to which it is a party. This Agreement and each of the Transaction Documents to which Seller is a party has been duly executed and delivered by Seller, and, assuming due and valid authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, constitute the valid and legally binding obligation of Seller and are enforceable against Seller in accordance with their respective terms, except as may be limited by the Bankruptcy and Equity Exception.
(ii) Organization and Qualification of the Seller. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of ______________. Seller has full corporate power and authority to carry on its business as now being conducted and as currently proposed to be conducted and to own, lease or otherwise hold the Property and such other properties and assets it now owns, leases or otherwise holds. Seller is duly qualified or licensed to do business and is in good standing as a foreign corporation in the State of Illinois and, as applicable, in each of the other jurisdictions listed on Schedule 4(a)(ii). Seller has no Subsidiaries. Complete and correct copies of the Charter Documents of Seller and all amendments thereto to date, certified (as applicable) by the Secretary of State of ________________ have been delivered to Buyer and will not be modified or amended prior to the Closing. Schedule 4(a)(ii) sets forth a list of all of the officers and directors (or similar persons) of Seller.
(iii) Noncontravention. The execution, delivery and performance by Seller of this Agreement and the other transaction documents to which Seller is a party and the consummation of the transactions contemplated hereby or thereby will not, or would not: (A) violate or conflict with or result in a breach of or default under any Law, in each case applicable to Seller; (B) constitute (with or without due notice or lapse of time or both) a default under or an event which would give rise to any right of notice, modification, acceleration payment or cancellation under or permit any party to terminate under any material contract, agreement, indenture, mortgage, note, bond, license or other instrument or obligation of Seller or by which the Property may be bound or subject; (C) result in the creation or imposition of any Lien upon the Property; or (D) require any material authorization, consent, order, approval, filing, registration, exemption or other action by, or notice to, any Governmental Authority or other Person.
(iv) Title to Property.
(A) Seller has and will have at the Closing, good and marketable indefeasible fee simple title to the Property, which title, at Closing, shall be free and clear of all Liens, except Permitted Exceptions. Except for the lease granting the right to grow corn and soybeans on approximately 40 acres of the Property, the terms of which have been disclosed to Buyer and which lease expires prior to January 1, 2020 and which is not subject to renewal without Seller’s consent, neither Seller nor any Seller Party has leased or otherwise granted to any Person (other than a Seller Party) the right to use or occupy the Property or any portion thereof and as of the Closing Date, there will exist no possessory interests in the Property except for the fee simple interest of Buyer in the Property and any other interests granted solely
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by Buyer. Other than the right of Buyer pursuant to this Agreement, there are no outstanding options, rights of first offer or rights of first refusal to purchase the Property or any portion thereof or interest therein.
(B) To the extent any of the Property consists of Personal Property, Seller has good and valid title to, a valid leasehold interest in, or a valid license to use all such Personal Property. Such Personal Property is operated in conformity with all applicable Laws and regulations, is structurally sound (in the case of the buildings and improvements), is in good condition and repair, except for reasonable wear and tear, and is usable in the ordinary course of business.
(v) Compliance with Applicable Laws. Except as set forth on Schedule 4(a)(v), Seller and each Seller Party that occupies or uses the Property, and the Property is and has been in material compliance with all Laws (including Environmental Laws) applicable to it or the operation, use, occupancy or ownership of the Property or conduct of the Business at the Property, and Seller nor any Seller Party that occupies or uses the Property has received written notice (and to Seller’s Knowledge, any oral notice) from any Governmental Authority regarding any failure to so comply. Seller nor any Seller Party has (i) been subject to any adverse inspection, finding, investigation, penalty assessment, audit or other compliance or enforcement action or (ii) made any bribes, kickback payments or similar payments of cash or other consideration or paid any remuneration, in cash or in kind, in violation of 42 U.S.C. § 1320a-7b(b) or similar provisions of applicable Law, that is capable of forming the basis of criminal prosecution of, or civil action against, the Seller or a Seller Party.
(vi) Tax Matters. The tax parcel numbers that are assigned to the Land and Improvements do not affect or include any other land or improvements and there are not any pending appeals for the reduction or relief from the payment of any real estate taxes. Except as set forth on Schedule 4(a)(vi), neither Seller, nor any Seller Party has received any notice and or has any knowledge of (i) any special assessments affecting the Property; (ii) any tax deficiency, lien or assessment against the Property, in each case, which has not been paid or the payment for which adequate provision has not been made; (iii) any violations of Laws with respect to the Property; (iv) any condemnations or imminent domain proceedings; (v) any pending zoning or subdivision changes that would affect the Property. Seller is not a "foreign person" as defined in Section 1445 of the Code.
(vii) Service Contracts. Schedule 4(a)(vii) sets forth all leases and contracts for management, maintenance or other services to the Property (“Service Contracts”), and there are no other agreements, oral or written, relating to, affecting or binding on the Property or any part thereof (or Buyer as the new owner thereof).
(viii) Property Improvements. With respect to the Property: (A) All Improvements are in good condition and repair (normal wear and tear excepted) and are sufficient for the conduct of the business of Seller and the Seller Parties on the Property, (B) There are no structural deficiencies or latent defects affecting any of the Improvements and there are no facts or conditions affecting any of the Improvements which would, individually or in the aggregate, interfere in with the use or occupancy of the Improvements, or any portion thereof in the operation by Seller or any Seller Party on the Property or the Business on the Property, (C) The Property and Improvements and Seller’s and each Seller Party’s use thereof conform to all
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applicable building, zoning and other Laws and (D) There is no pending or threatened condemnation or other Proceeding affecting any portion of the Property or any of Seller’s or Seller Party’s use thereof.
(ix) Litigation. Except as set forth on Schedule 4(a)(ix), there is no Proceeding pending or, to Seller’s Knowledge, threatened against Seller or the Property or Seller’s or any Seller’s Party’s use thereof (or to Seller’s Knowledge, pending or threatened against any of the officers, managers, directors or key employees of Seller with respect to the Property), or to which Seller is otherwise a party. Seller is not subject to, and the Property is not bound by, any judgment, order or decree of any court or Governmental Authority. Seller is not currently engaged in any Proceeding to recover monies due it or for damages sustained by it with respect to the Property. Schedule 4(a)(ix) sets forth a list of all closed litigation matters relating to the Property (including predecessors) during the three (3) years preceding the date hereof, the date such litigation was commenced or concluded, and the nature of the resolution thereof (including amounts paid in settlement or judgment).
(x) Licenses and Permits. Seller owns, holds, possesses or lawfully uses all the permits, licenses, registrations, authorizations, industry certifications, consents, certificates, orders, franchises, variances and approvals of Governmental Authorities or other Persons and other Intangibles necessary for the ownership, use, occupancy or operation of the Property, all of which are identified on Schedule 4(a)(x) (collectively, the “Permits”). Seller is in compliance with all such Permits, all of which are in full force and effect, and Seller has not received any written notices (or to Seller’s Knowledge, any oral notice) to the contrary. Neither the execution, delivery nor performance of this Agreement, nor the consummation of the transactions contemplated hereby, will result in the loss or impairment of, or require the consent of any other Person in respect of Buyer’s right to take transfer of such Permits.
(xi) Health, Safety and Environment.
(A) Except as set forth on Schedule 4(a)(xi) hereof, Seller has complied and is in compliance with all Environmental Laws.
(B) Seller has not received any written notice, report, order, directive or other information regarding any actual or alleged violation of Environmental Laws, or any Liabilities, including any investigatory, remedial or corrective obligations, relating to Seller, any Seller Party, the Property arising under Environmental Laws.
(C) None of the following exists at the Property: (1) underground storage tanks, (2) asbestos containing material in any form or condition, (3) materials or equipment containing polychlorinated biphenyls, (4) landfills, surface impoundments, or disposal areas, or (5) groundwater monitoring wells, potable drinkable water wells, petroleum wells or production water wells.
(D) Neither Seller nor its Affiliates, or any predecessor owner of the Property, has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, manufactured, distributed, released or exposed any Person to any substance, including any hazardous substance, at, under, on or from the Property, or any parcel of land adjacent to the Property, in a manner that has given or could give rise to any current or
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future Liabilities (including any Liability for response costs, corrective action costs, personal injury, property damage, natural resources damages or attorney fees, or any investigatory, corrective or remedial obligations) pursuant to any Environmental Laws.
(E) No third party has used the Property for the purpose of treating, generating, manufacturing, producing, storing, handling, treating, transferring, releasing, processing or transporting any petroleum, hazardous waste or hazardous substance and/or toxic waste or toxic substance, as such terms are defined in RCRA, CERCLA, the Superfund Amendments and Reauthorization Act, Public Law 99 499 as amended, or any other federal, state or local environmental law, regulation, code or ordinance.
(F) Neither Seller nor any Seller Party, has received any written or oral notice, claim, report, order, directive, or other information regarding any actual or alleged violation of Environmental Laws, or any Liability, including any investigatory, remedial or corrective obligation, arising under Environmental Laws and relating to the Property.
(G) Neither this Agreement nor the consummation of the transactions contemplated hereby will result in any obligations for site investigation or cleanup, or notification to or consent of Governmental Authorities or third parties, pursuant to any of the so called “transaction triggered” or “responsible property transfer” Environmental Laws.
(H) Seller has not, either expressly or by operation of law, assumed, undertaken, or provided an indemnity with respect to any Liability (including any investigative, corrective or remedial obligation) of any other Person relating to Environmental Laws.
(I) Seller has furnished to Buyer all environmental audits, reports and other environmental documents materially bearing on environmental, health or safety atters relating to the Property, which is in its possession, custody or control.
(J) No work has taken place on the Property in the last one hundred twenty (120) days that would create in any party a right to a lien against any of the Property, except for such work that has been fully paid for by Seller and for which Seller will obtain lien waivers and affidavits if requested by the Title Company.
(xii) Employees. Seller has no employees and never has had any employees.
(xiii) Broker Fees. Seller has not employed any broker, finder or agent or has incurred or will incur any obligation or Liability to any broker, finder or agent with respect to the transactions contemplated by this Agreement or otherwise, and all fees and expenses and other obligations payable in connection with or as a result of such agreements will be paid by Seller, and Buyer will have no obligations in respect thereof.
5. Representations and Warranties of Buyer. Except as set forth in any Buyer disclosure schedules attached to this Agreement, Buyer hereby represents and warrants to Seller, as of the date of this Agreement and as of the Closing Date, as follows
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(a) Organization. Buyer is a corporation organized, validly existing and in good standing under the laws of the State of Delaware. Buyer has all requisite corporate power and authority to own, operate and lease its properties and carry on its businesses as now conducted. Buyer is duly licensed and qualified to do business in and is in good standing under the laws of each jurisdiction where the failure to do so would have a Buyer Material Adverse Effect.
(b) Authorization. Buyer has the full corporate power, right and authority to enter into and perform its obligations under this Agreement and each of the related transaction documents to which it is a party. The execution, delivery and performance of this Agreement and each of the related transaction documents to which Buyer is a party have been duly and properly authorized by Buyer by all requisite action in accordance with applicable law and with the Charter Documents of Buyer. This Agreement and each of the related transaction documents to which Buyer is a party have been duly executed and delivered by Buyer and, assuming due and valid authorization, execution and delivery hereof and thereof by the other parties thereto, constitute the valid and legally binding obligation of Buyer and are enforceable against Buyer in accordance with their respective terms, except as may be limited by the Bankruptcy and Equity Exception.
(c) Noncontravention. The execution, delivery and performance by Buyer of this Agreement and the related transaction documents to which it is a party and the consummation of the transactions contemplated hereby or thereby will not: (a) except with respect to federal Laws related to cannabis, violate or conflict with or result in a breach of or default under any provision of any Laws; (b) constitute a default under the Charter Documents of Buyer; (c) constitute a default or an event which would permit any party to terminate, or accelerate the maturity of any indebtedness or other obligation under, any material contract, agreement, indenture, mortgage, note, bond, license or other instrument to which Buyer is a party or by which Buyer, or Buyer’s properties, are bound or subject; or (d) except for the Requisite Approval (as defined in the Merger Agreement), such authorizations and filings as may be required under the HSR Act and other antitrust laws applicable to the transactions contemplated by this Agreement and the Merger Agreement and such authorizations, exemptions, filings and other actions required under the Merger Agreement pursuant to applicable securities laws, require any material authorization, consent, order, approval, filing, registration, exemption or other action by, or notice to, any Governmental Authority or other Person, except in the case clauses (a), (b) or (c), other than such violations, conflicts, breaches, defaults or rights to terminate or accelerate that individually or in the aggregate would not reasonably be expected to have a Buyer Material Adverse Effect.
6. Covenants.
(a) Evidence of Title.
(i) Buyer may obtain a commitment for a policy of title insurance (“Title Commitment”) in the amount of the Purchase Price, issued by the Title Company. At the Closing, Seller shall, in accordance with the allocation of costs set forth in Section 6(h) below, cause the Title Company to deliver to Buyer a proforma or marked-up copy of the Title Commitment identifying Buyer as the owner of the Property, with those of the so called “standard exceptions,” which can be deleted by affidavit of Seller, and/or evidence of payment
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by Seller for “standard exceptions” relating to monetary obligations and/or delivery of a recent Survey to the Title Company, deleted, and subject only to the Permitted Exceptions.
(ii) Buyer, at its sole cost, may also obtain an updated certified ALTA survey of the Property which survey, subject to clause (iii) below, contains such detail as Buyer shall require in its sole discretion (a “Survey”). At or prior to Closing, the Survey shall be certified to Buyer, Seller, the Title Company and, if applicable, such lending institution or institutions as Buyer shall desire.
(iii) Prior to Closing, Seller shall receive Buyer’s written notice identifying encumbrances, defects or exceptions (“Defects”) which render title to the Property unsatisfactory to Buyer (the “Buyer Notice”). Subject to the last sentence of this clause (iii), Seller will have five (5) business days after receipt of such Buyer Notice (the “Cure Period”) to use commercially reasonable efforts to cure such Defects, or, if Buyer agrees in writing, Seller may use commercially reasonable efforts to obtain title insurance from the Title Company sufficient to insure against such Defects to Buyer’s satisfaction. If, within the Cure Period, Seller is unable to cure, eliminate or insure over such Defects, Buyer shall have the option, to be exercised prior to Closing, to (A) work with Seller to reach a mutually agreeable resolution to address such uncured or uninsured Defects and proceed with this transaction, or (B) cancel and terminate this Agreement by written notice to Seller, and in such event neither Seller nor Buyer shall have any further obligation, liability or responsibility to each other under this Agreement, except as otherwise expressly provided in this Agreement. Such termination shall also act as a termination of the Merger Agreement. The foregoing notwithstanding, Seller shall be obligated, without the requirement for further notification, to pay in full on or before the Closing (1) any monetary obligation defects or encumbrances relating to the Property, (2) any mortgage or similar indebtedness relating to the Property, and (3) any mechanic’s lien, judgment lien or other similar lien encumbering the Property, provided such mechanic’s, judgment or similar liens are of a liquidated or ascertainable amount and readily curable by a payment of money.
(b) General. Subject to the terms of this Agreement, each party hereto shall use reasonable commercial efforts to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the conditions set forth in Section 7. Without limiting the foregoing, each of the parties shall execute and deliver all agreements and other documents required to be delivered by or on behalf of such party under Section 2.
(c) Notices and Consents
(i) Seller shall give all required notices to third parties and use commercially reasonable efforts to obtain all required third party consents in connection with the matters contemplated by this Agreement.
(ii) Each of the parties hereto shall give any notices to, make any filings with, and use commercially reasonable efforts to obtain any authorizations, consents and approvals of all Governmental Authorities in connection with the transactions contemplated by this Agreement.
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(d) Conduct of Seller. Except as required by Law or as otherwise expressly permitted or specifically contemplated by this Agreement, Seller and Shareholders covenant and agree to, and to cause any Seller Party occupying, using or operating the Property to, during the period from the date of this Agreement until the earlier of either the Closing Date or the time that this Agreement is terminated by its terms, unless the other party shall otherwise agree in writing, conduct its business involving the Property in the usual and ordinary course of business.
(i) Without limiting the generality of the foregoing: Seller shall (and cause such Seller Parties to) (A) not transfer the Property or any portion thereof or create on the Property or any portion thereof any easements, liens, mortgages, encumbrances or other interests; (B) not enter into any agreements relating to the Property without Buyer’s written approval, at Buyer’s sole discretion; (C) in the ordinary course and consistent with past practice, continue to maintain and repair the Property in at least the manner which it has previously maintained and repaired the Property; (D) keep in effect the existing policies of public liability and hazard and extended coverage insurance insuring the Property; (E) comply in all material respects with all Laws or municipal ordinances, regulations, orders or requirements affecting the Property; (F) pay as agreed any amounts owing or due and payable to any holder of a mortgage or deed of trust encumbering all or any part of the Property; (G) pay all taxes, assessments, and utility charges (including all water and sewer service charges, and charges for gas, electric, telephone, data, and all other public utilities) with respect to the Property; and (H) not do anything to cause a change in the title to the Property except to cure title defects as permitted under this Agreement.
(e) Access. From the date hereof through Closing: Buyer and its agents, engineers, surveyors, appraisers, auditors and other representatives (collectively, “Buyer’s Representatives”) shall have the right to enter upon the Property to inspect, examine, survey, obtain engineering inspections and environmental studies, appraise and otherwise do that which, in the opinion of Buyer, is necessary to determine the boundaries, acreage and condition of the Property and the suitability of the Property for the uses intended by Buyer (including, without limitation, inspect, review and copy any and all documents in the possession or control of Seller, its agents, contractors or employees, and which pertain to the construction, ownership, use, occupancy or operation of the Property or any part thereof), and to apply for and attempt to obtain any entitlements, governmental approvals, permits or economic development incentives desired by Buyer to develop the Property as Buyer sees fit in its sole discretion. Without limiting the foregoing, Seller shall provide to Buyer copies of existing environmental reports including Phase I and/or Phase II environmental studies; copies of existing geotechnical reports and soil testing reports and analyses in the possession of Seller with respect to the Property and the operations thereon and also permit Buyer and Buyer’s Representatives to conduct environmental due diligence of the Property (including but not limited to a Phase I environmental study)(such historical reports and new reports obtained by Buyer, collectively, the “Environmental Assessment Reports”).
(f) Notices; Update to Schedules.
(i) From the date of this Agreement until the Closing, promptly after it obtains Knowledge thereof (other than from Buyer), but in all events prior to Closing, Seller and the Shareholders will, and will cause any other Seller Party occupying, using or operating at the Property to, promptly deliver notice to Buyer of: (i) any Proceeding commenced or threatened of
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the type described in Section 7 below, (ii) any fact, circumstance, event, action or condition the existence, occurrence or taking of which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (B) has resulted in, or could reasonably be expected to result in, any representation or warranty made by Seller or Shareholders hereunder not being true and correct, (C) has resulted in, or could reasonably be expected to result in, the failure of any of the conditions set forth in Section 7 to be satisfied, or
(D) has resulted in, or could reasonably be expected to result in, the failure by Seller or the Shareholders to perform any of their covenants or agreements hereunder; (iii) any notice or other communication from any Governmental Authority relating to the Property or transactions contemplated by this Agreement; (iv) any fact, circumstance, event, action or condition that has occurred since the date hereof, or that was not Known by Seller or any Seller Party (or that existed as of the date hereof but was not made known to Buyer) prior to the date hereof, that adversely affects the soil bearing capacity, subsoil, wetlands, woodland and environmental condition of the Property or any other aspect of the physical condition of the Property and the Improvements or the current use by Seller and Seller Parties (“New Physical Condition Issue”); and (v) any actual or alleged violation of or non-compliance with applicable Law (including Environmental Laws) and/or applicable building, zoning and other related Laws with respect to the Property or Improvements that has occurred since the date hereof or that was not Known by Seller or any Seller Party (or that existed as of the date hereof but was not made known to Buyer) prior to the date hereof (“New Legal Compliance Issue”). Delivery of any such notice to Buyer shall have no effect on the rights and obligations of the parties hereunder.
(ii) If any event, condition, fact or circumstance that is required to be disclosed pursuant to clause (i) above requires any change in any Schedule to this Agreement, or if any such event, condition, fact or circumstance would require such a change assuming the Schedule were dated as of the date of the occurrence, existence or discovery of such event, condition, fact or circumstance, then Seller shall promptly deliver to the Buyer an update to the Schedules specifying such change, which update shall be deemed to have been provided for informational purposes only and shall not be deemed to supplement or amend the Schedules for purposes of determining the accuracy of any of the representations and warranties contained in this Agreement or determining whether any of the conditions of Section 7 has been satisfied, unless Buyer has consented in writing to such supplement or amendment, which consent shall not be unreasonably withheld, delayed or conditioned.
(g) Exclusivity. None of the Seller nor the Shareholders shall (and the Seller and the Shareholders shall cause their respective Affiliates, officers, directors, managers, employees, agents, consultants, financial advisors, accountants, legal counsel and other representatives not to), directly or indirectly, (a) submit, solicit, initiate, encourage or discuss any proposal or offer from any Person (other than Buyer and its Affiliates in connection with the transactions contemplated hereby) or enter into any agreement or accept any offer relating to or consummate any (i) reorganization, liquidation, dissolution or recapitalization of Seller, (ii) merger or consolidation involving Seller, (iii) purchase or sale of the Property or any assets or Equity Interests (or any rights to acquire, or securities convertible into or exchangeable for, any such Equity Interests) of Seller, or (iv) similar transaction or business combination involving Seller or the Property (each of the foregoing transactions described in clauses (i) through (iv), a “Seller Transaction”) or (b) furnish any information with respect to, assist or participate in or facilitate in any other manner any effort or attempt by any Person (other than Buyer and its
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Affiliates) to do or seek to do any of the foregoing. The Seller and the Shareholders agree to notify Buyer immediately if any Person after the date hereof makes any proposal, offer, inquiry or contact with respect to a Seller Transaction.
(h) Taxes, Rents and Utilities. At Closing, real property taxes and assessments will be prorated in accordance with the local custom, as if paid in arrears, with Seller being responsible for the period up to and including July 31, 2019, and Buyer being responsible for August 1, 2019 and thereafter. All real estate taxes and assessments due and payable prior to Closing shall be paid by Seller. With respect to real estate taxes and assessments not yet due and payable as of the Closing, Buyer shall be responsible for the portion thereof allocable to the period on and after August 1, 2019 and Seller shall be responsible for the portion thereof allocable to the period up to July 31, 2019, and such amounts which are the responsibility of Seller shall be credited to Buyer against the Purchase Price at Closing. If the actual assessed value or tax rate for any real estate taxes are not known on the date of Closing, the taxes shall be prorated and credited to Buyer on a per diem basis using 110% of the last ascertainable taxes. Taxes shall be prorated upon the issuance of the actual real estate tax bills. The amount of $_______ shall be placed in escrow at the Closing to be used to pay any difference between the actual real estate taxes for the period during Seller’s ownership of the Property and the amounts prorated at Closing.1 All rents and fees from counterparties under any agreements affecting the Property, all utilities and other apportionable income and expenses paid or payable by Seller shall be apportioned pro rata on a per diem basis as of the date of Closing with Seller being responsible for such amounts up to and including July 31, 2019 and Buyer being responsible for such amounts on August 1, 2019 and thereafter. Seller will use reasonable efforts to cause all private and public utilities, including without limitation water service, serving the Property to issue final bills to Seller on the basis of readings made as of the date of Closing and all such bills relating to periods up to and including July 31, 2019 will be paid by Seller at or prior to Closing. If such utilities cannot, or will not, issue such final bill, then Buyer and Seller shall estimate in good faith such amounts. Seller shall be charged the following amounts at Closing: (i) State, County and local town or village real property transfer taxes and conveyance fees; (ii) one-half (½) of any escrow fee; and (iii) the cost of the title exam and the portion of the cost of the Title Policy equal to the base premium for an owner’s policy in the amount of the Purchase Price. Buyer shall be charged the following amounts at Closing: (i) all costs of the Title Policy in excess of the base premium, including the cost of any endorsements to the Title Policy required by Buyer or its lender; (ii) all recording costs; (iii) any financing costs; (iv) the cost of the Survey; and (v) one-half (½) of any escrow fee. Each party shall pay its own attorneys’ fees. Any prorations to which Buyer may be entitled by reason of the foregoing shall be credited against the Purchase Price and shall be shown on the Closing Statement. The provisions of this Section shall survive the Closing.
(i) Service Contracts for the Property. Prior to Closing, Buyer shall notify Seller whether or not it desires to continue any or all of the Service Contracts for the Property. If Buyer elects to continue any or all of the Service Contracts, at the Closing, Seller shall use reasonable commercial efforts to assign to Buyer (or cause assignment to Buyer of) such Service Contracts; provided, however, all amounts due thereunder as of Closing shall be paid by Seller
__________________________
1 To confirm change in assessment of the Property in the last two years.
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and all Liabilities arising from any breach or default under such Service Contract relating to facts or circumstances occurring prior to Closing shall remain Seller’s responsibility.
(j) Condemnation and Damage or Destruction. Until the Closing, all risk of any loss or damage to all or a portion of the Property shall be and remain on Seller. In the event any loss or damage shall occur to the Property prior to the Closing by either fire or other casualty, Buyer may, at its option, elect to either: (a) terminate this Agreement upon written notice to Seller, and in such event neither Seller nor Buyer shall have any further obligation, liability or responsibility to each other under this Agreement, or (b) proceed with the transaction contemplated under this Agreement, in which event Seller will assign to Buyer at the Closing all of its right, title and interest to the proceeds of any insurance covering such loss or damage (including any rent loss/business interruption insurance allocable to the period from and after the Closing), and Buyer shall receive a credit against the Purchase Price at the Closing in the amount of any deductible of such insurance that has not been paid by Seller prior to Closing.
(k) Confidentiality. Seller, Shareholders and Buyer will, prior to the Closing, maintain the confidentiality of this sale and purchase and will not disclose the terms of this Agreement, the existence of this Agreement, of the transactions contemplated herein or any of Seller’s materials related to the Property to any third parties whomsoever unless the other party consents in writing. Notwithstanding the foregoing, any such information and the existence of this Agreement may be disclosed to those employees, agents, advisors, consultants, potential lenders, other representatives of Seller and Buyer and Governmental Authorities (but with respect to Governmental Authorities, only in connection with the assignment of consent orders, decrees, permits, authorizations and other consents, or application therefor, required in connection with the transactions contemplated hereby) who need to know such information in connection with the potential acquisition and disposition of the Property without the other party’s consent.
(l) Further Assurances. The Seller and Buyer shall execute and deliver such further instruments of conveyance and transfer and take such additional actions as Buyer, on the one hand, or a Seller, on the other hand, may reasonably request to effect, consummate, confirm or evidence the transfer to Buyer of the Property (including with respect to obtaining and maintaining all licenses, permits, authorizations, accreditations and consents necessary or desirable in connection therewith), and such other things necessary, proper or advisable under applicable Law as may reasonably be required to carry out the provisions of this Agreement, the related transactions documents and to consummate the transactions contemplated, and Seller shall execute such documents as may be reasonably necessary to assist Buyer in preserving or perfecting its rights in the Property and its ability to conduct the Business thereon.
(m) Open LUST File. As soon as practicable, but commencing prior to Closing, (i) Seller and Shareholders will take all actions necessary to cause the closure from the Illinois Environmental Protection Agency (or such other governmental authority with jurisdiction) (collectively, “IEPA”) of that certain open LUST file (No. 941345) with respect to the previously removed underground storage tanks at the Property (the “LUST Matter”), and will use their best efforts to obtain such closure within one (1) year of Closing, it being recognized and understood that IEPA closure may be delayed to due to required sampling and analysis that lengthens the IEPA closure timing, or bureaucratic delays which add to or lengthen the IEPA closure timing. Buyer understands, consents and agrees that, notwithstanding the IEPA closure
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of the LUST Matter, hazardous substances will remain and be present at, in, on, upon, under, beneath and/or migrating to or from the Property, and that the IEPA closure of the LUST Matter, as a consequence of the hazardous substances which remain and are present after the IEPA closure of the LUST Matter, may include conditions such as installation, maintenance and inspection of a cap or cover, as well as a recorded notice or restriction against the title of the Property due to and regarding the continued presence of hazardous substances at, in, on, upon, and/or beneath and migrating to or from the Property after the IEPA closure of the LUST Matter.
7. Closing Conditions.
(a) The obligation of Buyer to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions at or prior to the Closing:
(i) Representations and Warranties Condition: Each of the representations and warranties contained in Sections 3 and 4 of this Agreement (i) that is qualified as to or by materiality or Material Adverse Effect shall, subject to such qualification be true and correct in all respects at and as of the Closing as if made anew at such time (except to the extent any such representation and warranty expressly relates to an earlier time or date (in which case it shall be true and correct in all respects as of such earlier time or date)) and (ii) that is not qualified as to or by materiality or Material Adverse Effect shall be true and correct in all material respects at and as of the Closing as if made anew at such time (except to the extent any such representation and warranty expressly relates to an earlier time or date (in which case it shall be true and correct in all material respects as of such earlier time or date)), in each case, without taking into account any disclosures to Buyer pursuant to Section 6(f).
(ii) Covenants Condition: Seller and the Shareholders shall have performed in all material respects all of the covenants and agreements required to be performed by them hereunder prior to the Closing.
(iii) Adverse Claims: No Proceeding shall be pending or to the Seller’s Knowledge overtly threatened by or before any Governmental Authority or any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge could reasonably be expected to (i) prevent the performance of this Agreement or the consummation of any of the transactions contemplated hereby or declare unlawful any of the transactions contemplated hereby, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (iii) affect adversely the right of Buyer to own or operate the Property, or (iv) result in any material damages being assessed against Seller or the Property; and no such injunction, judgment, order, decree or ruling shall have been entered or be in effect.
(iv) Material Adverse Effect: Since the date hereof, no fact, event or circumstance has occurred or arisen that, individually or in combination with any other fact, event or circumstance, has had or would reasonably be expected to have a Material Adverse Effect.
(v) Closing Certificate. At the Closing, Seller shall have delivered to Buyer a certificate dated the date of the Closing and signed by Seller, stating that the conditions specified in Section 7(a)(i) and Section 7(a)(ii) have been satisfied as of the Closing.
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(vi) Closing Deliveries: Seller shall have delivered the deliverables and consummated the transactions set forth in Section 2.
(vii) Merger: Buyer (or its Affiliate) shall have executed and delivered the Merger Agreement and the closing provided for in such Merger Agreement shall have occurred contemporaneously with the Closing contemplated by this Agreement.
(viii) Environmental Condition: The environmental condition of the Property is acceptable to Buyer, including but not limited to a Phase I environmental study.
(ix) Title Condition: Buyer’s satisfaction, in its sole discretion, with the state of title to, and the Survey of, the Property pursuant to Section 6(a), including that all monetary obligation Defects shall be paid in full prior to or simultaneously with Closing.
(x) Buyer Approval: Buyer (and its Affiliate, Red White and Bloom, Inc.) shall have received approval of the transactions contemplated by this Agreement, the Merger Agreement and all of the related transaction documents from the shareholders and applicable governing body of Buyer (and RWB, following consummation of the RTO), if applicable.
(xi) Intercompany Arrangements/Transition Services Agreement: All intercompany/affiliate arrangements providing services, benefits or assets to the Property necessary for the conduct of the Business shall have been addressed in a manner acceptable to Buyer (which may include termination of such arrangements and the direct assignment and transfer of such rights, interests and/or assets to Buyer pursuant to the Pre-Closing Restructuring Transactions (as defined in the Merger Agreement) or the provision of transition services to Buyer after Closing).
(xii) Specified Indebtedness. The Specified Indebtedness (as defined in the Merger Agreement) shall have been refinanced or assumed to the satisfaction of Buyer (as contemplated by the Merger Agreement), including receipt of a payoff and lien release from the holder of such Specified Indebtedness with respect to any Liens affecting the Property.
(xiii) Liens. Seller shall have delivered terminations, pay-offs and/or releases, or, at Buyer’s option, assignments, necessary to terminate, release or assign, as the case may be, all Liens on the Property, other than the Permitted Exceptions, satisfactory to Buyer.
(xiv) Access and Indemnity Agreement. If the LUST Matter has not been closed pursuant to Section 6(m) by Closing, the Parties have executed a customary access and indemnity agreement in form reasonably acceptable to the Parties, with respect to Seller’s and Shareholders’ remediation work to be conducted on the Property with respect to the LUST Matter after the Closing pursuant to Section 6(m).
(b) The obligation of Seller and the Shareholders to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions at or prior to the Closing:
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(i) Representations and Warranties Condition: Each of the representations and warranties contained in Section 5 hereof shall be true and correct in all material respects at and as of the Closing as if made anew at such time (except to the extent any such representation and warranty expressly relates to an earlier time or date (in which case it shall be true and correct in all material respects as of such earlier time or date)), without taking into account any disclosures to Seller pursuant to Section 6(f).
(ii) Covenants Condition: Buyer shall have performed in all material respects all the covenants and agreements required to be performed by it hereunder prior to the Closing.
(iii) Adverse Claims: No Proceeding shall be pending before any Governmental Authority or any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge could reasonably be expected to (i) prevent the performance of this Agreement or the consummation of any of the transactions contemplated hereby or declare unlawful any of the transactions contemplated hereby or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation; and no such injunction, judgment, order, decree or ruling shall be in effect.
(iv) Closing Certificate: At the Closing, Buyer shall have delivered to Seller a certificate dated the date of the Closing and signed by an authorized officer of Buyer, stating that the conditions specified in Section 7(b)(i) and Section 7(b)(ii) above have been satisfied.
(v) Merger: The closing provided for in the Merger Agreement shall have occurred contemporaneously with the Closing contemplated by this Agreement.
(vi) Closing Deliveries: Buyer shall have delivered the deliverables and consummated the transactions set forth in Section 2.
(c) Mutual Conditions to the Parties’ Obligations. The obligation of the parties to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions at or prior to the Closing:
(i) Governmental and Other Approval Condition: Receipt of all governmental and regulatory consents, approvals, licenses and authorizations (including, from the State of Delaware, the State of Illinois, or any municipalities and expiration of any applicable waiting periods) that are necessary for (i) the consummation of the transactions contemplated at the Closing hereby and (ii) Buyer to own and operate the Property following the Closing as proposed to be conducted (including, the right to use any Permits), in each case, in form and substance satisfactory to Buyer.
(ii) RTO Completion: The completion of the reverse takeover transaction currently proposed between Buyer and Tidal Royalty Corp. pursuant to that Business Combination Agreement dated as May 8, 2019 (the “RTO”) and subsequent assignment by Buyer of this Agreement to Red White & Bloom Inc. (the resulting issuer in the RTO) (“RWB”).
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Any condition specified in this clause (c) may be waived if such waiver is set forth in a writing duly executed by Buyer, Seller and Shareholders.
8. Termination. This Agreement may be terminated at any time prior to the Closing only as follows:
(a) By the mutual written consent of Buyr, on the one hand, and Seller, on the other hand;
(b) By the Buyer if (i) at any time any of the representations or warranties of the Seller or Shareholders in this Agreement becomes untrue or inaccurate such that the condition set forth in Section 7(a)(a) would not be satisfied (treating such time as if it were the Closing for purposes of applying this Section 8(b)) or (ii) there has been a breach on the part of Seller or the Shareholders of any of their covenants or agreements contained in this Agreement such that the condition set forth in Section 7(a)(ii) would not be satisfied (treating such time as if it were the Closing for purposes of applying this Section 8(b)), and, in the case of any covenant breach, such breach (if curable) has not been cured within fifteen (15) days after delivery of notice thereof by Buyer to Seller; or (iii) a condition set forth in Section 7(a) is not, or becomes incapable of being, satisfied; or
(c) By Seller and Shareholders if (i) at any time any of the representations or warranties of Buyer in this Agreement becomes untrue or inaccurate such that the condition set forth in Section 7(b)(i) would not be satisfied (treating such time as if it were the Closing for purposes of applying this Section 8(c)) or (ii) there has been a breach on the part of Buyer of any of its covenants or agreements contained in this Agreement such that the condition set forth in Section 7(b)(ii) would not be satisfied (treating such time as if it were the Closing for purposes of applying this Section 8(c)), and, in the case of any covenant breach, such breach (if curable) has not been cured within fifteen (15) days after delivery of notice thereof by Seller to Buyer; or
(iii) a condition set forth in Section 7(b) is not, or becomes incapable of being, satisfied; or
(d) By either Buyer or Seller, on thirty (30) days’ prior written notice to the other party, if the transactions contemplated hereby have not been consummated by October 31, 2019; or
(e) As otherwise expressly set forth in any other provision in this Agreement.
9. Effect of Termination. In the event of termination of this Agreement as provided above, this Agreement shall immediately terminate and have no further force and effect, except that (a) Section 6(k), this Section 9 and Sections 13-30 shall survive such termination indefinitely and (b) nothing in Section 8 or this Section 9 shall be deemed to release any party from any Liability for any breach by such party of the terms and provisions of this Agreement. In the event of the Merger Agreement is terminated in accordance with its terms, the parties agree that this Agreement shall automatically terminate concurrently therewith without any further action by either party.
10. Indemnification.
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(a) Indemnification by the Seller and Shareholders. Subject to the limitations and conditions contained in this Section 10, Seller and the Shareholders agree to jointly and severally indemnify, defend and hold harmless Buyer and its respective Affiliates and each of their respective officers, directors, employees, agents, and representatives (each, a “Buyer Indemnified Party”), from and against, and to promptly pay to a Buyer Indemnified Party or reimburse a Buyer Indemnified Party for, any and all Liabilities (whether contingent, fixed or unfixed, liquidated or unliquidated, or otherwise), obligations, diminution in value, deficiencies, demands, claims, suits, actions, causes of action, assessments, losses, costs, expenses, interest, fines, penalties, damages or costs, or expenses of any and all investigations, proceedings, judgments, environmental analyses, remediations, settlements and compromises (including, without limitation, reasonable fees and expenses of attorneys, accountants and other experts) (individually, a “Loss” and collectively, the “Losses”) sustained or incurred by any Buyer Indemnified Party relating to, resulting from or arising out of any of the following:
(i) any inaccuracy in or breach of a representation or warranty made herein or in the related transaction documents by Seller or a Shareholder;
(ii) any non-compliance with or breach by Seller or a Shareholder of any of the covenants or agreements contained in this Agreement or the related transaction documents to be performed by such party, including, but not limited to, such covenants and agreements set forth in Section 10 hereunder;
(iii) all Taxes (i) imposed on Seller or Shareholders, (ii) relating to the Property for any pre-Closing Tax period; or (iii) of any Person (including any Liability for Taxes of Seller or Shareholders) imposed on Buyer as a transferee or successor, by Contract or pursuant to Law, which Taxes relate to an event or transaction occurring before the Closing;
(iv) any Indebtedness of Seller or Shareholders (excluding the assumption/refinancing of the Specified Indebtedness as contemplated herein);
(v) any Seller Transaction Expenses;
(vi) any Excluded Liabilities;
(vii) any of the items set forth on Schedule 10(a)(vii)2; and
(viii) any environmental conditions at, under or on the Property existing prior to Closing regardless of whether such conditions are actually discovered prior to the Closing (“Environmental Conditions”); provided, however, this subparagraph (h) shall not apply to any such condition discovered through laboratory analysis of environmental media (soil or groundwater) sampling conducted by or on behalf of a Buyer Indemnified Party after the Closing, except to the extent such sampling was either (A) required by a Governmental Authority pursuant to Law, (B) conducted as part of an investigation of the 10,000 gallon underground storage tank or the 12,000 gallon underground storage tank, in the event either such tank has failed any mechanical or physical testing of the integrity of the UST system, including, but not limited to, hydrostatic testing or European suction testing (and such failure is not due to
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2 To contain similar specific indemnities as the Merger Agreement Schedule 10.1(g)
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Buyer’s negligence or willful misconduct) or (C) conducted as part of and to advance the IEPA closure of the LUST Matter in the event Buyer reasonably determines that Seller has failed and/or refused to diligently pursue IEPA closure of the LUST Matter (the “Environmental Indemnity”). Except for the specific indemnities set forth on Schedule 10(a)(vii), this Environmental Indemnity shall be Seller’s and Shareholders’ exclusive indemnification obligation to Buyer Indemnified Parties with respect to Environmental Conditions
(b) Indemnification by Buyer. Subject to the limitations and conditions contained in this Section 10, Buyer agrees to indemnify, defend and hold harmless the Seller and the Shareholders, and each of their respective officers, directors, employees, agents, representatives, successors and assigns (each, a “Seller Indemnified Party”) harmless from and against, and to promptly pay to a Seller Indemnified Party or reimburse a Seller Indemnified Party for, any and all Losses sustained or incurred by a Seller Indemnified Party relating to, resulting from or arising out of any non-compliance with or breach by Buyer of any of the covenants or agreements contained in this Agreement or the Transaction Documents to be performed by Buyer, including, but not limited to, such covenants and agreements set forth in Section 10 hereunder.
(c) Indemnification Procedure. The indemnification procedures set forth in Section 10.3, 10.4 and 10.5 of the Merger Agreement are hereby incorporated by reference into this Agreement and shall fully apply to this Agreement.
(d) Survival. All representations and warranties contained in Sections 3, 4 and 5 shall survive the Closing for a period ending eighteen (18) months from the Closing Date, except that: (i) the representations and warranties set forth in Sections 3(a)(i) (Authority), 3(a)(ii) (Noncontravention), 3(a)(iv) (Broker Fees) and Sections 4(a)(i) (Authority), 4(a)(ii) (Organization and Qualification of Seller), 4(a)(iii) (Noncontravention), 4(a)(iv) (Title to Property), 4(a)(vi) (Tax Matters), 4(a)(xiii) (Broker Fees), 5(a) (Authority) and 5(b) (Authorization) (collectively, the “Fundamental Representations”), shall survive the Closing for the maximum period permitted by Law (including Del. C. 8106(c)) and (ii) all representations or warranties in Sections 3, 4 and 5 shall survive beyond the applicable period with respect to any inaccuracy therein or breach thereof, provided notice of which shall have been duly given within such applicable period in accordance with Section 10 hereof. Notwithstanding the foregoing, except as otherwise expressly provided herein, the covenants and agreements of the Seller, Shareholders and Buyer contained herein shall survive the Closing for the periods set forth therein or, if no such period is set forth, for the maximum period permitted by Law (including Del. C. 8106(c)). For the avoidance of doubt, Seller’s and Shareholders’ indemnification obligations under Section 10(a)(vi) (Excluded Liabilities) shall survive Closing for a period ending eighteen (18) months from the Closing Date and Seller’s and Shareholders’ indemnification obligations under Section 10(a)(viii) (Environmental Conditions) shall survive the Closing for a period of thirty-six (36) months from the Closing Date. Any claims asserted in writing by notice from a Buyer Indemnified Party prior to the expiration date of a survival period shall not thereafter be barred by the expiration of the relevant survival period and such claims shall survive until finally resolved.
(e) Certain Limitations and Exceptions. Notwithstanding the foregoing:
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(i) The Buyer Indemnified Parties shall not be entitled to recover under the provisions of this Section 10 for any inaccuracy in or breach of a representation or warranty pursuant to Sections 10(a)(i), until the aggregate amount which all Buyer Indemnified Parties would be entitled to recover on account thereof, but for this Section 10(e)(i), exceeds $500,000 in the aggregate (when combined with such amounts the buyer indemnified parties under the Merger Agreement would be entitled to recover pursuant to Section 10.1(a) of the Merger Agreement) (the “Basket”), in which event the Buyer Indemnified Parties shall be entitled to recover for all such Losses (and not merely the portion of the Losses exceeding the Basket); provided however, that the Basket shall not apply to (A) recovery for an inaccuracy in or breach of any Fundamental Representation; (B) recovery for any amounts in connection with any action or claim based upon Fraud; or (C) any claims pursuant to Sections 10(a)(ii) through (viii).
(ii) The Buyer Indemnified Parties shall not be entitled to recover Losses under the provisions of this Section 10 for inaccuracy in or breach of a representation or warranty pursuant to Sections 10(a)(i) (when combined with such indemnification amounts paid by the sellers under the Merger Agreement pursuant to Section 10.1(a) of the Merger Agreement) in excess of the Cap; provided however, that the Cap shall not apply to (A) recovery for an inaccuracy in or breach of any Fundamental Representation; (B) recovery for any amounts in connection with any action or claim based upon Fraud; or (C) any claims pursuant to Sections 10(a)(ii) through (viii).
(iii) The Buyer Indemnified Parties shall not be entitled to recover Losses under the provisions of this Section 10 for Environmental Conditions pursuant to Section 10(a)(viii) and the specific environmental indemnity on Schedule 10(a)(vii) (when combined with such indemnification amounts paid by the sellers under the Merger Agreement pursuant to Section 10.1(h) and Section 10.1(g) of the Merger Agreement) in excess of $50,000,000 (“Environmental Cap”).
(iv) The Buyer Indemnified Parties shall not be entitled to recover under the provisions of this Section 10 to the extent the Losses relating to the matter were included as a Liability in the calculation of the Final Net Working Capital under the Merger Agreement.
(v) Payments by an Indemnifying Party pursuant to Section 10(a) or 10(b) in respect of any Loss shall be (i) reduced by the amount of any net Tax benefit actually realized by the Indemnified Parties in connection with the Loss and (ii) increased by the amount of any Tax imposed on receipt of such indemnity payment (which for purposes of clarity takes into account any Tax detriment to such Indemnified Party).
(vi) For purposes of determining whether any Loss has occurred, or calculating any Losses arising, directly or indirectly, from or in connection with a breach of a representation, warranty, covenant or agreement, all references to “material,” “materiality,” “in all material respects,” “Material Adverse Effect” or similar phrases or qualifiers contained in such representations and warranties shall be disregarded.
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(f) Manner of Payment. The manner of payment set forth in Section 10.8 of the Merger Agreement is hereby incorporated by reference into this Agreement and shall fully apply to this Agreement, mutatis mutandis.
(g) Allocation of Indemnification Payments. The parties hereto agree that any indemnification payment pursuant to this Agreement shall, to the extent permitted by applicable law, be treated as an adjustment to the Purchase Price for Tax purposes.
(h) Special Rule for Fraud. Notwithstanding anything herein to the contrary, in no event shall any limit or restriction on any rights or remedies set forth in this Agreement limit or restrict the rights or remedies of any party for the Fraud by any other party or any Affiliate or representative of such other party.
(i) Specific Performance. Seller and Shareholders acknowledge that the Property is unique and recognizes and affirms that in the event of a breach of this Agreement by Seller and/or Shareholders, money damages may be inadequate and Buyer may have no adequate remedy at law. Accordingly, Seller and Shareholders agree that Buyer shall have the right, in addition to any other rights and remedies existing in its favor, to enforce its rights and the obligations of the Seller and Shareholders hereunder not only by an action or actions for damages but also by an action or actions for specific performance, injunctive and/or other equitable relief. If any such action is brought by Buyer to enforce this Agreement, Seller and Shareholders hereby waive the defense that there is an adequate remedy at law.
11. Definitions. For the purposes hereof, the following terms have the meanings set forth below:
(a) “Affiliate” of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities or otherwise.
(b) “Buyer Material Adverse Effect” means any event, occurrence, fact, condition or change that is materially adverse to (a) the business, results of operations, condition (financial or otherwise) or assets of the Buyer (or RWB, following consummation of the RTO), or (b) the ability of Buyer (or RWB, following consummation of the RTO) to consummate the transactions contemplated hereby; provided, however, that “Buyer Material Adverse Effect” shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting the industries in which Buyer (or RWB) operates; (iii) any changes or fluctuations in the price of RWB Stock; (iii) any other changes in financial or securities markets in general; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action required or permitted by this Agreement; (vi) any changes in applicable Laws or accounting rules, including GAAP; or (vii) the public announcement, pendency or completion of the transactions contemplated by this Agreement.
(c) “Cap” has such meaning as defined in the Merger Agreement.
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(d) “Charter Documents” means any corporate, partnership or limited liability organizational documents, including, but not limited to, Certificates or Articles of Incorporation, By-laws and Certificates of Existence, as applicable.
(a) “Environmental Laws” means, whenever in effect, all federal, state, local and foreign Laws, including statutes, regulations, ordinances, rules, directives, orders, decrees and other provisions or common law having the force or effect of law, and all judicial and administrative orders and determinations that are binding upon Seller or the Property concerning pollution or protection of the environment, including all those relating to the generation, handling, transportation, treatment, storage, disposal, distribution, labeling, discharge, release, threatened release, control, or cleanup of any hazardous substances. By way of example and not limitation, the term “Environmental Laws” shall include (as may be amended from time to time prior to the Closing Date) the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Oil Pollution Act, the Endangered Species Act, the Safe Drinking Water Act, the Solid Waste Disposal Act, the Emergency Planning and Community Right to Know Act, the Federal Insecticide, Fungicide, and Rodenticide Act, the Clean Air Act and all regulations under such statutes.
(b) “Excluded Liabilities” means all Liabilities relating to, based upon or arising from the Property, that arise, or relate to events or circumstances that occur, on or prior to the Closing regardless of whether such Liabilities are actually discovered or incurred prior to the Closing, but specifically excludes Environmental Conditions.
(c) “Laws” means all statutes, laws, codes, ordinances, regulations, rules, orders, judgments, writs, injunctions, acts or decrees of any Governmental Authority, including common law.
(d) “Liability” means any obligation or liability, whether absolute or contingent, asserted or unasserted, known or unknown, liquidated or unliquidated, due or to become due, fixed or unfixed, and regardless of when or by whom asserted.
(e) “Lien” or “Liens” means any mortgages, pledges, security interests, deeds of trust, liens, charges, options, conditional sales contracts, claims, covenants, easements, rights of way, title defects, restrictions on use, voting, transfer, receipt of income, or the right to exercise any other attribute of ownership, or other encumbrances of any nature whatsoever.
(f) “Material Adverse Effect” means any event, occurrence, fact, condition or change that is, or could be reasonably expected to become, individually or in the aggregate, material adverse to (a) the Property, (b) the business, results of operations, condition (financial or otherwise) or assets of Seller, or (b) the ability of the Seller or Shareholders to consummate the transactions contemplated hereby on a timely basis.
(g) “Permitted Exceptions” means (i) zoning ordinances and regulations; (ii) real estate taxes and assessments, both general and special, which are a lien but are not yet due and payable at the Closing Date; (iii) easements, conditions, restrictions and covenants of record relating to the Property not objected to by Buyer pursuant to Section 6(a) hereof; and (iv)
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the rights of the public in and to any roadways or highways within the legal description of the Property.
(h) “Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated association, corporation, entity or government (whether Federal, state, county, city or otherwise, including, without limitation, any instrumentality, division, agency or department thereof).
(i) “Proceeding” means any action, arbitration, audit, claim, dispute, hearing, investigation, litigation, order or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Authority or arbitrator.
(j) “Seller Party” means Seller, each Shareholder and any of their respective Affiliates.
(k) “Seller Transaction Expenses” means (without duplication) to the extent not paid before the Closing, the collective amount payable by Seller or the Shareholders (i) to accountants, lawyers, advisors, brokers and other third parties, arising in connection with the sale of Property, and (ii) in respect of any fees and expenses associated with obtaining necessary or appropriate waivers, consents or approvals of any Governmental Authority or other third-party, including change of control or transfer payments.
(l) “Survey” means a certified ALTA survey of the Property containing such detail as Buyer shall require in its reasonable commercial judgment, certified to Buyer, Seller, the Title Company and, if applicable, such lending institution or institutions as Buyer shall desire, all to the extent Buyer elects to obtain such a survey.
(m) “Tax” or “Taxes” means any and all federal, state, local and non-U.S. taxes, however denominated, the Liability for which is imposed by law, contractual agreement or otherwise, which taxes shall include, but not be limited to, all net income, gross income, gross receipts, franchise, excise, occupation, estimated, alternative minimum, add on minimum, premium, windfall profit, profits, gains, net worth, paid up capital, capital stock, greenmail, sales, use, ad valorem, value added, retailers’ occupation, stamp, natural resources, environmental, real property, personal property, custom, duty, transfer, recording, escheat or unclaimed property, registration, documentation, leasing, insurance, social security, employment, severance, workers’ compensation, impact, hospital, health, unemployment, disability, payroll, license, service, service use, employee or other withholding, or other tax or governmental charge, of any kind whatsoever, whether disputed or not, including any interest, penalties, fees, charges, levies, assessments, duties, tariffs, imposts or additions to Tax that may become payable in respect thereof, and any Liability in respect of such amounts arising as a result of being a member of any affiliated, consolidated, combined, unitary or similar group, as a successor to or transferee of another person or by contract.
(n) “Title Company” means such title company selected by Buyer and mutually agreeable to the parties.
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12. Notices, Consents, Etc. All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given (i) when personally delivered, sent by fax or email (with hard copy to follow) or sent by reputable overnight express courier (charges prepaid), or (ii) three (3) calendar days following mailing by certified or registered mail, postage prepaid and return receipt requested. Such notices, demands and other communications shall be sent to the addresses indicated below or such other address or to the attention of such other person as the recipient has indicated by prior written notice to the sending party in accordance with this Section 13:
(i) If to Seller/Shareholders:
[●]
[●]
[●]
Attention: [●]
Email: [●]
with a copy to:
Reinhart Boerner Van Deuren s.c.
1000 North Water Street, Suite 1700
Milwaukee, Wisconsin 53202
Attention: Lucien Beaudry
Email: (REDACTED)
(iI) If to Buyer:
__________________________________
__________________________________
__________________________________
Attention:
Email:
13. Public Announcements. Unless required by Law (including in connection with the filing of any Tax return), the Seller, Shareholders and their Affiliates shall not make any public announcement or filing with respect to the transactions provided for herein without the prior consent of Buyer; provided, however, that no such press, news or other public release or announcement shall refer to the purchase price or other material economic terms of the transactions contemplated hereby without the prior written approval of Buyer and Seller. Notwithstanding the foregoing, Buyer shall be allowed to disclose the terms of this Agreement and the transactions contemplated hereby (i) to Buyer’s representatives and employees of Buyer or its Affiliates, (ii) in connection with summary information about Buyer or Buyer’s Affiliates financial condition, (iii) to any of Buyer’s Affiliates, auditors, attorneys, financing sources, potential investors or other agents, (iv) to any bona fide prospective purchaser of the equity or assets of Buyer or its Affiliates and (v) as required to be disclosed by order of a court of
25
competent jurisdiction, administrative body or governmental body, or by subpoena, summons or legal process, or by law, rule or regulation.
14. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable Law or rule in any jurisdiction, in any respect, such invalidity shall not affect the validity, legality and enforceability of any other provision or any other jurisdiction and, the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby, all of which shall remain in full force and effect, and the affected term or provision shall be modified to the minimum extent permitted by Law so as to achieve most fully the intention of this Agreement.
15. Amendment and Waiver. This Agreement may be amended, or any provision of this Agreement may be waived upon the approval, in a writing, executed by Buyer, Seller and the Shareholders. No course of dealing between or among the parties hereto shall be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any such party under or by reason of this Agreement. A waiver by any party of any term or condition of this Agreement in any one instance shall not be deemed or construed to be a waiver of such term or condition for any other instance in the future (whether similar or dissimilar) or of any subsequent breach hereof.
16. Counterparts. This Agreement may be executed in one or more counterparts (including by means of telecopied signature pages or signature pages delivery by electronic transmission in portable document format (pdf)), all of which taken together shall constitute one and the same instrument. This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine or electronic transmission in portable document format (pdf), shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.
17. Expenses. Except as otherwise specifically provided herein, each of the parties shall pay all costs and expenses incurred or to be incurred by it in negotiating and preparing this Agreement and in closing and carrying out the transactions contemplated by this Agreement.
18. Headings. The subject headings of Articles and Sections of this Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions.
19. Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided that neither this Agreement nor any of the covenants and agreements herein or rights, interests or obligations hereunder may be assigned or delegated by any Seller, without the prior written consent of Buyer, and neither this Agreement nor any of the covenants and agreements herein or rights, interests or obligations hereunder may be assigned or delegated by Buyer without the prior written consent of Seller, except that Buyer may assign or convey its rights under this Agreement (a) to RWB following consummation of the RTO, (b) to any existing Affiliate of Buyer or newly formed Affiliate real estate holding company, (c) in connection with
26
a merger or consolidation involving Buyer or in connection with a sale of any equity interests or assets of Buyer or its Affiliates or other disposition of all or any portion of the Business, or (d) to lenders of Buyer or its Affiliates as collateral security for borrowings, at any time whether prior to or following the Closing Date; and in each such case Buyer will nonetheless remain liable for all of its obligations hereunder.
20. Entire Agreement. This Agreement, the Preamble and the Exhibits and Schedules attached to this Agreement (all of which shall be deemed incorporated in the Agreement and made a part hereof), along with the Merger Agreement, set forth the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, understandings or letters of intent among any of the parties hereto.
21. Third Parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give to any Person, other than the parties to this Agreement and their respective permitted successors and assigns, any rights or remedies under or by reason of this Agreement (other than in respect of the Indemnified Parties pursuant to Section 10).
22. Interpretative Matters. Unless the context otherwise requires, (a) all references to Articles, Sections or Schedules are to Articles, Sections or Schedules in this Agreement, (b) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural, and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter, (d) all references to “dollars” or “$” are to United States dollars and (e) whenever the words “include,” “includes” or “including” are used in this Agreement they shall be deemed to be followed by the words “without limitation.” In addition, nothing in the Schedules hereto shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself). The parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any party has breached any representation, warranty, or covenant contained herein (or is otherwise entitled to indemnification) in any respect, the fact that there exists another representation, warranty, or covenant (including any indemnification provision) relating to the same subject matter (regardless of the relative levels of specificity) which the party has not breached (or is not otherwise entitled to indemnification with respect thereto) shall not detract from or mitigate the fact that the party is in breach of the first representation, warranty, or covenant (or is otherwise entitled to indemnification pursuant to a different provision).
23. Knowledge. Where any representation or warranty contained in this Agreement is expressly qualified by reference “to the knowledge of Seller,” “Seller’s Knowledge,” or any similar term, it refers to the actual knowledge of Seller, Seller Party and Anne Hyde, Bruce Daniel, and Johannes Pieterse, and all knowledge that such listed persons should have assuming such persons have conducted a reasonable inquiry or investigation regarding the subject matter at issue, including inquiring of those employees of Seller and any Seller Party occupying or using
27
the Property whose duties would, in the normal course of Seller’s or such Seller Party’s affairs, result in such employees having actual knowledge concerning such subject, area or aspect.
24. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto.
25. Jurisdiction and Governing Law. This Agreement and any claim, controversy, dispute, or cause of action (whether in contract, equity, tort, or otherwise) based upon, arising out of or relating to this Agreement and the transactions contemplated hereby shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of law, provided, however, that any claim, controversy, dispute, or cause of action based upon, arising out of, or relating to the transfer of ownership of any interest in the Property shall be governed by and construed in accordance with the laws of the state where the Property is located, without regard to principles of conflicts of law. Each party hereby irrevocably submits to the exclusive jurisdiction of the state or federal courts located in the State of Delaware or in the state where the Property is located (as applicable), in respect of any claim relating to the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement, or otherwise in respect of the transactions contemplated hereby and thereby, and hereby waives, and agrees not to assert, as a defense in any action, suit or proceeding in which any such claim is made that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in such courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts.
26. Service of Process. Each of the parties hereto irrevocably consents to the service of process outside the territorial jurisdiction of the courts referred to in Section 25 hereof in any such action or proceeding by giving copies thereof by hand delivery of air courier to his, her or its address as specified in or pursuant to Section 12 hereof. However, the foregoing shall not limit the right of a party to effect service of process on the other party by any other legally available method.
27. WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES (TO THE FULLEST EXTENT PERMITTED BY LAW) ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. THE PARTIES ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
28. Schedules. The disclosure of any facts or items in the Schedules accompanying this Agreement is not intended to imply that such items so included are or are not material, or that the occurrence or existence of any such violation, inaccuracy, breach, default, failure to comply, change in circumstances, loss, effect, fact, agreement arrangement, commitment,
28
understanding or obligation, as a result of the occurrence or existence thereof, would individually or collectively, result in a Material Adverse Effect. The disclosure of any fact or item in the Schedules with respect to a particular paragraph or section of the Agreement shall be deemed to be disclosed with respect to such other paragraph or section of the Agreement to which an appropriate cross reference is made to another Schedule or to the extent it is reasonably apparent on its face that such disclosure is also applicable to any other paragraph or section of the Agreement. Each agreement, instrument and document described herein is incorporated herein by reference. All capitalized terms used in the Schedules and not otherwise defined in the Schedules will have the meanings assigned to them in this Agreement.
29. Consent and Waiver. By executing and delivering this Agreement, the Shareholders consent to the sale of the Property as contemplated by this Agreement.
[SIGNATURES TO FOLLOW]
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The undersigned have executed this Real Estate Purchase Agreement as of the date first above written.
SELLER:
VW PROPERTIES. INC.
By: _______________________
Name:
Title:
BUYER:
[_______________________________]
By: _______________________
Name:
Title:
Signature Page to Real Estate Purchase Agreement
SHAREHOLDERS:
____________________________________
Arthur VanWingerden
____________________________________
Ken VanWingerden
Signature Page to Real Estate Purchase Agreement
EXHIBIT A
DESCSRIPTION OF THE PROPERTY
[INSERT LEGAL DESCRIPTION]
A-1
DISCLOSURE SCHEDULES
to the
AGREEMENT AND PLAN OF MERGER
by and among
MICHICANN MEDICAL INC.,
MID-AMERICAN GROWERS, INC.,
RWB ACQUISITION SUB, INC.,
and THE SELLERS PARTY THERETO
October 9, 2019
GENERAL STATEMENT
These disclosure schedules (each a “Schedule” and collectively, the “Schedules”) are delivered pursuant to and concurrently with the Agreement and Plan of Merger (the “Agreement”) dated as of October 9, 2019, by and among Mid-American Growers, Inc., a Delaware corporation (the “Company”), Michicann Medical Inc., a Michigan corporation (“Buyer”), RWB Acquisition Sub, Inc., a Delaware corporation and a wholly owned Subsidiary of Buyer (“Merger Sub”), and each of Arthur VanWingerden and Ken VanWingerden (each a “Seller” and together, the “Sellers”).
Headings have been inserted for convenience of reference only and shall in no way have the effect of amending or changing the express description of the corresponding sections as set forth in the Agreement. Capitalized terms used but otherwise not defined in the Schedules have the meanings set forth in the Agreement.
All information contained in the Schedules is confidential information and may not be disclosed unless (i) such information is required to be disclosed pursuant to applicable Law (unless such Law permits the parties to refrain from disclosing the information for confidentiality or other purposes), such information was or becomes known to the recipient thereof without reference to or use of the Schedules, or (ii) a party needs to disclose such information in order to enforce or exercise its rights under the Agreement or to a lender or financier or purchaser of assets.
INDEX TO DISCLOSURE SCHEDULE
Schedule 2.2
Closing Distributions and Payments
|
Payee
|
Address
|
Wire Transfer Instructions
|
|
Arthur VanWingerden
|
(REDACTED)
|
(REDACTED)
|
|
Kenneth VanWingerden
|
(REDACTED)
|
(REDACTED)
|
Schedule 2.6(g)
Third Party Cnsents
1. Consent to the Agreement and all transactions contemplated thereby from AG Credit Agricultural Association (“AG Credit”) in connection with the Amended and Restated Credit Agreement, dated December 13, 2017, by and among AG Credit, the Company, Color Point, LLC (“Color Point”), VW Properties, LLC (“VWP”) and Mid-American Trucking, Inc. (together with all other instruments and documents executed in connection therewith, collectively, the “AG Credit Facility”).
Schedule 3.2
Title to Company Capital Stock
|
Seller
|
Shares
|
Certificate Number
|
|
Arthur VanWingerden
|
125
|
143
|
|
Kenneth VanWingerden
|
125
|
142
|
6
Schedule 3.3
Noncontravention
1. The AG Credit Facility. All Liens under the AG Credit Facility on the Company, its assets or properties (including the Owned Real Property and Leased Real Property), or affecting Company Capital Stock, will be released at or prior to Closing.
7
Schedule 4.2
Organization and Qualification of the Company
1. Iowa
8
Schedule 4.3
Noncontravention
1. The AG Credit Facility. All Liens under the AG Credit Facility on the Company, its assets, stock or properties (including the Owned Real Property and the Leased Real Property), or affecting Company Capital Stock, will be released at or prior to Closing.
9
Schedule 4.4
Capitalization; Title to Company Capital Stock
|
Shareholder
|
Address
|
Shares Owned
|
|
Art VanWingerden
|
(REDACTED)
|
125
|
|
Ken VanWingerden
|
(REDACTED)
|
125
|
10
Schedule 4.5
Absence of Certain Developments
1In connection with the transactions contemplated by the Agreement, the Contributed Entities have ceased conducting business as a grower of various decorative and ornamental plants for retailers as historically operated by the Contributed Entities. In connection with such action, the Contributed Entities have terminated related customer and supplier relationships. There are no outstanding contractual liabilities related to the termination of such relationships.
2See attached listing of assets transferred to Color Point.
3See attached listing of salary increases for Company employees.
4Pursuant to a letter agreement dated as of October 9, 2019 between the Company and Color Point, the Company and Color Point memorialized an agreement pursuant to which (a) Color Point has made, and will continue to make, advancements to the Company to fund Company operations and (b) the Company will repay such advancements to Color Point by December 31, 2019.
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Schedule 4.6
Compliance with Applicable Laws
1Joe Cerri was terminated following an altercation in the greenhouse with his manager Brent Troost. Cerri threatened that he would physically harm Troost, because Troost asked Cerri to complete a project. Cerri subsequently filed a complaint with the EEOC claiming age discrimination and claimed his duties were changed because of his age. Cerri’s claims were investigated by the EEOC and the Illinois Human Rights Commission and no probable cause was found. Cerri retained legal counsel to attempt to reopen his case with the Illinois Human Rights Commission, which declined the case a second time (the “Cerri Matter”). For the avoidance of doubt, any Liabilities relating to the Cerri Matter shall be Excluded Liabilities.
2In March 2019, the Company notified the Illinois Environmental Protection Agency that the Company failed to comply with Condition 19f of its Federally Enforceable Operating Permit No. 07020030 (the “FESOP”) by failing to conduct a required biennial “tune up” of its wood fired boilers within 25 months after the prior tune up (the “FESOP Deviation”). The Company does not anticipate any fines, penalties or other enforcement action arising from the FESOP deviation. For the avoidance of doubt, any Liabilities relating to the FESOP Deviation shall be an Environmental Condition covered by the Environmental Indemnity.
3The Company received a Notice of Violation dated September 17, 2019 from the Office of the Illinois State Fire Marshal. For the avoidance of doubt, any Liabilities relating to the violations shall be covered by the specific indemnity on Schedule 10.1(g).
4The Company failed to submit documentation of a site investigation remediation report (identified as LPC #1550055001 – Putnam County) as required by the Illinois Environmental Protection Agency (the “IL EPA Violation”). For the avoidance of doubt, any Liabilities relating to the IL EPA Violation shall be covered by the specific indemnity on Schedule 10.1(g).
12
Schedule 4.7 Financial Statements
1.See attached.
13
|
Mid American Growers, Inc
|
|
Balance Sheet as of December 31, 2018
|
|
Unaudited
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash
|
|
|
$ 300,798
|
|
Accounts Receivable
|
|
|
1,280,885
|
|
Inventory
|
|
|
6,943,846
|
|
|
|
|
8,525,529
|
|
Fixed Assets
|
|
|
|
|
Property and Equipment
|
|
|
110,438,379
|
|
Accumulated Depreciation
|
|
(68,164,061)
|
|
|
|
|
|
|
|
|
|
42,274,318
|
|
Other Assets
|
|
|
|
|
Due from Related Parties
|
|
|
214,308
|
|
Loan Acquisition Expense
|
|
|
|
Natural Gas Pipeline Deposit
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
|
Total Other Assets
|
|
|
214,308
|
|
|
|
|
|
|
Total Assets
|
|
|
$ 51,014,155
|
|
|
|
|
|
|
LIABILITIES AND CAPITAL
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
Accounts Payable - Trade
|
|
|
$ (1,595)
|
|
Intercompany Transfers
|
|
|
(777,440)
|
|
Accured Expenses
|
|
|
220,876
|
|
Deferred Revenue
|
|
|
-
|
|
N/P - Lines of Credit
|
|
|
|
|
N/P - Current Portion ( Primary
|
|
1,207,671
|
|
N/P - Current Portion ( Oth)
|
|
|
|
|
|
|
649,512
|
|
Long-TermLiabilites
|
|
|
|
|
LT N/P-Net Current Ptn (Prim)
|
|
10,417,893
|
|
LT N/P-Net Current Ptn (Oth)
|
|
-
|
|
|
|
|
|
|
Total Liabilities
|
|
|
$ 11,067,405
|
|
|
|
|
|
|
Capital
|
|
|
|
|
Units of Capital
|
|
|
2,500
|
|
Treasury Stock
|
|
|
(321,825)
|
|
Accumulated Earnings (Deficit)
|
|
41,794,951
|
|
Current Year Net Income
|
|
|
(1,528,876)
|
|
|
|
|
|
|
Total Capital
|
|
|
$ 39,946,750
|
|
|
|
|
|
|
Total Liabilities & Capital
|
|
|
$ 51,014,155
|
|
Mid American Growers, Inc.
|
|
Income Statement for the Period Ending December 31, 2018
|
|
Unaudited
|
|
|
|
|
|
|
Sales
|
|
|
|
|
Gross Sales
|
|
|
41,459,826
|
|
Sales Returns & Allowances
|
|
|
(399,437)
|
|
|
|
|
|
|
Total Revenue
|
|
|
$ 41,060,389
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
|
|
Direct Materials
|
|
|
11,631,849
|
|
Indirect Materials
|
|
|
4,914,047
|
|
Labour
|
|
|
8,336,378
|
|
Applied/Relieved Overhead
|
|
|
2,158,597
|
|
|
|
|
|
|
Gross Margin
|
|
|
$ 14,019,518
|
|
|
|
|
|
|
Production Overhead
|
|
|
2,815,578
|
|
Shippping and Delivery
|
|
|
4,647,189
|
|
|
|
|
|
|
Gross Profit
|
|
|
$ 6,556,751
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Sales and Marketing Expense
|
|
|
775,212
|
|
General and Administrative
|
|
|
2,629,912
|
|
|
|
|
|
|
EBITDA
|
|
|
$ 3,151,627
|
|
|
|
|
|
|
Depreciation, Interest and Tax
|
|
|
|
|
Depreciation and Amortization
|
|
|
4,222,452
|
|
Interest Expense
|
|
|
442,351
|
|
Income Tax Expense
|
|
|
4,916
|
|
|
|
|
|
|
Net Income from Operations
|
|
|
(1,518,092)
|
|
|
|
|
|
|
Other Income & Expense
|
|
|
|
|
Disposal of Fixed Assets
|
|
|
23,362
|
|
Disconts Taken
|
|
|
-
|
|
Interest Income
|
|
|
(8)
|
|
Charitable Giving
|
|
|
1,350
|
|
Finance Charges
|
|
|
|
|
Miscellaneous Income
|
|
|
(13,920)
|
|
|
|
|
|
|
Net Income ( Loss)
|
|
|
$ (1,528,876)
|
|
Mid American Growers, Inc
|
|
Balance Sheet as of August 31, 2019
|
|
Unaudited
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash
|
|
|
$ 204,725
|
|
Accounts Receivable
|
|
|
1,704,884
|
|
Inventory
|
|
|
5,552,341
|
|
|
|
|
|
|
|
|
|
7,461,950
|
|
Fixed Assets
|
|
|
|
|
Property and Equipment
|
|
|
104,563,159
|
|
Accumulated Depreciation
|
|
|
(65,158,220)
|
|
|
|
|
|
|
|
|
|
39,404,939
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
Due from Related Parties
|
|
|
9,669,937
|
|
Other Assets
|
|
|
-
|
|
|
|
|
|
|
Total Other Assets
|
|
|
9,669,937
|
|
|
|
|
|
|
Total Assets
|
|
|
$ 59,536,826
|
|
|
|
|
|
|
LIABILITIES AND CAPITAL
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
Accounts Payable - Trade
|
|
|
$ 2,204,927
|
|
Intercompany Transfers
|
|
|
(714,302)
|
|
Accured Expenses
|
|
|
125,552
|
|
N/P - Current Portion ( Primary
|
|
297,006
|
|
N/P - Current Portion ( Oth)
|
|
|
-
|
|
|
|
|
1,913,183
|
|
Long-TermLiabilites
|
|
|
|
|
LT N/P-Net Current Ptn (Prim)
|
|
|
10,169,465
|
|
Distribution Payable MAG
|
|
|
5,248,215
|
|
|
|
|
|
|
Total Liabilities
|
|
|
$ 17,330,863
|
|
|
|
|
|
|
Capital
|
|
|
|
|
Units of Capital
|
|
|
2,500
|
|
Treasury Stock
|
|
|
(321,825)
|
|
Accumulated Earnings (Deficit)
|
|
34,446,614
|
|
Current Year Net Income
|
|
|
5,078,674
|
|
|
|
|
|
|
Total Capital
|
|
|
$ 39,205,963
|
|
|
|
|
|
|
Total Liabilities & Capital
|
|
|
$ 56,536,826
|
|
Mid American Growers, Inc.
|
|
Income Statement for the Period Ending August 31, 2019
|
|
Unaudited
|
|
|
|
|
|
|
Sales
|
|
|
|
|
Gross Sales
|
|
|
36,998,783
|
|
Sales Returns & Allowances
|
|
|
(904,670)
|
|
|
|
|
|
|
Total Revenue
|
|
|
$ 36,094,113
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
|
|
Direct Materials
|
|
|
11,078,040
|
|
Indirect Materials
|
|
|
3,004,377
|
|
Labour
|
|
|
6,636,691
|
|
Applied/Relieved Overhead
|
|
|
(1,688,311)
|
|
|
|
|
|
|
Gross Margin
|
|
|
$ 17,063,316
|
|
|
|
|
|
|
Production Overhead
|
|
|
2,099,598
|
|
Shippping and Delivery
|
|
|
3,506,353
|
|
|
|
|
|
|
Gross Profit
|
|
|
$ 11,457,365
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Sales and Marketing Expense
|
|
|
566,812
|
|
General and Administrative
|
|
|
2,757,233
|
|
|
|
|
|
|
EBITDA
|
|
|
$ 8,133,320
|
|
|
|
|
|
|
Depreciation, Interest and Tax
|
|
|
|
Depreciation and Amortization
|
|
2,640,017
|
|
Interest Expense
|
|
|
298,385
|
|
Income Tax Expense
|
|
|
-
|
|
|
|
|
|
|
Net Income from Operations
|
|
|
5,194,918
|
|
|
|
|
|
|
Other Income & Expense
|
|
|
|
|
Disposal of Fixed Assets
|
|
|
1,480,630
|
|
Disconts Taken
|
|
|
-
|
|
Interest Income
|
|
|
-
|
|
Charitable Giving
|
|
|
-
|
|
Finance Charges
|
|
|
-
|
|
Miscellaneous Income
|
|
|
(1,364,386)
|
|
|
|
|
|
|
Net Income ( Loss)
|
|
|
$ 5,078,674
|
Schedule 4.7(e)
Indebtedness
1The indebtedness owing by the Company under the AG Credit Facility, which indebtedness will be paid off at Closing and the Company and Sellers will obtain consent and full release of all Liens on the Company, its assets or properties (including the Owned Real Property and Leased Real Property) or affecting the Company Capital Stock.
2Each of Kenneth VanWingerden and Arthur VanWingerden has provided a personal guarantee with respect to the AG Credit Facility (collectively, the “Guarantees”), for which Sellers will obtain consent and full release of any Liens securing such Guarantees, to the extent affecting the Company Capital Stock.
3See item 4 on Schedule 4.5.
14
Schedule 4.8
Assets
1. See attached fixed asset schedule.
15
