Issuer CIK | 0001812447 |
Issuer CCC | XXXXXXXX |
DOS File Number | |
Offering File Number | |
Is this a LIVE or TEST Filing? | ☒ LIVE ☐ TEST |
Would you like a Return Copy? | ☐ |
Notify via Filing Website only? | ☐ |
Since Last Filing? | ☐ |
Name | |
Phone | |
E-Mail Address |
Exact name of issuer as specified in the issuer's charter | Sky Quarry Inc. |
Jurisdiction of Incorporation / Organization |
DELAWARE
|
Year of Incorporation | 2019 |
CIK | 0001812447 |
Primary Standard Industrial Classification Code | CRUDE PETROLEUM & NATURAL GAS |
I.R.S. Employer Identification Number | 84-1803091 |
Total number of full-time employees | 3 |
Total number of part-time employees | 0 |
Address 1 | 136 E S Temple |
Address 2 | Suite 1400 |
City | Salt Lake City |
State/Country |
UTAH
|
Mailing Zip/ Postal Code | 84111 |
Phone | 4243941090 |
Name | William Hart |
Address 1 | |
Address 2 | |
City | |
State/Country | |
Mailing Zip/ Postal Code | |
Phone |
Industry Group (select one) | ☐ Banking ☐ Insurance ☒ Other |
Cash and Cash Equivalents |
$
401022.00 |
Investment Securities |
$
0.00 |
Total Investments |
$
|
Accounts and Notes Receivable |
$
7857.00 |
Loans |
$
|
Property, Plant and Equipment (PP&E): |
$
344079.00 |
Property and Equipment |
$
|
Total Assets |
$
4061733.00 |
Accounts Payable and Accrued Liabilities |
$
598891.00 |
Policy Liabilities and Accruals |
$
|
Deposits |
$
|
Long Term Debt |
$
1491531.00 |
Total Liabilities |
$
3786449.00 |
Total Stockholders' Equity |
$
275283.00 |
Total Liabilities and Equity |
$
4061733.00 |
Total Revenues |
$
20000.00 |
Total Interest Income |
$
|
Costs and Expenses Applicable to Revenues |
$
500548.00 |
Total Interest Expenses |
$
|
Depreciation and Amortization |
$
0.00 |
Net Income |
$
-480548.00 |
Earnings Per Share - Basic |
$
0.00 |
Earnings Per Share - Diluted |
$
0.00 |
Name of Auditor (if any) | 0 |
Name of Class (if any) Common Equity | Common Stock |
Common Equity Units Outstanding | 29928125 |
Common Equity CUSIP (if any): | None |
Common Equity Units Name of Trading Center or Quotation Medium (if any) | None |
Preferred Equity Name of Class (if any) | Series A |
Preferred Equity Units Outstanding | 1 |
Preferred Equity CUSIP (if any) | None |
Preferred Equity Name of Trading Center or Quotation Medium (if any) | None |
Debt Securities Name of Class (if any) | Promissory Notes |
Debt Securities Units Outstanding | 12 |
Debt Securities CUSIP (if any): | None |
Debt Securities Name of Trading Center or Quotation Medium (if any) | None |
Check this box to certify that all of the following statements are true for the issuer(s)
☒
Check this box to certify that, as of the time of this filing, each person described in Rule 262 of Regulation A is either not disqualified under that rule or is disqualified but has received a waiver of such disqualification.
☒
Check this box if "bad actor" disclosure under Rule 262(d) is provided in Part II of the offering statement.
☐
Check the appropriate box to indicate whether you are conducting a Tier 1 or Tier 2 offering | ☐ Tier1 ☒ Tier2 |
Check the appropriate box to indicate whether the financial statements have been audited | ☐ Unaudited ☒ Audited |
Types of Securities Offered in this Offering Statement (select all that apply) |
☒Other(describe) |
Provide a description | Units, each Unit comprised of one common share and one warrant to purchase one common share |
Does the issuer intend to offer the securities on a delayed or continuous basis pursuant to Rule 251(d)(3)? | ☒ Yes ☐ No |
Does the issuer intend this offering to last more than one year? | ☐ Yes ☒ No |
Does the issuer intend to price this offering after qualification pursuant to Rule 253(b)? | ☐ Yes ☒ No |
Will the issuer be conducting a best efforts offering? | ☒ Yes ☐ No |
Has the issuer used solicitation of interest communications in connection with the proposed offering? | ☐ Yes ☒ No |
Does the proposed offering involve the resale of securities by affiliates of the issuer? | ☐ Yes ☒ No |
Number of securities offered | 15000000 |
Number of securities of that class outstanding | 29928125 |
Price per security |
$
1.2500 |
The portion of the aggregate offering price attributable to securities being offered on behalf of the issuer |
$
56250000.00 |
The portion of the aggregate offering price attributable to securities being offered on behalf of selling securityholders |
$
0.00 |
The portion of the aggregate offering price attributable to all the securities of the issuer sold pursuant to a qualified offering statement within the 12 months before the qualification of this offering statement |
$
0.00 |
The estimated portion of aggregate sales attributable to securities that may be sold pursuant to any other qualified offering statement concurrently with securities being sold under this offering statement |
$
0.00 |
Total (the sum of the aggregate offering price and aggregate sales in the four preceding paragraphs) |
$
56250000.00 |
Underwriters - Name of Service Provider | Underwriters - Fees |
$
| |
Sales Commissions - Name of Service Provider | Digital Offering LLC | Sales Commissions - Fee |
$
187500.00 |
Finders' Fees - Name of Service Provider | Finders' Fees - Fees |
$
| |
Audit - Name of Service Provider | IndigoSpire CPA Group, LLC | Audit - Fees |
$
29875.00 |
Legal - Name of Service Provider | Hart & Hart, LLC | Legal - Fees |
$
50000.00 |
Promoters - Name of Service Provider | Promoters - Fees |
$
| |
Blue Sky Compliance - Name of Service Provider | Hart & Hart, LLC | Blue Sky Compliance - Fees |
$
500.00 |
CRD Number of any broker or dealer listed: | |
Estimated net proceeds to the issuer |
$
|
Clarification of responses (if necessary) |
Selected States and Jurisdictions |
ALABAMA
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
DISTRICT OF COLUMBIA
FLORIDA
GEORGIA
HAWAII
IDAHO
ILLINOIS
INDIANA
IOWA
KANSAS
KENTUCKY
LOUISIANA
MAINE
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSISSIPPI
MISSOURI
MONTANA
NEBRASKA
NEVADA
NEW HAMPSHIRE
NEW JERSEY
NEW MEXICO
NEW YORK
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
PUERTO RICO
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON
WEST VIRGINIA
WISCONSIN
WYOMING
|
None | ☐ |
Same as the jurisdictions in which the issuer intends to offer the securities | ☒ |
Selected States and Jurisdictions |
ALABAMA
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
DISTRICT OF COLUMBIA
FLORIDA
GEORGIA
HAWAII
IDAHO
ILLINOIS
INDIANA
IOWA
KANSAS
KENTUCKY
LOUISIANA
MAINE
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSISSIPPI
MISSOURI
MONTANA
NEBRASKA
NEVADA
NEW HAMPSHIRE
NEW JERSEY
NEW MEXICO
NEW YORK
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
PUERTO RICO
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON
WEST VIRGINIA
WISCONSIN
WYOMING
|
None ☐
As to any unregistered securities issued by the issuer of any of its predecessors or affiliated issuers within one year before the filing of this Form 1-A, state:
(a)Name of such issuer | Sky Quarry Inc. |
(b)(1) Title of securities issued | Common Stock |
(2) Total Amount of such securities issued | 18557039 |
(3) Amount of such securities sold by or for the account of any person who at the time was a director, officer, promoter or principal securityholder of the issuer of such securities, or was an underwriter of any securities of such issuer. | 0 |
(c)(1) Aggregate consideration for which the securities were issued and basis for computing the amount thereof. | $2,160,640 |
(2) Aggregate consideration for which the securities listed in (b)(3) of this item (if any) were issued and the basis for computing the amount thereof (if different from the basis described in (c)(1)). |
As to any unregistered securities issued by the issuer of any of its predecessors or affiliated issuers within one year before the filing of this Form 1-A, state:
(a)Name of such issuer | Sky Quarry Inc. |
(b)(1) Title of securities issued | Series A Preferred Stock |
(2) Total Amount of such securities issued | 1 |
(3) Amount of such securities sold by or for the account of any person who at the time was a director, officer, promoter or principal securityholder of the issuer of such securities, or was an underwriter of any securities of such issuer. | 0 |
(c)(1) Aggregate consideration for which the securities were issued and basis for computing the amount thereof. | $1 |
(2) Aggregate consideration for which the securities listed in (b)(3) of this item (if any) were issued and the basis for computing the amount thereof (if different from the basis described in (c)(1)). |
(e) Indicate the section of the Securities Act or Commission rule or regulation relied upon for exemption from the registration requirements of such Act and state briefly the facts relied upon for such exemption | Section 4(a)(2) of the Securities Act of 1933. |
AN OFFERING STATEMENT PURSUANT TO REGULATION A RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC” OR THE “COMMISSION”). INFORMATION CONTAINED IN THIS PRELIMINARY OFFERING CIRCULAR IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE THE OFFERING STATEMENT FILED WITH THE COMMISSION IS QUALIFIED. THIS PRELIMINARY OFFERING CIRCULAR SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR MAY THERE BE ANY SALES OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL BEFORE REGISTRATION OR QUALIFICATION UNDER THE LAWS OF SUCH STATE. THE COMPANY MAY ELECT TO SATISFY ITS OBLIGATION TO DELIVER A FINAL OFFERING CIRCULAR BY SENDING YOU A NOTICE WITHIN TWO BUSINESS DAYS AFTER THE COMPLETION OF THE COMPANY'S SALE TO YOU THAT CONTAINS THE URL WHERE THE FINAL OFFERING CIRCULAR OR THE OFFERING STATEMENT IN WHICH SUCH FINAL OFFERING CIRCULAR WAS FILED MAY BE OBTAINED.
PRELIMINARY OFFERING CIRCULAR DATED JULY 6, 2021
SKY QUARRY INC.
136 East South Temple, Suite 1400
Salt Lake City, UT 84111
424-394-1090
www.skyquarry.com
OFFERING: UP TO 15,000,000 UNITS. EACH UNIT IS COMPRISED OF ONE COMMON SHARE (A "COMMON SHARE"), AND ONE COMMON SHARE PURCHASE WARRANT (A "WARRANT") TO PURCHASE ONE ADDITIONAL COMMON SHARE (A "WARRANT SHARE") AT AN EXERCISE PRICE OF $2.50 USD PER WARRANT SHARE, SUBJECT TO CERTAIN ADJUSTMENTS, OVER A 36-MONTH EXERCISE PERIOD FOLLOWING THE DATE OF ISSUANCE OF THE WARRANTS.
PRICE: $1.25 PER UNIT
Title of Each Class of Securities to be Qualified |
Price to Public |
Underwriting discount and commissions(1) |
Proceeds to the Company (2) |
Units(15,000,000), each consisting of: |
$ 1.25 per share |
$0.0125 |
$ 1.2375 |
- One Common Share |
|
|
|
- One Warrant |
|
|
|
Total Maximum |
$18,750,000 |
$187,500 |
$18,562,500 |
Common Shares (15,000,000) underlying Warrants |
$2.50 per share |
- |
$ 2.50 |
|
|
|
|
Total Maximum |
$37,500,000 |
- |
$37,500,000 |
(1)The Company has engaged Digital Offering LLC, Member FINRA/SIPC to perform administrative and technology related functions in connection with this offering, but not for underwriting or placement agent services. As compensation to Digital Offering for its services, the Company has agreed to pay Digital Offering, concurrently with each closing of the Offering, a fee (the “Agent Fee”) equal to 1% of the gross proceeds of the Offering. In addition, on the date of each closing of the Offering, the Company will issue to
Digital Offering warrants (the “Agent Warrants”) to purchase of one common share for each 100 shares sold in this offering. The Agent Warrants will have an exercise price of $1.25 and will expire five years after they are issued. The Agent Warrants will contain customary terms and conditions, including without limitation, provisions for cashless exercise. The Agent Warrants and the shares issuable upon the exercise of the Agent Warrants are being registered by means of the Offering Statement for the Offering. See “Plan of Distribution” for details.
(2)Does not include other expenses of the offering. See “Plan of Distribution” for a description of these expenses.
The Common Shares and Warrants comprising the Units and the underlying Warrant Shares are being offered pursuant to Regulation A of Section 3(b) of the Securities Act for Tier 2 offerings. The Common Shares and Warrants comprising of Units and the underlying Warrant Shares are only issued to purchasers who satisfy the requirements set forth in Regulation A.
The minimum investment required is $1,000, or 800 Units. However, the Company has the option in our sole discretion to accept less than the minimum investment.
The Company has engaged Prime Trust, LLC (the "Escrow Agent") to hold funds tendered by investors.
The Offering will terminate at the earlier of: (1) the date at which all Units offered have been sold, (2) one year from the date the SEC qualifies the Offering Statement of which this Offering Circular forms a part, or (3) the date at which the offering is earlier terminated by us in our sole discretion.
The Offering is being conducted on a “best efforts” basis without a minimum offering amount, which means that there is no guarantee that any minimum amount will be sold in this Offering.
INVESTING IN THE UNITS, THE COMMON SHARES AND WARRANTS OF WHICH THE UNITS CONSIST AND THE UNDERLYING WARRANT SHARES OF THE COMPANY IS SPECULATIVE AND INVOLVES SUBSTANTIAL RISKS. YOU SHOULD PURCHASE THESE SECURITIES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE “RISK FACTORS” BEGINNING ON PAGE 8 TO LEARN THE MORE SIGNIFICANT RISKS YOU SHOULD CONSIDER IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES.
THE COMMISSION DOES NOT PASS UPON THE MERITS OR GIVE ITS APPROVAL OF ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.
GENERALLY NO SALE MAY BE MADE TO YOU IN THIS OFFERING IF THE AGGREGATE PURCHASE PRICE YOU PAY IS MORE THAN 10% OF THE GREATER OF YOUR ANNUAL INCOME OR NET WORTH. DIFFERENT RULES APPLY TO ACCREDITED INVESTORS AND NON-NATURAL PERSONS. BEFORE MAKING ANY REPRESENTATION THAT YOUR INVESTMENT DOES NOT EXCEED APPLICABLE THRESHOLDS, WE ENCOURAGE YOU TO REVIEW RULE 251(d)(2)(i)(C) OF REGULATION A OF THE SEC. FOR GENERAL INFORMATION ON INVESTING, WE ENCOURAGE YOU TO REFER TO WWW.INVESTOR.GOV.
Sales of these securities will commence within approximately two (2) days after qualification of this offering.
The Company is following the "Offering Circular" format of Form S-1 under Regulation A.
In the event that we become a reporting company under the Securities Exchange Act of 1934, we intend to take advantage of the provisions that relate to “Emerging Growth Companies” under the JOBS Act of 2012. See “Implications of Being an Emerging Growth Company.” herein.
2
TABLE OF CONTENTS
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6 |
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16 |
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17 |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
18 |
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19 |
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25 |
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28 |
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28 |
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33 |
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34 |
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34 |
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35 |
In this Offering Circular, the term “SQI”, “we”, “us”, “our” or “the Company” refers to Sky Quarry Inc and its subsidiaries 2020 Resources LLC and 2020 Resources (Canada) Ltd.
THIS OFFERING CIRCULAR MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE OFFERING MATERIALS, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
3
Definitions
In this document, we refer to the following terms:
“Asphalt” is a dark brown to black, highly viscous, hydrocarbon produced from petroleum distillation residue. This distillation can occur naturally, resulting in asphalt lakes, or occur in a petroleum refinery using crude oil.
“Asphalt Cement” means a bitumen-based liquid binder used in asphalt pavement.
“ASR Facility” refers to the Company’s asphalt shingle recycling facility currently under development. The Company’s design contemplates a modular, scalable, purpose-built facility capable of remediating up to 250 tons of waste asphalt shingles per day and separation into their base components of asphalt cement, shingle granules, sand aggregate, limestone and fiberglass.
“DOT” means the US Federal Department of Transportation.
“ECOSolv” refers to the Company’s proprietary “environmentally clean oil” waterless solvent and process used in the separation of oil from oily sands and also during the asphalt shingle remediation process.
“HMA” refers to hot mix asphalt paving aggregate, a combination of crushed or screened gravel and asphalt cement, and may contain binding additives to improve longevity and resistance to rut-forming and thermal and fatigue cracking.
“PR Spring Facility” refers to the Company’s oil sands remediation facility located in PR Spring in eastern Utah.
“WAS” means waste asphalt shingles recovered from construction and demolition waste (roof replacement), also known as “tear-offs” and from rejected manufactured shingles, also known as “manufacturer’s scrap”.
“WTI” refers to the New York Mercantile Exchange (NYMEX) West Texas Intermediate Crude Oil spot contract, an oil price benchmark that is central to global commodities trading, and is used to forecast energy input and commodity sale prices.
Overview
The Company is an environmental remediation company formed to deploy technologies to facilitate the recycling of waste asphalt shingles and remediation of oil-saturated sands and soils. The recycling of asphalt shingles will reduce the dependence of the American economy on landfills for the removal of waste and will also reduce the economy’s dependence on virgin crude oil for industrial uses.
The Company was incorporated in Delaware on June 4, 2019 as “Recoteq, Inc.” On April 22, 2020, the Company changed its name to “Sky Quarry Inc.”
On September 16, 2020, the Company acquired 2020 Resources LLC. The assets of 2020 Resources include an oil sands remediation facility (referred to in this Offering Circular as the PR Spring facility) and a 100% interest in asphalt bitumen leases covering approximately 5,930 acres in the PR Spring region in Utah. On September 16, 2020, the Company also acquired 2020 Resources (Canada) Ltd, an entity which is currently inactive.
The Company intends to retrofit the PR Spring facility to:
·Recycle waste asphalt shingles using the Company’s ECOSolv technology and produce oil and asphalt paving aggregate from its bitumen deposit.
The Company also plans to develop a modular asphalt shingle recycling facility ("ASR Facility"), which can be deployed in areas with high concentrations of waste asphalt shingles and near asphalt shingle manufacturing centers.
4
The Offering
Securities offered: |
A maximum of 15,000,000 units (the "Units") at an offering price of $1.25 USD per Unit, each Unit being comprised of:
· one share of the Company's common stock (a "Common Share"); and one Common Share purchase warrant (a "Warrant") to purchase one additional Common Share (a "Warrant Share") at a price of $2.50 USD per share, subject to customary adjustments, over a 36-month exercise period following the date of the issuance of the Warrant.
|
Securities outstanding before the Offering |
|
|
29,928,175 shares of common stock (1) |
|
|
Securities outstanding after the Offering: |
|
|
44,928,175 Common Shares and 15,000,000 Warrants if all Units offered are sold, or 59,928,175 Common Shares upon the exercise of the Warrants if all Units offered are sold and all Warrants are exercised. |
(1)Does not reflect the shares of common stock issuable upon conversion of outstanding convertible notes. Assuming full conversion of the notes, shares of common stock outstanding before and after the Offering would increase by 1,041,333 shares.
Implications of Being an Emerging Growth Company
As an issuer with less than $1 billion in total annual gross revenues during our last fiscal year, we will qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and this status will be significant if and when we become subject to the ongoing reporting requirements of the Exchange Act upon filing a Form 8-A. An emerging growth company may take advantage of certain reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company we:
●will not be required to obtain an auditor attestation on our internal controls over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;
●will not be required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”);
●will not be required to obtain a non-binding advisory vote from our shareholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes);
●will be exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;
●may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A; and
●will be eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards.
5
We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards, and hereby elect to do so. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under Section 107 of the JOBS Act.
Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, as amended, or such earlier time that we no longer meet the definition of an emerging growth company. Note that this offering, while a public offering, is not a sale of common equity pursuant to a registration statement since the offering is conducted pursuant to an exemption from the registration requirements. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1.07 billion in annual revenues, have more than $700 million in market value of our Common Stock held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year period.
Certain of these reduced reporting requirements and exemptions are also available to us due to the fact that we may also qualify, once listed, as a “smaller reporting company” under the rules of the SEC. For instance, smaller reporting companies are not required to obtain an auditor attestation on their assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or Chief Executive Officer pay ratio disclosure; and may present only two years of audited financial statements.
If we do not become a public reporting company under the Exchange Act for any reason, we will be required to publicly report on an ongoing basis under the reporting rules set forth in Regulation A for Tier 2 issuers. The ongoing reporting requirements under Regulation A are more relaxed than for “emerging growth companies” under the Exchange Act. The differences include, but are not limited to, being required to file only annual and semiannual reports, rather than annual and quarterly reports. Annual reports are due within 120 calendar days after the end of the issuer’s fiscal year, and semiannual reports are due within 90 calendar days after the end of the first six months of the issuer’s fiscal year.
The SEC requires the Company to identify risks that are specific to its business and its financial condition. The Company is still subject to the same risks that all companies in its industry, and all companies in the economy, are exposed to. These include risks relating to economic downturns, political and economic events and technological developments (such as cyber-attacks and the ability to prevent such attacks). Additionally, early-stage companies are inherently more risky than more developed companies, and the risk of business failure and complete loss of your investment capital is present. You should consider general risks as well as specific risks when deciding whether to invest.
Summary
●There is no guarantee that we will ever successfully develop the technology that is essential to our business.
●We may not raise enough capital in this offering to begin generating revenue.
●We are a comparatively early-stage technology company that has incurred operating losses in the past and may never achieve or maintain profitability.
●We operate in a highly competitive industry that is dominated by several very large, well-capitalized market leaders, and the size and resources of some of our competitors may allow them to compete more effectively than we can.
●We rely on third parties to provide services essential to the success of our business. If the third parties we rely on to provide services necessary to our business become insolvent, it would be materially disruptive to our business, and we may incur high costs and time to secure alternative supply.
●Substantially all of our assets are pledged as collateral to a lender.
●We are controlled by our officers and directors.
●In certain circumstances, investors will not have dissenters’ rights.
6
●As of the date of this Offering Circular there was no market for our common stock.
●Our auditor included a “going concern” note in its audit report on our financial statements.
●Investors in this offering may not be entitled to a jury trial with respect to claims arising under the Subscription Agreement, which could result in less favorable outcomes to the plaintiff(s) in any action under these agreements.
Risks Related to Our Company
Our ECOSolv Technology May Not Work as Expected.
The recovery of oil from our bitumen deposit and the process of recycling WAS is dependent on the viability of our proprietary technology which we refer to as the ECOSolv process. However, the ECOSolv technology has never been used on a commercial scale. If the ECOSolv technology does not perform as expected, our business plan is likely to fail.
We may not raise enough capital in this offering to begin generating revenue.
By the year ending December 31, 2023 the Company expects that a significant portion of its gross revenues will be derived from the operations of its PR Spring facility. However, the Company will need approximately $7,500,000 to retrofit the facility, and if less than $7,500,000 is raised in this offering, the Company will not have sufficient funds to retrofit the PR Spring facility. Similarly, by the year ending December 31, 2023 the Company expects that a significant portion of its gross revenues will be derived from recycling WAS at its PR Spring facility and at ASR facilities which the Company plans to construct at various locations in the United States. However, the Company will need approximately $8,000,000 to design, construct, and test the operational effectiveness of a pilot ASR facility. If less than $15,000,000 is raised in this offering the Company will not have sufficient funds to design, construct, and test this pilot facility.
We have a limited operating history upon which you can evaluate our performance and have a history of losses. Accordingly, our prospects must be considered in light of the risks that any new company encounters.
We were incorporated under the laws of Delaware on June 4, 2019. We have generated limited revenues and have a history of losses. The likelihood of our creation of a viable business must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the growth of a business, operation in a competitive industry, and the continued development of our technology and products. We anticipate that our operating expenses will increase for the near future, and there is no assurance that we will be profitable in the near future. You should consider our business, operations, and prospects in light of the risks, expenses, and challenges faced as an emerging growth company.
Our future operating results will depend on many factors, including:
●our ability to raise adequate working capital;
●the success of the development of our facilities;
●the level of our competition;
●our ability to attract and maintain key management and employees; and
our ability to efficiently develop and produce sufficient quantities of saleable products from waste asphalt shingles in a highly competitive and speculative environment while maintaining quality and controlling costs.
There is no minimum amount required to be raised in this offering.
We may not have enough funds to sustain our business until it becomes profitable, as we may not accurately anticipate how quickly we may use the funds that are raised in the offering and whether such funds are sufficient to bring our business to profitability. If we fail to raise sufficient capital from this offering, we intend to seek additional financing either through the sale of equity or loans from third parties. However, there can be no assurance that we will be able to obtain any additional capital.
7
Our auditors have expressed doubt as to our ability to continue in business.
The accompanying financial statements have been prepared assuming we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. We had an accumulated deficit of $(798,051) at March 31, 2021, had a net loss of $396,625 for the year ended December 31, 2020 and a net loss of $(556,946) for the three months ended March 31, 2021. These matters, among others, raise substantial doubt about our ability to continue as a going concern.
Our future success is dependent on the continued service of our management team.
Our future success is dependent, in a large part, on retaining the services of our current management team. Our executive officers possess a unique and comprehensive knowledge of our industry, our technology and related matters that are vital to our success within the industry. The knowledge, leadership and technical expertise of these individuals would be difficult to replace and the loss of one or more of our officers could have a material adverse effect on our operating and financial performance, including our ability to develop and execute our long term business strategy. We do not maintain a key person life insurance policy on any of the members of our senior management team. As a result, we would have no way to cover the financial loss if we were to lose the services of our directors or officers. Notwithstanding the above, none of our officers have any experience in recycling waste asphalt shingles.
Certain corporate actions need the consent of one of our principal shareholders.
JP Morgan Chase Bank owns approximately 20% of our outstanding shares of common stock. We have an agreement with JP Morgan which prohibits certain corporate actions without the consent of JP Morgan. See the section of this Offering Circular captioned "Business- Agreement with JP Morgan Chase Bank" for more information regarding this agreement.
We expect to raise additional capital through equity and/or debt offerings to support our working capital requirements and operating losses.
To fund future growth and development, the Company will likely need to raise additional funds in the future by offering shares of its Common Stock and/or other classes of equity, or debt that convert into shares of Common Stock, any of which offerings would dilute the ownership percentage of investors in this offering. See “Dilution.” In order to issue sufficient shares in this regard, we may be required to amend our certificate of incorporation to increase our authorized capital stock, which would require us to obtain the consent of a majority of our shareholders. Furthermore, if the Company raises capital through debt, the holders of our debt would have priority over holders of Common Stock, and the Company may be required to accept terms that restrict its ability to incur more debt. We cannot assure you that the necessary funds will be available on a timely basis, on favorable terms, or at all, or that such funds, if raised, would be sufficient. The level and timing of future expenditure will depend on a number of factors, many of which are outside our control. If we are not able to obtain additional capital on acceptable terms, or at all, we may be forced to curtail or abandon our growth plans, which could adversely impact the Company, its business, development, financial condition, operating results or prospects.
Any valuation at this stage is difficult to assess.
The valuation for this Offering was established by the Company. Unlike listed companies that are valued publicly through market-driven stock prices, the valuation of private companies, especially early-stage companies, is challenging to assess, and you may risk overpaying for your investment.
If we cannot raise sufficient funds, we may not succeed.
We are offering Units in this Offering on a best-efforts basis and may not sell all of the Units we are offering. Even if the maximum amount is raised, we are likely to need additional funds in the future to grow. The technology and products we are developing are highly sophisticated, and we may also encounter technical challenges that require more capital than anticipated by the management team to overcome. If we cannot raise those funds for whatever reason, including reasons relating to the Company itself or to the broader economy, the Company may not survive. If we raise a substantially lesser amount than the maximum raise, we will have to find other sources of funding for some of the plans outlined in “Use of Proceeds”.
8
Part of our asset base is currently pledged as collateral to a lender.
We have already entered into early financing arrangements with lenders that contain covenants that could limit our ability to engage in specified types of transactions. These covenants may limit our ability to, among other things, consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets.
A breach of any of the covenants with our lenders could result in a default under the terms of certain financings in which the lender could elect to declare all amounts outstanding thereunder to be immediately due and payable. If the current secured financial obligations are repaid, we may need to pledge all of our assets as collateral to secure additional financings in the future.
Acquisition opportunities may present themselves that in hindsight did not achieve the positive results anticipated by our management.
From time to time, acquisition opportunities may become available to the Company. Those opportunities may involve the acquisition of specific assets, such as intellectual property or inventory, or may involve the assumption of the business operations of another entity. Our goal with any future acquisition is that any acquisition should be able to contribute neutral to positive EBITDA to the Company after integration. To effect these acquisitions, we will likely be required to obtain lender financing or issue additional shares of stock in exchange for the shares of the target entity. If the performance of the acquired assets or entity does not produce positive results for the Company, the terms of the acquisition, whether it is interest rate on debt, or additional dilution of stockholders, may prove detrimental to the financial results of the Company, or the performance of your particular shares.
The novel coronavirus (COVID-19) pandemic may have an impact on our business, financial condition and results of operations.
The COVID-19 pandemic has rapidly escalated in the United States, creating significant uncertainty and economic disruption, and leading to record levels of unemployment nationally. Numerous state and local jurisdictions have imposed, and others in the future may impose, shelter-in-place orders, quarantines, shut-downs of non-essential businesses, and similar government orders and restrictions on their residents to control the spread of COVID-19. The extent to which COVID-19 ultimately impacts our business, financial condition and results of operations will depend on future developments, which are highly uncertain and unpredictable, including new information which may emerge concerning the severity and duration of the COVID-19 outbreak and the effectiveness of actions taken to contain the COVID-19 outbreak or treat its impact, among others. In addition to the COVID-19 disruptions possibility adversely impacting our business and financial results, they may also have the effect of heightening many of the other risks described here under “Risk Factors,” including risks relating to changes due to our limited operating history; our ability to generate sufficient revenue, to generate positive cash flow; our relationships with third parties, and many other factors. We will endeavor to minimize these impacts, but there can be no assurance relative to the potential impacts that may be incurred.
Our operations are currently geographically concentrated and therefore subject to regional economic, regulatory and capacity risks.
Initially, all of our operations will take place at our PR Spring facility in eastern Utah. As a result of this early geographic concentration, we may be disproportionately exposed to the effect of regional supply and demand factors, delays or interruptions in this area caused by governmental regulation, processing or transportation capacity constraints, market limitations, weather events or interruption of the processing or transportation of our products. Additionally, we may be exposed to additional risks, such as changes in laws and regulations that could limit our operations at PR Spring.
9
Risk Factors Related to Asphalt Shingles Recycling
The nature of our operations may involve various risks.
Our anticipated operations in asphalt shingle recycling and reclamation involves many risks that even a combination of experience, knowledge and careful evaluation may not be able to overcome. Furthermore, the marketability of any products produced from waste asphalt shingles will be affected by numerous factors beyond our control. These factors include, but are not limited to, price fluctuations, proximity and capacity of processing equipment, equipment and labor availability and government regulations (including, without limitation, regulations relating to prices, taxes, royalties, allowable production, importing and exporting of base components of asphalt cement, shingle granules, sand aggregate, limestone and fiberglass, land use and environmental protection). The extent of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital.
The viability of our business plan, business operations, and future operating results and financial condition are and will be exposed to fluctuating prices for our end-products.
Prices for asphalt cement, shingle granules, sand aggregate, limestone and fiberglass, and their related products are affected by supply and demand, which can fluctuate significantly. Factors that influence supply and demand include operational issues, natural disasters, weather, political instability or conflicts, and economic conditions. Price fluctuations can have a material effect on our ability to raise capital and fund our activities, our potential future earnings, and our financial condition.
Environmental and regulatory compliance may impose substantial costs on us.
Our operations are or will be subject to stringent federal, state and local laws and regulations relating to improving or maintaining environmental quality. Environmental laws often require parties to pay for remedial action or to pay damages regardless of fault. Environmental laws also often impose liability with respect to divested or terminated operations, even if the operations were terminated or divested many years ago.
Our activities are or will be subject to extensive laws and regulations governing our remediation, and recycling activities, as well as those governing exports, taxes, labor standards, occupational health, waste disposal, land use, protection and remediation of the environment, protection of endangered and protected species, operational safety, toxic substances and other matters. Generally, our activities and operations, may be subject to risks and liabilities associated with pollution of the environment and disposal of any waste products. Compliance with these laws and regulations may impose substantial costs on us and may subject us to potential liabilities. In addition, should there be changes to existing laws or regulations, our competitive position within the industry may be adversely affected, as many industry players may have greater resources than we do.
We may be exposed to third party liability and environmental liability in the operation of our business.
Our operations could result in liability for personal injuries, property damage, discharge of hazardous materials, remediation and clean-up costs and other environmental damage. We could be liable for environmental damages caused by previous owners. As a result, substantial liabilities to third parties or governmental entities may be incurred, and the payment of such liabilities could have a material adverse effect on our financial condition and results of operations. The release of harmful substances in the environment or other environmental damages caused by our activities could result in us losing our operating and environmental permits or inhibit us from obtaining new permits or renewing existing permits. We currently have a limited amount of insurance and at such time as we commence operations we expect to be able to obtain and maintain additional insurance coverage for our operations, including limited coverage for sudden environmental damages. Accordingly, we could incur substantial costs to comply with environmental laws and regulations which could affect our ability to operate as planned.
Because of the speculative nature of asphalt shingle recycling, there is risk that our business may not succeed.
We cannot provide investors with any assurance that we will be able to obtain requisite amount of feed stock or asphalt shingles necessary for the success of our operations, which may force us to abandon or curtail our business plan and, as a result, any investment in us may become worthless.
10
The price for asphalt cement, shingle granules, sand aggregate, limestone and/or fiberglass is subject to a variety of factors that are beyond our control.
These factors include:
●consumer and/or industrial demand;
●supply of asphalt shingles;
●domestic governmental regulations and taxes;
●the price and availability of solvent materials and feedstocks;
●adverse weather conditions;
●worldwide economic conditions.
The market for asphalt cement, shingle granules, sand aggregate, limestone and/or fiberglass may be highly competitive, and intensely competitive pressures could force us to abandon or curtail our business plan.
The market for asphalt cement, shingle granules, sand aggregate, limestone and/or fiberglass products may be highly competitive, and we can only expect competition to intensify in the future. Numerous well-established companies are focusing significant resources on similar recycling and remediation activities and may be competing with us for opportunities. Competitors include larger companies which, in particular, may have access to greater resources, may be more successful in the recruitment and retention of qualified employees and may conduct their own marketing operations, which may give them a competitive advantage. Actual or potential competitors may be strengthened through the acquisition of additional assets and interests. As a result, there can be no assurance that we will be able to compete successfully or that competitive pressures will not adversely affect our business, results of operations and financial condition. If we are not able to successfully compete in the marketplace, we could be forced to curtail or even abandon our current business plan, which could cause any investment in us to become worthless.
Decommissioning costs are unknown and may be substantial. Unplanned costs could divert resources from other projects.
In the future, we may become responsible for costs associated with abandoning and reclaiming facilities which we use for recycling of asphalt shingles. Abandonment and reclamation of these facilities and the costs associated therewith is often referred to as “decommissioning.” The use of funds to satisfy such decommissioning costs could impair our ability to focus capital investment in other areas of our business.
We may have difficulty marketing or distributing the asphalt cement, shingle granules, sand aggregate, limestone and/or fiberglass we may produce, which could harm our financial condition.
In order to sell the finished asphalt cement, shingle granules, sand aggregate, limestone and fiberglass that we are able to produce from the asphalt shingles recycling process, if any, we must be able to make economically viable arrangements for the storage, transportation and distribution of these products to the market. We will rely on local infrastructure and the availability of transportation for storage and shipment of our products, but infrastructure development and storage and transportation facilities may be insufficient for our needs at commercially acceptable terms in the localities in which we operate.
Furthermore, weather conditions or natural disasters, actions by companies doing business in one or more of the areas in which we will operate, or labor disputes may impair the distribution of our products and in turn diminish our financial condition or ability to maintain our operations.
11
We rely on technology to conduct our business, and our technology could become ineffective or obsolete.
We rely on technology, including proprietary techniques, processes, and intellectual property, as well as closely-held economic models, to develop our plans and estimates and to guide our development, processing, and production activities. We will be required to continually enhance and update our technologies in order to maintain its efficacy and to avoid obsolescence. As such, our business may carry with it a greater degree of technological risk than other projects that employ commercially proven technologies. If major process design changes are required, the costs of doing so may be substantial and may be higher than the costs that we anticipate for technology maintenance and development. If we are unable to maintain the efficacy of our technology, our ability to manage our business and to compete may be impaired. Further, even if we are able to maintain technical effectiveness, our technology may not be the most efficient means of reaching our objectives, in which case we may incur higher operating costs than we would were our technology more efficient.
We do not yet have a market for any of our recycled products.
There can be no assurance that a market will develop for our recycled products. We do not have any sales or supply agreements with any company for the byproducts of waste asphalt shingles.
Our shingle remediation activities will be dependent upon having an available supply of waste asphalt shingles from waste haulers, shingle manufacturers or other third parties.
As of the date of this Offering Circular we did not have any supply agreements with landfills and/or private waste haulers.
Risks Related to Oil Sands Exploration
We do not have any proven oil reserves.
As of the date of this Offering Circular our bitumen deposit did not have any proven oil reserves. If our oil sands do not contain economically recoverable heavy oil and bitumen, and/or we are unable to commercially extract such quantities, we may be forced to abandon or curtail our business plan and, as a result, any investment in us may become worthless.
The price of oil has historically been volatile.
Our future financial condition and results of operations will depend, in part, upon the price for oil. Oil prices historically have been volatile and likely will continue to be volatile in the future, especially given current world geopolitical conditions. Our cash flows from operations will be highly dependent on the prices that we receive for oil. This price volatility also affects the amount of our cash flows available for capital expenditures and our ability to borrow money or raise additional capital. The price for oil is subject to a variety of additional factors that are beyond our control. These factors include:
●the level of consumer and industrial demand for oil;
●the domestic and foreign supply of oil;
●the ability of the members of the Organization of Petroleum Exporting Countries (“OPEC”) to agree to and maintain oil price and production controls;
●domestic governmental regulations and taxes;
●adverse weather conditions;
●market uncertainty due to political conditions in oil and gas producing regions; and
●worldwide economic conditions.
These factors as well as the volatility of the energy markets generally make it extremely difficult to predict future oil price movements with any certainty. In a low oil price environment oil sands exploration and development may not be economically or financially viable or profitable. Prolonged periods of low oil prices, or rising costs, could result in our mining and processing operations being delayed or cancelled.
12
Furthermore, our ability to sell oil will be affected by numerous factors beyond our control. These factors include, but are not limited to, proximity and capacity of refineries and pipelines and processing equipment, equipment and labor availability and government regulations (including, without limitation, regulations relating to taxes, royalties, importing and exporting of oil, and land use and environmental protection). Weather conditions or natural disasters or labor disputes may impair the distribution of oil and in turn diminish our financial condition and our ability to maintain our operations.
Our operations are currently geographically concentrated and therefore subject to regional economic, regulatory and capacity risks.
Initially, all of our operations will be conducted at our PR Spring Facility in eastern Utah. As a result of this geographic concentration, we may be disproportionately exposed to the effect of regional supply and demand factors, delays or interruptions of production from oil sands caused by governmental regulation, processing or transportation capacity constraints, market limitations, or weather events.
Oil sands development involves many risks.
The oil sands development business involves a variety of operating hazards and risks such as explosions, fires, spills, pollution, release of toxic gas and other environmental hazards and risks. These hazards and risks could result in substantial losses to us from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds available to us and/or force us to expend substantial monies in connection with litigation or settlements.
Environmental and regulatory compliance may impose substantial costs on us.
Our operations will be subject to stringent federal, state and local laws and regulations relating to improving or maintaining environmental quality. Environmental laws often require parties to pay for remedial action or to pay damages regardless of fault. Environmental laws also often impose liability with respect to divested or terminated operations, even if the operations were terminated or divested many years ago.
Our oil production and processing activities will be subject to extensive laws and regulations governing development, production, taxes, labor standards, occupational health, waste disposal, land use, protection and remediation of the environment, protection of endangered and protected species, operational safety, toxic substances and other matters. Compliance with these laws and regulations, or changes to existing laws or regulations, will impose substantial costs on us and may subject us to significant potential liabilities.
We are required to obtain various regulatory permits and approvals in order to operate. There is no assurance that these regulatory approvals will be obtained at all or with terms and conditions acceptable to us.
We may be exposed to third party liability and environmental liability in the operation of our business.
Our operations could result in liability for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damage. We could be liable for environmental damages caused by previous owners. As a result, substantial liabilities to third parties or governmental entities may be incurred, and the payment of such liabilities could have a material adverse effect on our financial condition and results of operations. The release of harmful substances in the environment or other environmental damages caused by our activities could result in us losing our operating and environmental permits or inhibit us from obtaining new permits or renewing existing permits. We currently have a limited amount of insurance and, at such time as we commence operations, we expect to be able to obtain and maintain additional insurance coverage for our operations, including limited coverage for sudden environmental damages, but we do not believe that insurance coverage for environmental damage that occurs over time is available at a reasonable cost. Moreover, we do not believe that insurance coverage for the full potential liability that could be caused by environmental damage is available at a reasonable cost. Accordingly, we may be subject to liability in the event of certain environmental damage.
13
Decommissioning costs are unknown and may be substantial. Unplanned costs could divert resources from other projects.
In the future, we may become responsible for costs associated with abandoning and reclaiming wells and facilities which we use for processing of oil sands. Abandonment and reclamation of these facilities and the costs associated therewith is often referred to as “decommissioning”. If decommissioning is required before economic depletion of our properties or if our estimates of the costs of decommissioning exceed the value of the reserves remaining at any particular time to cover such decommissioning costs, we may have to draw on funds from other sources to satisfy such costs. The use of other funds to satisfy such decommissioning costs could impair our ability to focus capital investment in other areas of our business.
Risks Related to Our Common Stock
Investors in this offering may not be entitled to a jury trial with respect to certain claims which could result in less favorable outcomes to the plaintiff(s) in any action against us.
Investors in this offering will be bound by the Subscription Agreement, which includes a provision under which investors waive the right to a jury trial of any claim they may have against the Company arising out of or relating to these agreements. By signing this agreement, the investor warrants that the investor has reviewed this waiver with his or her legal counsel, and knowingly and voluntarily waives the investor’s jury trial rights following consultation with the investor’s legal counsel.
If the Company opposes a jury trial demand based on any waiver, a court would determine whether the waiver would be enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal laws. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the Federal securities laws has not been finally adjudicated by a Federal court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of Delaware and in the Court of Chancery in the State of Delaware, which governs the Subscription Agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party knowingly, intelligently, and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the Subscription Agreement. You should consult legal counsel regarding the jury waiver provision before signing the Subscription Agreement.
If you bring a claim against the Company in connection with matters arising under the Subscription Agreement, including claims under Federal securities laws, you may not be entitled to a jury trial with respect to those claims, which may have the effect of limiting and discouraging lawsuits against the Company. If a lawsuit is brought against the Company it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in such an action.
Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the Subscription Agreement with a jury trial. No condition, stipulation, or provision of the Subscription Agreement serves as a waiver by an investor, of compliance with any provision of the federal securities laws and the rules and regulations promulgated under those laws.
In addition, when the shares are transferred, the transferee is required to agree to all the same conditions, obligations and restrictions applicable to the shares or to the transferor with regard to ownership of the shares that were in effect immediately prior to the transfer of the Shares, including but not limited to the Subscription Agreement.
Claims of U.S. civil liabilities may not be enforceable against our management.
Certain members of our Board of Directors and senior management are residents of Canada, and many of the assets of such persons are located outside the United States. As a result, it may not be possible to serve process on such persons in the United States or to enforce judgments obtained in U.S. courts against them based on civil liability provisions of the securities laws of the United States.
14
The United States and Canada do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Consequently, a final judgment for payment given by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable in Canada. In addition, uncertainty exists as to whether Canadian courts would entertain original actions brought in the United States against the Company’s Canadian directors or senior management predicated upon the securities laws of the United States or any state in the United States. Any final and conclusive monetary judgment for a definite sum obtained against us in U.S. courts would be treated by the courts of Canada as a cause of action in itself and sued upon as a debt at common law so that no retrial of the issues would be necessary, provided that certain requirements are met. Whether these requirements are met in respect of a judgment based upon the civil liability provisions of the U.S. securities laws, including whether the award of monetary damages under such laws would constitute a penalty, is an issue for the court making such decision. If a Canadian court gives judgment for the sum payable under a U.S. judgment, the Canadian judgment will be enforceable by methods generally available for this purpose. These methods generally permit the Canadian court discretion to prescribe the manner of enforcement.
As a result, U.S. investors may not be able to enforce any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws, against the Company’s officers or directors who are residents of Canada
We may issue shares of preferred stock that would have a liquidation preference to our common stock.
Our articles of incorporation currently authorize the issuance of 25,000,000 shares of our preferred stock. The board has the power to issue shares without shareholder approval, and such shares can be issued with such rights, preferences, and limitations as may be determined by our board of directors. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of any holders of preferred stock that may be issued in the future. We presently have no commitments or contracts to issue any shares of preferred stock. Authorized and unissued preferred stock could delay, discourage, hinder or preclude an unsolicited acquisition of our company, could make it less likely that shareholders receive a premium for their shares as a result of any such attempt, and could adversely affect the market prices of, and the voting and other rights, of the holders of outstanding shares of our common stock.
As of the date of this Offering Circular there was no market for our common stock.
If you want to sell your shares of common stock in the future, you may not be able to find a buyer. Although we intend to apply in the future for quotation of our common stock on the over-the-counter market there are several requirements that we may or may not be able to satisfy in a timely manner. Even if we obtain that quotation, we do not know the extent to which investor interest will lead to the development and maintenance of a liquid trading market. In addition, should a market develop for our common stock in the future, many brokerage firms will not accept the deposit of microcap securities or the fees charged to deposit your securities with a broker may be high. You should assume that you may not be able to liquidate your investment for some time should a public market develop for our common stock.
Disclosure requirements pertaining to penny stocks may reduce the level of trading activity for our common stock if and when it is publicly traded.
Trades of the Company’s common stock, should a market ever develop, may be subject to Rule 15g-9 of the Securities and Exchange Commission, which rule imposes certain requirements on broker/dealers who sell securities subject to the rule to persons other than established customers and accredited investors. For transactions covered by the rule, brokers/dealers must make a special suitability determination for purchasers of the securities and receive the purchaser's written agreement to the transaction prior to sale. The Securities and Exchange Commission also has rules that regulate broker/dealer practices in connection with transactions in "penny stocks". Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in that security is provided by the exchange or system). The penny stock rules require a broker/ dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker/dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation.
15
If you purchase Units in this offering, you will experience dilution to the extent of the difference between the public offering price of the Units and the net tangible book value per share of our common stock immediately after this offering.
The following table illustrates this dilution on a per share basis depending on the number of Units sold in this offering. For purposes of the dilution calculations below the price of a Unit was allocated to the offering price of our common stock:
|
|
Units sold in this offering |
||||
|
|
6,500,000 |
|
12,900,000 |
|
15,000,000 |
|
|
|
|
|
|
|
Public offering price per share |
|
$1.25 |
|
$1.25 |
|
$1.25 |
Shares outstanding at March 31, 2021 |
|
29,928,175 |
|
29,928,175 |
|
29,928,175 |
Net tangible book value as of March 31, 2021 |
|
$275,284.00 |
|
$275,284.00 |
|
$275,284.00 |
Net tangible book value per share as of March 31, 2021 |
|
$0.009 |
|
$0.009 |
|
$0.009 |
Net offering proceeds |
|
$7,631,750 |
|
$15,551,750 |
|
$18,150,500 |
As adjusted net tangible book value after giving effect to this offering |
|
$7,907,034 |
|
$15,827,034 |
|
$18,425,784 |
Shares outstanding after this offering |
|
36,428,175 |
|
42,828,175 |
|
44,928,175 |
As adjusted net tangible book value per share after giving effect to this offering |
|
$0.225 |
|
$0.376 |
|
$0.416 |
Dilution per share to investors in this offering |
|
$1.03 |
|
$0.87 |
|
$0.83 |
Increase in net tangible book value per share attributable to new investors |
|
$0.22 |
|
$0.37 |
|
$0.41 |
Net tangible book value per share is equal to our total tangible assets minus total liabilities, all divided by the number of shares of common stock outstanding as of March 31, 2021.
The above illustration of dilution per share to investors participating in this offering assumes no exercise of outstanding options or warrants or the conversion of any notes. The exercise of outstanding options or warrants or the conversion of notes having an exercise/ conversion price less than the offering price will increase dilution to new investors. In addition, we may choose to raise additional capital depending on market conditions, our capital requirements and strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
16
The following table below sets forth the use of proceeds from this Offering depending on the number of Units sold.
Offering Proceeds |
|
|
|
|
|
|
Units Sold |
|
6,500,000 |
|
12,900,000 |
|
15,000,000 |
Gross Proceeds from this Offering (Units only) |
|
$8,125,000 |
|
$16,125,000 |
|
$18,750,000 |
Offering Expenses (1) |
|
$493,250 |
|
$573,250 |
|
$599,500 |
|
|
|
|
|
|
|
Total Offering Proceeds Available for Use |
|
$7,631,750 |
|
$15,551,750 |
|
$18,150,500 |
|
|
|
|
|
|
|
Estimated Expenditures |
|
|
|
|
|
|
PR Spring Facility |
|
|
|
|
|
|
Capital Equipment Costs |
|
$2,900,000 |
|
$2,900,000 |
|
$2,900,000 |
Development and Engineering Costs |
|
$3,324,700 |
|
$3,324,700 |
|
$3,324,700 |
Commissioning and Startup Costs |
|
$925,000 |
|
$925,000 |
|
$925,000 |
ASR Facility |
|
- |
|
|
|
|
Engineering & Design Costs |
|
|
|
$1,500,000 |
|
$1,500,000 |
Capital Equipment and Construction Costs |
|
- |
|
- |
|
$6,500,000 |
Commissioning and Startup Costs |
|
|
|
|
|
$800,000 |
General and Administration |
|
$375,000 |
|
$1,050,000 |
|
$1,450,000 |
Total Expenditures |
|
$7,524,700 |
|
$9,699,700 |
|
$17,399,700 |
|
|
|
|
|
|
|
Working Capital Reserves |
|
$107,050 |
|
$5,852,050 |
|
$750,800 |
(1) Includes fees and commissions payable to and legal, accounting, printing, due diligence, marketing, selling and other costs. The budgeted amounts for the offering costs are an estimate only and the actual offering costs may differ.
If we sell at least 6,500,000 Units in this offering, we expect to have sufficient capital to complete the retrofit of the PR Spring Facility. If less than 6,500,000 Units are sold we intend to finance development of the PR Spring Facility through additional sales of equity or debt securities, borrowings from third party lenders, or joint ventures.
If we sell at least 12,900,000 Units in this offering, we expect to have sufficient capital to complete the retrofit of the PR Spring Facility and develop the ASR Facility.
If more than 6,500,000 Units, but less than 12,900,000 Units are sold in this offering we intend to finance the development of the ASR Facility through additional sales of equity or debt securities, borrowings from third party lenders, joint ventures or from revenues generated from the PR Spring Facility.
Construction of subsequent ASR Facilities is expected to be funded from available cash generated from the PR Spring Facility and from the first ASR Facility.
If we do not sell enough Units in this Offering to retrofit the PR Spring Facility and/or develop the ASR Facility, there can be no assurance that we will be able to raise additional capital from any source.
The above figures represent only estimated costs. This expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering. Until such time as the Company is able to generate sufficient revenue the Company will need to obtain additional financing to fund its operating losses.
Because the offering is a “best efforts,” we may close the offering without sufficient funds for all the intended purposes set out above, or even to cover the costs of this offering.
17
●MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations for the fiscal year ended December 31, 2020 and the three months ended March 31, 2021 should be read in conjunction with our financial statements and the related notes included in this Offering Circular. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
Overview
The Company was incorporated in Delaware on June 4, 2019 as “Recoteq, Inc.” On April 22, 2020, the Company changed its name to “Sky Quarry Inc.”
The Company acquired 2020 Resources LLC on September 16, 2020. The assets of 2020 Resources include an oil sands remediation facility and a 100% interest in asphalt bitumen exploration leases covering approximately 5,930 acres in the PR Spring region in Utah. On September 16, 2020 the Company also acquired 2020 Resources (Canada) Ltd, an entity which is currently inactive.
Results of Operations
Year ended December 31, 2020 Compared to Year ended December 31, 2019
The Company is in an early stage of development and has a limited history of operation. Our costs and expenses currently consist of general and administrative expenses primarily composed of travel, and office expenses of employees and contractors, software license fees, and other overhead expenses; finance costs related to debt service; and research and development related to the maintenance and filing of intellectual property. Costs and expenses increased, primarily due to:
●General and administrative expenses increased, due primarily to increases in fees incurred in connection with business investigation costs, travel, contract negotiation, software licenses and transaction fees with regard to the acquisition of 2020 Resources, LLC and 2020 Resources (Canada) Ltd.;
Finance costs increased, due to interest payments made in connection with the issuances of promissory notes and to bank charges.
Three months ended March 31, 2021 compared to three months ended March 31, 2020
The Company’s officers and directors voluntarily waived salaries and fees for the three months ended March 31, 2021.
Costs and expenses during the three months ended March 31, 2021 consisted of professional fees related to the audit of the 2020 fiscal year and preparation of the Offering Circular; general and administrative expenses primarily composed of travel; office expenses of employees and contractors; insurance and other overhead expenses; and finance costs related to debt service.
Subsequent to March 31, 2021 our legal and professional, research and development, payments to contractors, and marketing and advertising expenses are expected to increase in connection with this Offering. Our expenses related to wages and payroll taxes have temporarily decreased due to key management voluntarily waiving wages. We expect wages and payroll tax expenses to increase following this Offering. In addition, our future financial statements will show additional expenses related to the retrofit of the PR Spring facility and development of the ASR Facility portfolios.
18
Liquidity and Capital Resources
The Company has generated limited revenues and requires the continued infusion of new capital to continue business operations. Since its inception, the Company has funded operations through loans and the sale of equity securities. The Company will attempt to raise additional capital through the sale of its equity securities or loans. Absent additional capital, the Company may be forced to curtail its operations.
As of the date of this Offering Circular the Company had liabilities of $2,611,021 evidenced by promissory notes. Of these liabilities, $125,000 may be converted into 101,282 shares of our common stock.
The Company's capital requirements for the twelve month period following the date of this Offering Circular are:
· |
Retrofit PR Spring Facility |
$7,149,700 |
· |
Design, engineer, and construct prototype ASR facility |
$8,000,000 |
· |
Commissioning and Startup |
$800,000 |
· |
Operating Expenses |
$375,000-1,450,000 |
Seasonality
The Company anticipates that sales of asphalt paving aggregate and sales of heavy oil from the PR Spring Facility may to be subject to seasonality during the months from November to March due to potential difficulties in transportation of the product by truck during adverse weather conditions.
The Company does not expect commercial operations of oil sands remediation at the PR Spring Facility to be subject to seasonality, nor does the Company expect the operation of ASR Facilities to be subject to seasonality.
Subsequent Events
During May 2021 certain noteholders converted $320,475 of debt into 971,136 shares of the Company’s common stock.
On May 25, 2021 the Company closed an offering of 3,066,804 shares of common stock for gross proceeds of $1,012,046.32. Fees in connection with this offering amounted to $3,795, resulting in net proceeds of $1,008,251.32.
Sky Quarry is an environmental remediation company formed to deploy technologies to facilitate the recycling of waste asphalt shingles and remediation of oil-saturated sands and soils. The recycling of asphalt shingles will reduce the dependence of the American economy on landfills for the removal of waste and will also reduce the economy’s dependence on virgin crude oil for industrial uses.
Sky Quarry was incorporated in Delaware on June 4, 2019 as “Recoteq, Inc.” On April 22, 2020, the Company changed its name to “Sky Quarry Inc.”
The Company acquired 2020 Resources LLC on September 16, 2020. The assets of 2020 Resources include an oil sands remediation facility (referred to in this Offering Circular as the “PR Spring Facility”) and a 100% undivided interest in asphalt bitumen exploration leases covering approximately 5,930 acres in the PR Spring region of Utah. On September 16, 2020, the Company also acquired 2020 Resources (Canada) Ltd., an entity which is currently inactive.
The Company intends to retrofit the PR Spring facility to:
·Utilize its proprietary waterless solvent-based oil separation process (“ECOSolv”) to recycle waste asphalt shingles, and
·Produce oil and asphalt paving aggregate from its bitumen deposit.
The Company also plans to develop a modular, asphalt shingle recycling facility which can be deployed in areas with high concentrations of waste asphalt shingles and near asphalt shingle manufacturing centers.
19
The ECOSolv Process
Under the ECOSolv process, the oil sands are mined, crushed and then mixed with a proprietary hydrocarbon-based waterless solvent and heated and agitated in a mixing vessel into a slurry. The solvent “washes” the sand clean and separates the sands from the pre-oil liquid asphalt. The created ‘pre-oil’ is then processed in the separation stage and various products can be produced – WTI market bitumen, heavy oil or heavy crude oil. The solvent is extracted by separation, distillation and evaporation processes and is captured for re-use in the closed loop system, leaving clean heavy oil ready for sale. Heated augurs process the sand to drying units, which evaporate and capture the solvent for reuse, leaving behind clean sand. The cleaned sand is stockpiled for later remediation of the mine site.
In the case of processing WAS, the granules and fine powder are then cleaned, classified, separated and prepared for delivery to the customer. The asphalt bitumen is processed via Sky Quarry’s proprietary ECOSolv process.
Bench testing using a sample containing 22% asphalt bitumen content was processed using the Company's ECOSolv process and resulted in an end product containing 20.8% bitumen, implying a hydrocarbon recovery factor of 95%, and solvent recovery of up to 99%.
The PR Spring Facility
The PR Spring Facility was completed in 2015 originally to utilize a hybrid water/biosolvent recovery system for the separation of oil from oily sands and asphalt sludge. This process has since been shown to be uneconomic in the current environment and to use significant amounts of water. The retrofitting of the facility to process both waste asphalt shingles and to remediate oil saturated surface oil sands will utilize a proprietary benign petroleum based solvent “ECOSolv” formulation for recovery, requiring very little to no water in the process. This same solvent process has been demonstrated in bench tests to be effective in the separation of waste asphalt shingles into its base components of oil, sand and fiberglass.
Asphalt Bitumen Leases
2020 Resources holds a 100% undivided interest in three contiguous asphalt bitumen leases the “PR Spring Leases”) covering approximately 5,930 acres in the PR Spring region in Utah. The leases were issued by the State of Utah’s School and Institutional Trust Land Administration (“SITLA”) and requires payment of annual rent of $6,380 per year and minimum royalties of $63,800 per year. Once production from the bitumen deposit begins production royalties will be 6.5% of gross sales per year.
An independent resource evaluation report on the PR Spring leases dated December 31, 2020 was prepared by McDaniel & Associates Consultants Ltd. (“McDaniel”) in accordance with the standards set out in the Canadian Oil and Gas Evaluation Handbook ("COGEH"). The report stated that the PR Spring leases in total hold 184.3 million barrels of bitumen initially-in-place with no ore cutoff and 90 million barrels above six percent ore grade. The report further stated that, on a best estimate unrisked basis, the currently permitted mine pits under the Company's mine plan hold 10.7 million barrels of oil (gross) and would, under favorable circumstances, support very positive mining economics. These 10.7 million barrels are classified as a 'Contingent Resource' under current COGEH guidelines.
Contingent resources assigned have been sub-classified based on project maturity sub-class as Development Pending and by Evaluation Scenario Status as Development. Given the status of the bitumen extraction technology to date, the technology has been sub-classified as Technology Under Development. The project has been defined as Development Pending as there is a high chance of development of 90 percent within a reasonable timeframe.
“Contingent Resources” are defined as those quantities of petroleum estimated, on a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingent resources are further classified in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by their economic status.
“Technology under development” is defined as a recovery process that has been determined to be technically viable via field test and is being further field tested to determine its commercial economic viability in the subject reservoir. The PR Spring facility is considered technology under development.
20
Revenue Streams – The PR Spring facility will have the following revenue streams:
a) Asphalt paving aggregate– Raw asphalt ore will be mined from the PR Spring mine site and crushed to produce asphalt paving aggregate.
b) Oil production from bitumen leases – Mined bitumen will be separated through use of the ECOSolv process into clean sand and a low-sulfur heavy oil product to be sold to local refiners. Due to the low sulfur content, the oil is ideal for diesel fractioning and in particular for use with marine tanker fuels. The sand will be stockpiled for mine remediation or can be sold for use in construction materials.
By the year ending December 31, 2023 the Company expects that approximately 33% of its gross revenue will be derived from the sale of oil produced from its PR Spring facility. However, as of the date of this Offering Circular, the Company did not have any proven reserves on its bitumen leases, primarily due to the fact that its ECOSolv process, which the Company will use to produce oil from the bitumen leases, has not been used in a commercial setting.
c)Recycling of waste asphalt shingles (“WAS”) - Products derived from recycling of waste asphalt shingles include Asphalt Cement, Shingle Granules and Sand Aggregate, Limestone and Fiberglass which can be sold back to asphalt paving companies or shingle manufacturers.
Asphalt Cement (also referred to Tack Coat, Prime Coat, or Liquid Asphalt) is a bituminous asphalt binder applied between layers of new asphalt concrete or over existing road surfaces prior to adding overlay, or in the case of shingle manufacture, is applied between fiberglass and backing layers to provide a finished shingle product.
Shingle Granules are simply waste asphalt shingles milled to a consistency as coarse as 2" chunks or to as fine as coffee grounds depending on client requirements. Nails are electromagnetically separated during grinding. Adding Shingle granules to new hot-mix asphalt has been shown to provide some potential road benefits. Certain properties of asphalt pavement, specifically resistance to rutting and cracking, have been shown to improve with the addition of Shingle granules. Shingle granules can also improve the surfaces and durability of gravel roads. When added to gravel, Shingle granules can improve gravel road surface and durability and reduce gravel dust and road noise. Shingle Granules also works well as a stand-alone base for temporary roads and driveways. When mixed with recycled asphalt pavement and concrete, Shingle granules can serve as a sub-base for road construction.
Sand Aggregate and limestone will be clean and free of hydrocarbon residue and therefore suitable for construction applications. Fiberglass will be separated and sold for use as filler in artificial wood, cement, or asphalt production.
d)The PR Spring facility will charge a “tipping fee” to waste haulers or renovation contractors to drop off waste asphalt shingles.
e) WAS material can be ground to provide a blended paving aggregate or the ground product can be processed much the same as bitumen through the same ECOSolv separation process into its base components.
ASR Facility
The first asphalt shingle recycling facility (“ASR Facility”) is intended to be built in 2021 in proximity to a major shingle manufacturing plant. This will provide a steady supply of waste manufactured shingles and reduce transportation costs to a close cooperation customer. In addition, discussions with other suitable facilities with existing waste shingle stockpiles are underway.
The ASR Facility design will be capable of remediating waste asphalt shingles into their basic components – asphalt cement, shingle granules, sand aggregate, limestone and fiberglass – utilizing the ECOSolv and separation process. These components will be sold for use as for binding material and tar coat to the asphalt paving industry or to roofing shingle manufacturers. The Company’s plan of operations calls for the construction and operation of five or more ASR Facilities during the next five years.
Sky Quarry has identified target markets across the United States, with the potential to scale regionally to Virginia, Vermont, Alabama, Florida, and Maryland before addressing larger in markets such as Los Angeles, Portland, and Seattle.
21
Waste Asphalt Shingle Market
According to the Asphalt Roofing Manufacturers Association, approximately 13.2 million tons of asphalt roofing shingles are disposed of each year. About 1.2 million tons is waste produced by the roofing manufacturers and about 12 million tons is waste produced by residential tear-off shingles. Waste asphalt shingles amounts to about 8 percent of the nation’s total building-related waste. Over 93 percent of these waste shingles end up in landfills.
This waste stream is only going to increase. Considering that four out of five homes in the USA are roofed with asphalt shingles and that December 2020 saw the highest annualized housing starts (over 1.5 million single family dwellings) since 2006. Also consider that on average, nearly 6 million homes are reroofed each year, each roof being comprised of 1 to 3 tons of asphalt shingles. U.S. demand for residential roofing is projected to rise 0.7% per year to reach 164.1 million squares in 2024.
Asphalt shingles cannot be composted. Because asphalt is manufactured from refined petroleum, incineration would result in the emission of gases hazardous to human health. By contrast, every ton of asphalt shingles that is recycled reduces the need for oil by 2 barrels.
States and local agencies around the USA are beginning to see the advantage of using recycled asphalt shingles ("RAS") in road infrastructure projects on county, city and state roads. They are using RAS in aggregate base courses and for granular base stabilization on local roads. Paving contractors in many states are using RAS for parking lots, private driveways and in HMA mixes for varied purposes such as patching and temporary roads. The most promising future market may be local governments. Over the last ten years, Minnesota DOT has been doing laboratory and field tests with RAS on hiking and biking trails and on town and county road sections, with positive results. Georgia DOT has also experienced good results using RAS on local roads to the extent that they have modified their HMA specifications to allow for 5 percent waste shingles in the total mix.
According to an industry survey conducted by the National Asphalt Pavement Association (NAPA), it was estimated that a total of 921,000 tons of RAS was used in asphalt mixtures in 2019. RAS usage during the 2019 construction season is estimated to have reduced the need for 184,200 tons (more than 1 million barrels) of asphalt binder and about 460,000 tons of aggregate with a total estimated value of more than $103 million. Reclaiming 611,000 tons of unprocessed RAS for future use saved about 370,000 cubic yards of landfill space, and more than $33 million in gate fees for disposal in landfills.
From 2018 to 2019, the estimated total amount of asphalt mixture produced in the United States increased from 389.3 million tons to 421.9 million tons, an increase of 7.7 percent.
The Oil Sands Market
As an unconventional hydrocarbon resource, oil sands (or bitumen) hold hundreds of billions of barrels of oil on a worldwide basis. Although Canada is the only country that is currently extracting large quantities of oil from its oil sands deposits, the United States also has large oil sands resources that can be developed. In a 2007 Report entitled “A Technical, Economic, and Legal Assessment of North American Oil Shale, Oil Sands, and Heavy Oil Resources In Response to Energy Policy Act of 2005 Section 369(p)” (September 2007), prepared by the Utah Heavy Oil Program, Institute For Clean and Secure Energy and The University of Utah for the U.S. Department of Energy (the “2007 Report”), the authors reported the following estimates, which estimates were based upon source material published in 1979, 1987 and 1993:
●The United States has an estimated 76 billion barrels of oil-in-place (OIP) from bitumen and heavy oil contained in oil sands resources (OIP are not estimates of reserves or recoverable resources).
●In the United States, Utah is known to have the largest oil sands deposits, with total resource estimates ranging from 23 to 32 billion barrels of OIP from bitumen and heavy oil contained in oil sands formations and deposits.
A substantial part of the oil sands deposits in the PR Spring Leases are accessible through outcroppings or in shallow depths with limited or no overburden. In the Company's view, the location and accessibility of oil sands deposits at PR Spring create an opportunity for commercial development, supported by positive economics, using surface mining techniques and our extraction technology.
22
The worldwide growing demand for heavy crude oil and the recent decline in heavy crude oil production in countries such as Venezuela makes the high quality, low sulfur, heavy oil found in oil sands deposits in the United States a valuable resource that has been underdeveloped to date. The development of oil sands domestically has the potential to turn the United States into a major supplier of heavy oil to world markets. To date, oil sands development has been limited by the absence of a viable technology that can extract heavy oil and bitumen from the oil sands deposits in an economical and environmentally responsible manner. To that end, Sky Quarry aims to develop its oil sands leases in an economical and environmentally responsible manner.
Regulation
OSHA and Other Laws and Regulations.
We are subject to the requirements of the federal Occupational Safety and Health Act (“OSHA”), and comparable state laws. The OSHA hazard communication standard, the EPA community right-to-know regulations under the Title III of CERCLA and similar state laws require that we organize and/or disclose information about hazardous materials used or produced in our operations. Also, pursuant to OSHA, the Occupational Safety and Health Administration has established a variety of standards related to workplace exposure to hazardous substances and employee health and safety.
Oil Pollution Act.
The Federal Oil Pollution Act of 1990 (“OPA”) and resulting regulations impose a variety of obligations on responsible parties related to the prevention of oil spills and liability for damages resulting from such spills in waters of the United States. The term “waters of the United States” has been broadly defined to include inland water bodies, including wetlands and intermittent streams. The OPA assigns joint and several strict liability to each responsible party for oil removal costs and a variety of public and private damages. We believe that we are in compliance with the OPA and the federal regulations promulgated thereunder in the conduct of our operations.
Clean Water Act.
The Federal Water Pollution Control Act (“Clean Water Act”) and resulting regulations, which are primarily implemented through a system of permits, also govern the discharge of certain contaminants into waters of the United States. Sanctions for failure to comply strictly with the Clean Water Act are generally resolved by payment of fines and correction of any identified deficiencies. However, regulatory agencies could require us to cease construction or operation of certain facilities or to cease hauling wastewaters to facilities owned by others that are the source of water discharges. We believe that we substantially comply with the Clean Water Act and related federal and state regulations.
Intellectual Property
The Company holds the following patents and patent applications:
ID Type |
Patent Name |
Filing Date |
Patent 2578873 |
Removal of hydrocarbons from particulate solids (CANADA) |
2012-12-11 |
Patent 8758601B2 |
Removal of hydrocarbons from particulate solids (USA) |
2014-07-24 |
Patent 10184084B2 |
Oilsands processing using inline agitation and an inclined plate separator (USA) |
2019-01-22 |
Application 2964795 |
Method for producing pipeline specification bitumen from oil sands mining and extraction facilities (CANADA) |
2017-04-21 |
Application 3028202 |
Method for producing pipeline specification bitumen from oil sands mining and extraction facilities using non-miscible solvents and centrifuge processing (CANADA) |
2018-12-20 |
Application 2925007 |
Solvent addition in water based oil sands ore digestion and primary extraction (1) (CANADA) |
2016-03-24 |
Application 2017 / 0306242 A1 |
Method for producing pipeline specification bitumen from oil sands mining and extraction facilities (USA) |
2017-10-26 |
·Patent applications are currently under review and may not be renewed if they have no practical application under the new solvent based recovery system being contemplated.
23
Agreement with JP Morgan Chase Bank
On June 21, 2021, stockholders of the Company unanimously consented to terminate a Stockholders Agreement entered into by all of the stockholders and the Company on September 24, 2020 and approved a governance agreement between the Company and JPMorgan Chase Bank N.A. (“JPM”), which grants to JPM the following rights:
·a consent right with respect to certain business transaction matters, including: (a) material changes to the nature of the Company’s business, (b) a grant of certain stock options or restricted stock, (c) the Company’s entry into certain employment or compensation agreements, (d) the incurrence by the Company of more than $500,000 of debt, (e) the Company’s entry into a related party agreement, (f) a sale transaction, (g) a loan by the Company in excess of $500,000, (h) settlement of a lawsuit or other dispute in excess of $500,000 or (i) any investment by the Company in excess of $500,000;
·Board of Director observation rights;
·the right to receive approximately 125,000 additional shares of common stock, for a nominal consideration, upon the conversion of a promissory note with an unrelated third party;
·the right to receive certain quarterly and annual financial statements of the Company; and
·certain inspection rights so long as JPM owns at least 10% of the Company’s outstanding shares of common stock.
See "Description of Securities- Preferred Stock" for information concerning rights held by JPM as the holder of the Company's Series A Preferred Stock.
Other
The Company’s head office and mailing address is located at 136 E S Temple, Suite 1400, Salt Lake City, Utah, 84111, however at present, due to COVID-19 and geographic concerns, the executive management team works remotely.
The Company’s PR Spring facility is located at 67750 Seep Ridge Road, Bonanza, Utah.
The Company currently has 5 full-time employees that work remotely or out of our headquarters in Utah. During retrofit construction and commissioning, it is expected that management will provide oversight and a combination of consultants and temporary contract labor will form the basis of the workforce. It is expected that 12 full-time employees will be required in Q3 2021 at the time the PR Spring Facility commences operations.
As initial engineering and construction is mobilized for the first ASR Facility an additional ten employees will be required for the start up and operation of each facility.
24
Name |
|
Position |
|
Age |
|
Date Appointed to
|
David Sealock |
|
Chief Executive Officer and a Director |
|
61 |
|
January 2020 |
Marcus Laun |
|
Executive Vice President and a Director |
|
52 |
|
January 2020 |
Darryl Delwo |
|
Vice President, Finance |
|
55 |
|
July 2020 |
Travis Schneider |
|
Director |
|
47 |
|
May 2020 |
David Sealock, CEO and Director
Mr. Sealock has served as our Chief Executive Officer and Chairman since January 1, 2020 and is a co-founder of the technology concepts and processes utilized by the Company. Previously from March 26, 2018 to January 2020, Mr. Sealock served as CEO for Petroteq Energy. From January 2015 until joining our company, Mr. Sealock also served as President of Autus Ventures, Inc. where he established equity financing processes for startup and intermediate oil and gas companies and managed strategic planning and portfolio optimization. Prior to that, from January 2017 until August 2017, he was Vice President of Research & Development at Petroleum Technology Alliance Canada (PTAC), a Canadian hydrocarbon industry association that serves as a neutral non-profit facilitator of collaborative R&D and technology development. There he managed the coordination and services to facilitate the implementation of specific methane related projects. From August 2014 until December 2015, Mr. Sealock served as President and Chief Operating Officer of Sulvaris. Inc. During his tenure at Sulvaris, he collaborated to deliver equity financing and JV financing to recommence project construction. From 2008 to 2014, Mr. Sealock was the Executive Vice President of Sunshine Oilsands, Ltd., and was promoted to President and Chief Executive Officer (Interim) from 2013 to 2014, where he managed daily operations for engineering, construction, technology, operations, regulatory, human resources, investor relations, health, safety & environment, marketing, supply chain management, IT & systems, and corporate governance. From 2007-2008 he was Vice President of MegaWest Energy Corp. (now Gravis Energy) and from 2006-2007 he was Senior Manager of Total E&P (formerly Deer Creek Energy, Ltd.), where he was charged with leading a large-scale business & digital transformation to integrate Deer Creek Energy’s technology infrastructure into Total’s enterprise-wide global infrastructure. Mr. Sealock holds a bachelor’s degree, Business Management and is a Registered Engineering Technologist with ASET.
Mr. Sealock brings a strong background in technology related startup operations, regulatory compliance and corporate governance to the Company, which qualifies him to be a director, and adds significant strategic, business and financial experience.
Marcus Laun, EVP and Director
Mr. Laun has spent the past twenty years as a founding principal or senior advisor to over fifteen publicly and privately held companies. Mr. Laun has served as CEO of GrowthCircle.com from May 2013 to present, a media company specializing in the production and distribution of short films for corporate clients. Mr. Laun also serves as CEO of Geopulse Exploration since August 2017 to present, and as Vice President for Net Cents Technology, Inc from March 2020 to present.
His experience includes advising and investing in an organic food brand company which eventually sold for $250mm. He has in depth knowledge of media content and distribution having been a senior advisor to Digital Development Group which has a distribution platform with over 10,000 titles. Mr. Laun has also advised and raised capital for companies in the solar, wind, oil and gas and alternative fuel industries.
His extensive expertise in financing, which qualifies him to be a director, culminated as a Managing Director for Knight Capital Group (the largest market-maker of equities in the US) where he managed syndicates for over $300 million in financing. He has a BS in Hotel Management from Cornell, and an MBA from Columbia University.
25
Darryl Delwo, VP Finance
Mr. Delwo has served as VP Finance since July 1, 2020. Previously, from 2018 to 2020, Mr. Delwo served as CFO of Noralta Technologies Inc., a SaaS based monitoring firm primarily servicing the oil & gas market. From March 2016 to July 2018 Mr. Delwo was the consulting finance leader providing strategic financial and operational turnaround initiatives including to Trilogy Net, Fratello Group of Companies, and Planit Builders. From October 2014 to March 2016 Mr. Delwo was Controller and Acting CFO for the start-up company Sulvaris Inc. supporting the venture funding to recommence project construction. Prior to that, from March 2012 to June 2014 Mr. Delwo served as Controller of Black Diamond Energy Services establishing the amalgamation of several acquisitions. From March 2010 to March 2012 Mr. Delwo was Assistant Controller of Wholesale Sports responsible for operational and financial results for Canadian and USA retail operations. From March 2006 to March 2010 Mr. Delwo served as Assistant Controller of Regus Canada, managing Regus’s Canadian marketplace expansion. Mr. Delwo holds a CPA, CMA designation and Bachelor of Commerce, Accounting Major from Athabasca University and was recently distinctly honored for his professional achievements, dedication and exceptional service to the CPA profession.
Travis Schneider, Independent Director, Audit Committee Chair
Travis Schneider has served as a member of the board since May 2020. Previously he served as a director of Petroteq Energy Inc, a publicly traded company on the TSX Venture Exchange from December 2011 to March 2020. Most recently he served as Manager of Corporate Affairs for AgriMarine Holdings Inc. from October 2008 to November 2020. AgriMarine was a publicly traded company on the TSXV and later on the Canadian Securities Exchange from 2009 until its acquisition by Dundee Corporation in 2015. During his time at AgriMarine Mr. Schneider coordinated reports to senior management and the board of directors, assisted with audit and financial reporting and business planning, and was directly responsible for corporate regulatory maintenance and compliance, maintenance of license and permits, liaison with legal counsel, and matters involving human resources and information technology.
Mr. Schneider brings a strong background in startup operations, regulatory compliance and corporate governance to the Company and adds significant strategic, business and financial experience, which qualifies him to be a director.
Of our Directors, only Travis Schneider is deemed “independent” as that term is defined in Section 803 of the NYSE American Company Guide.
We do not have a financial expert as that term is defined by the Securities and Exchange Commission.
The Company has an Audit Committee comprised of Messrs. Travis Schneider (Chair) and David Sealock.
JP Morgan Chase Bank hold one share of our Series A preferred stock. As the holder of this preferred share JP Morgan Chase Bank has the right to appoint one person to our Board of Directors. As of the date of this Offering Circular JP Morgan had not designated any person to be one of our Directors.
During the years ended December 31, 2020 and 2019 the Company did not compensate any person for serving as a director.
Executive Compensation
For the fiscal year ended December 31, 2020, we compensated our three highest-paid directors and executive officers as follows:
Name and Position |
|
Cash
|
|
Other
|
|
Total
|
David Sealock, CEO (1) |
|
- |
|
- |
|
- |
Marcus Laun, EVP (2) |
|
- |
|
- |
|
- |
Darryl Delwo, VP Finance (3) |
|
- |
|
- |
|
- |
(1)The Company has an employment agreement with David Sealock for an annual base salary of $120,000. In addition, Mr. Sealock is eligible to earn an annual bonus, subject to the achievement of certain performance goals, milestones and objectives, as established from time to time by an appropriate committee of the Company’s Board. Additionally, Mr. Sealock is entitled to severance payments by the Company equal to twelve months of his base salary at the time of his termination if he is terminated without cause. Mr. Sealock waived payment of his salary in 2020.
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(2)The Company has an employment agreement with Marcus Laun for an annual base salary of $120,000. In addition, Mr. Laun is eligible to earn an annual bonus, subject to the achievement of certain performance goals, milestones and objectives, as established from time to time by an appropriate committee of the Company’s Board. Mr. Laun is entitled to severance payments by the Company equal to twelve months of his base salary at the time of his termination if he is terminated without cause. Mr. Laun waived payment of his salary in 2020.
(3)The Company has an executive agreement with Darryl Delwo for an annual base salary of $90,000. In addition, Mr. Delwo is eligible to earn an annual bonus, subject to the achievement of certain performance goals, milestones and objectives, as established from time to time by an appropriate committee of the Company’s Board. Mr. Delwo is entitled to severance payments equal to up to eighteen months of his base salary at the time of his termination if he is terminated without cause. Mr. Delwo waived payment of his salary in 2020.
Other than as set out above, no other compensation was paid to our executive officers or directors in their capacities as officers and/or directors.
The following shows the amounts we expect to pay to our officers during the twelve months ended December 31, 2021 and the amount of time these persons expect to devote to our business:
Name |
|
Projected Compensation |
|
Percent of time to be devoted
|
David Sealock |
|
$120,000 |
|
100% |
Marcus Laun |
|
$120,000 |
|
100% |
Darryl Delwo |
|
$90,000 |
|
100% |
The Company has a Stock Incentive Plan which reserves 5,000,000 shares of common stock for issuance under the plan. As of the date of this Offering Circular no options or shares have been granted pursuant to the Plan.
Transactions with Related Parties
On September 28, 2020, the Company issued a promissory note to David Sealock, a director and the CEO of the Company, in the principal amount of $19,489.90. This loan has subsequently been repaid in full.
On September 16, 2020, the Company issued a promissory note to JPMorgan Chase Bank N.A (“JPM”), a 20% shareholder of the Company, in the principal amount of $450,000. The note bears interest at 10% per annum with balance due and payable on September 16, 2023. In May 2021 JPM converted $200,475.00 into 607,500 shares of our common stock.
On July 13, 2020, the Company issued a convertible promissory note to Marcus Laun, a director and the Executive Vice President of the Company in the principal amount of $25,000. The note bears interest at 4% per year with balance due and payable on July 13, 2021. All or any portion of the principal and accrued interest is payable at the option of the note holder at any time into shares of common stock of the Company at a conversion price of $0.0936 per share.
During the year ended December 31, 2020 the following officers, directors, and related parties purchased shares of our common stock as set forth below.
Subscriber |
|
Issue Date |
|
Shares |
|
Price Paid |
|
$ / share |
Autus Ventures Ltd (1) |
|
5/30/2020 |
|
2,400,000 |
|
240.00 |
|
$0.0001 |
David Sealock, CEO, Director |
|
5/30/2020 |
|
3,000,000 |
|
300.00 |
|
$0.0001 |
Marcus Laun, EVP, Director |
|
5/30/2020 |
|
3,000,000 |
|
300.00 |
|
$0.0001 |
Harrison Kordestani, General Counsel and Corporate Secretary |
|
5/30/2020 |
|
600,000 |
|
60.00 |
|
$0.0001 |
Autus Ventures Ltd. (1) |
|
8/1/2020 |
|
1,603,637 |
|
160.36 |
|
$0.0001 |
Darryl Delwo, VP Finance |
|
8/1/2020 |
|
600,000 |
|
60.00 |
|
$0.0001 |
Travis Schneider, Director |
|
8/1/2020 |
|
700,000 |
|
70.00 |
|
$0.0001 |
JPMorgan Chase Bank N.A. |
|
9/16/2020 |
|
5,378,047 |
|
$807,244.85 |
|
$0.1501 |
Notes:
1.Autus Ventures Ltd. is a company controlled by David Sealock, our CEO and a director.
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The following table shows, as of the date of this Offering Circular, the voting securities of the Company that are owned by the Company's executive officers and directors, and other persons holding more than 5% of any class of the Company’s voting securities, or having the right to acquire those securities.
Unless otherwise noted below, the address for each beneficial owner listed on the table is in care of the Company at 136 E S Temple, Suite 1400, Salt Lake City, UT 84111.
Name and Address of Beneficial Owner |
|
Shares owned |
|
Percent of class |
David Sealock |
|
3,082,500 |
|
10.30% |
Autus Ventures Ltd. (1) |
|
2,475,000 |
|
8.27% |
Marcus Laun (2) |
|
3,230,000 |
|
10.79% |
Travis Schneider |
|
775,000 |
|
2.59% |
Darryl Delwo |
|
675,000 |
|
2.26% |
JPMorgan Chase Bank, N.A.
|
|
5,985,547 |
|
20.00% |
Varie Asset Management
|
|
2,475,000 |
|
8.27% |
All officers and directors as a group (4 persons) |
|
10,237,500 |
|
34.21% |
(1)Autus Ventures Ltd. is a corporation controlled by Mr. Sealock.
(2)Mr. Laun holds a promissory note issued on July 13, 2020 in the amount of $25,000 accruing interest at 4% per annum which is due and payable on July 13, 2021. At the holder’s election, a portion or all of the principal and interest is convertible into shares of common stock at a conversion price of $0.0936 per share. A total of 277,777 shares would be issued assuming full conversion of principal and accrued interest at maturity.
The Company is offering up to 15,000,000 units (the "Units") on a “best efforts” basis at a cash price of $1.25 USD per Unit. Each Unit is comprised of one share of common stock (a "Common Share"), and one Common Share purchase warrant (a "Warrant"). Each Warrant allows the holder to purchase one additional Common Share (a "Warrant Share") at an exercise price of $2.50 USD per Warrant Share, subject to certain adjustments, over a 36-month exercise period following the date of issuance of the Warrant. The Units will not be issued or certificated. Instead, the Common Shares and the Warrants underlying the Units will be issued separately although they will have been purchased together in this Offering. The Common Shares and Warrants will be separately transferable.
The Units are being offered in the United States pursuant to Regulation A under the Securities Act and in jurisdictions outside the United States on a basis which does not require qualification or registration of such securities. There is no minimum offering amount; however, the minimum investment for each investor is $1,000.00, or 800 Units. Potential investors should be aware that there can be no assurance that any other funds will be invested in this offering other than their own funds.
We plan to market the securities in this offering both through online and offline means. Online marketing may take the form of contacting potential investors through electronic media and posting our Offering Circular and other materials on an online investment platform.
The offering will terminate at the earliest of: (1) the date at which all Units offered are sold, (2) the date which is one year from the date this offering is qualified by the SEC, or (3) the date at which the offering is earlier terminated by us in our sole discretion.
The Company may undertake one or more closings on a rolling basis. After each closing, funds tendered by investors will be available to the Company. We are offering our Units in all states.
We reserve the right to offer the Units through broker-dealers who are registered with FINRA.
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The Company has engaged Digital Offering, LLC ("Digital Offering"), a Delaware limited liability Company and broker-dealer registered with the SEC and a member of FINRA, to provide broker-dealer coverage in all 50 states in connection with this Offering. Digital Offering's services include the review of investor information as well as the review of subscription agreements. As compensation for these services, the Company has agreed to pay Digital Offering a one-time setup fee in the amount of $10,000 (detailed below), plus a 1% commission on the aggregate amount raised by the Company in this Offering in the specified states, as described in the Broker-Dealer Agreement between the Company and Digital Offering. More specifically, Digital Offering shall perform the following administrative and technology related functions in connection with this offering, but not for underwriting or placement agent services:
●Review each investors subscription agreement to confirm such investors participation in the offering and provide a determination to the Company whether or not to accept the use of the subscription agreement for the investor’s participation.
As compensation to Digital Offering for its services hereunder, the Company has agreed to pay Digital Offering, concurrently with each closing of the Offering, a cash agent fee (the “Agent Fee”) equal to 1% of the gross proceeds of the Offering. In addition, on the date of each closing of the Offering, the Company will issue to Digital Offering warrants (the “Agent Warrants”) to purchase one common share for each 100 shares sold in this offering. The Agent Warrants will have an exercise price of $1.25 and will expire five years after they are issued. The Agent Warrants will contain customary terms and conditions, including without limitation, provisions for cashless exercise and the Agent Warrants will be registered under the offering statement for the Offering. In addition, the Company has paid Digital Offering a one-time advance set up fee of $10,000 to cover reasonable expenses actually anticipated to be incurred by Digital Offering, such as, among other things, preparing all necessary FINRA filings.
The Company estimates that total fees due to pay Digital Offering would be $197,500 for a fully subscribed offering.
The Company has engaged the Creative Direct Marketing Group, Inc. (“CDMG”) to design and carry out an integrated marketing strategy for this offering including branding, direct mail, digital market integration, social media, video, TV and radio. We have agreed to pay CDMG approximately $258,200 for these services.
We entered into an engagement agreement with Equifund LLC, or Equifund pursuant to which we will pay Equifund a one-time startup fee of $15,000 for its services in hosting the offering on its online platform. Further, we will pay Equifund a technology and administration fee of $40 per investor when each investor deposits funds into the escrow account maintained for the offering. The aforementioned fees are due to Equifund regardless of the success of the Offering.
In consideration for such fees, Equifund LLC will be providing the following services:
●Review investor information, including KYC (“Know Your Customer”) data, AML (“Anti Money Laundering”) and other compliance background checks.
●Contact and/or notify the potential investor, if needed, to gather additional information or clarification to complete the subscription;
●Coordinate with issuer’s counsel, escrow agent and third party service providers to ensure adequate review and compliance.
Equifund shall not provide any investment advice or any investment recommendations to any investor. Equifund does not directly solicit or communicate with investors with respect to offerings posted on its site, although it does advertise the existence of its platform, which may include identifying issuers listed on the platform.
This Offering Circular will be available to prospective investors in this Offering at www.equifund.com.
You will be required to complete a subscription agreement in order to invest. The subscription agreement includes a representation by the investor to the effect that, if you are not an “accredited investor” as defined under securities law, you are investing an amount that does not exceed the greater of 10% of your annual income or 10% of your net worth (excluding your principal residence).
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Process of Subscribing
If you decide to subscribe for the common stock in this offering, you should complete the following steps:
1. |
Go to www.equifund.com/skyquarry, click on the “Invest Now” button |
2. |
Complete the online investment form. |
3. |
Deliver funds directly by check, wire, credit card, or electronic funds transfer via ACH to the specified account |
4. |
Once funds or documentation are received an automated AML check will be performed to verify the identity and status of the investor. |
5. |
Once AML is verified, investor will electronically receive, review, execute and deliver to us a subscription agreement. |
Interested investors will be required to complete a subscription agreement in order to invest. The subscription agreement is available at www.equifund.com/skyquarry. The subscription agreement must be delivered to us or through equifund.com and the investor may transfer funds for the subscribed amount in accordance with the instructions stated in the subscription agreement.
Any potential investor will have ample time to review the subscription agreement, along with their counsel, prior to making any final investment decision. Digital Offering will review all subscription agreements completed by the investor.
If the subscription agreement is not complete or there is other missing or incomplete information, the funds will not be released until the investor provides all required information. In the case of a debit card payment, provided the payment is approved, Digital Offering will have up to three days to ensure all the documentation is complete. Digital Offering will generally review all subscription agreements on the same day, but not later than the day after the submission of the subscription agreement.
The funds tendered by potential investors will be held in a separate bank account maintained by Prime Trust, LLC, as escrow agent. Upon each closing, the proceeds collected for such closing will be disbursed to us and the shares for each closing will be issued to investors.
The investor may remit payment for shares via ACH, Wire, or by mail via check/money order. All funds tendered by investors will be deposited into an escrow account at the Escrow Agent for the benefit of the company and the selling shareholders. All funds received by wire transfer will be made available immediately while funds transferred by ACH will be restricted for a minimum of three days to clear the banking system prior to deposit into an account at the Escrow Agent.
Please be advised that different payment methods take different amounts of time to clear.
●Wires — 24 hours (one business day) following receipt of funds;
●Checks — 10 days following deposit of funds to the Escrow Account;
●ACH — 10 days following receipt of funds;
●Credit and Debit Cards – 24 hours (one business day) following receipt of funds.
The Company maintains the right to accept or reject subscriptions in whole or in part, for any reason or for no reason, including, but not limited to, in the event that an investor fails to provide all necessary information, even after further requests, in the event an investor fails to provide requested follow up information to complete potential background checks or fails background checks, and in the event the offering is oversubscribed in excess of the maximum offering amount.
In the interest of allowing interested investors as much time as possible to complete the paperwork associated with a subscription, there is no maximum period of time to decide whether to accept or reject a subscription. If a subscription is rejected, funds will not be accepted by wire transfer or ACH, and payments made by debit card or check will be returned to subscribers within 30 days of such rejection without deduction or interest.
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All accepted subscription agreements are irrevocable.
Under Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds which do not exceed 10% of the greater of the purchaser’s revenue or net assets (as of the purchaser’s most recent fiscal year end). As a result, a non-accredited, natural person may only invest funds which do not exceed 10% of the greater of the purchaser’s annual income or net worth (please see below on how to calculate your net worth).
How to Calculate Net Worth. For the purposes of calculating your net worth, it is defined as the difference between total assets and total liabilities. This calculation must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may be satisfied by the beneficiary of the account or by the fiduciary, if the fiduciary directly or indirectly provides funds for the purchase of the shares in this offering.
In order to purchase the shares in this offering and prior to the acceptance of any funds from an investor, an investor will be required to represent, to our satisfaction, that he is either an accredited investor or is in compliance with the 10% of net worth or annual income limitation on investment in this offering.
Pricing of the Offering
As of the date of this Offering Circular, there was no public market for our securities. The initial public offering price of the Units was determined by our board of directors in its sole discretion without the input of an investment bank or other third party. The principal factors considered in determining the initial public offering price include:
·the information set forth in this offering circular;
·our history and prospects and the history of and prospects for the industry in which we compete;
·our past and present financial performance;
·our prospects for future earnings and the present state of our development;
·the general condition of the securities markets at the time of this offering;
·the recent market prices of, and demand for, publicly traded securities of generally comparable companies; and
·other factors deemed relevant by us.
Investment Limitations
If you are not an accredited investor, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth.
Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A of the Securities and Exchange Commission.
The only investor exempt from this 10% limitation is an “accredited investor” as defined under Rule 501 of Regulation D under the Securities Act. If you meet one of the following tests you should qualify as an accredited investor:
(i) You are a natural person who has had individual income in excess of $200,000 in each of the two most recent years, or joint income with your spouse in excess of $300,000 in each of these years, and have a reasonable expectation of reaching the same income level in the current year;
(ii) You are a natural person and your individual net worth, or joint net worth with your spouse, exceeds $1,000,000 at the time you purchase shares of our common stock in the offering;
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(iii) You are an executive officer or general partner of the issuer or a manager or executive officer of the general partner of the issuer;
(iv) You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or the Code, a corporation, a Massachusetts or similar business trust or a partnership, not formed for the specific purpose of acquiring the shares in this offering, with total assets in excess of $5,000,000;
(v) You are a bank or a savings and loan association or other institution as defined in the Securities Act, a broker or dealer registered pursuant to Section 15 of the Exchange Act, an insurance company as defined by the Securities Act, an investment company registered under the Investment Company Act of 1940, or a business development company as defined in that act, any Small Business Investment Company licensed by the Small Business Investment Act of 1958 or a private business development company as defined in the Investment Advisers Act of 1940;
(vi) You are an entity (including an Individual Retirement Account trust) in which each equity owner is an accredited investor;
(vii) You are a trust with total assets in excess of $5,000,000, your purchase of shares of our common stock in the offering is directed by a person who either alone or with his purchaser representative(s) (as defined in Regulation D promulgated under the Securities Act) has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment, and you were not formed for the specific purpose of investing in the shares in this offering; or
(viii) You are a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has assets in excess of $5,000,000.
Digital Offering has not investigated the desirability or advisability of investment in the shares nor approved, endorsed or passed upon the merits of purchasing the shares. Digital Offering is not participating as an underwriter and under no circumstance will it solicit any investment in the Company, recommend the Company’s securities or provide investment advice to any prospective investor, or make any securities recommendations to investors. Digital Offering is not distributing any offering circulars or making any oral representations concerning this Offering Circular or this offering. Based upon Digital Offering’s anticipated limited role in this offering, it has not and will not conduct extensive due diligence of this offering and no investor should rely on the involvement of Digital Offering in this offering as any basis for a belief that it has done extensive due diligence. Digital Offering does not expressly or impliedly affirm the completeness or accuracy of the Offering Statement and/or Offering Circular. All inquiries regarding this offering should be made directly to the Company.
Upon confirmation that an investor’s funds have cleared, the Company will instruct the Transfer Agent to issue the subscribed Units to the investor. The Transfer Agent will notify an investor when the Units are ready to be issued or transferred and the Transfer Agent has set up an account for the investor.
Escrow Agent
Following qualification, the company will enter into an Escrow Services Agreement with Prime Trust, LLC (the “Escrow Agent”). Investor funds will be held in an account by the Escrow Agent pending closing or termination of the offering. While funds are held the escrow account and prior to a closing of the sale of shares in bona fide transactions that are fully paid and cleared, (i) the escrow account and escrowed funds will be held for the benefit of the investors, (ii) the neither the company nor any selling security holder is entitled to any funds received into the escrow account, and (iii) no amounts deposited into the escrow account shall become the property of company, any selling shareholder or any other entity, or be subject to any debts, liens or encumbrances of any kind of the company, any selling shareholder or any other entity. No interest shall be paid on balances in the escrow account.
The Company will pay the Escrow Agent the following fees for its services under the Escrow Services Agreement:
·$500 per month escrow account fee for so long as the offering is being conducted
·escrow disbursement fee of $150
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Provisions in Our Subscription Agreement
The subscription agreement provides that subscribers waive the right to a jury trial of any claim they may have against us arising out of or relating to the subscription agreement. By signing the subscription agreement, the investor warrants that the investor has reviewed this waiver with the investor’s legal counsel, and knowingly and voluntarily waives his or her jury trial rights following consultation with the investor’s legal counsel. If we opposed a jury trial demand based on the waiver, a court would determine whether the waiver was enforceable given the facts and circumstances of that case in accordance with applicable case law. Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the subscription agreement with a jury trial. No condition, stipulation, or provision of the subscription agreement serves as a waiver by us, or by any investor, of compliance with any provision of the federal securities laws and the rules and regulations promulgated under those laws.
We are offering up to 15,000,000 Units at a price of $1.25 USD per Unit. Each Unit is comprised of one share of common stock, and one Common Share purchase warrant.
Common Stock
We are authorized to issue 100,000,000 shares of common stock. Holders of our common stock are each entitled to cast one vote for each share held of record on all matters presented to the shareholders. Cumulative voting is not allowed; hence, the holders of a majority of our outstanding common shares can elect all directors.
Holders of our common stock are entitled to receive such dividends as may be declared by our Board of Directors out of funds legally available and, in the event of liquidation, to share pro rata in any distribution of our assets after payment of liabilities. Our Board of Directors is not obligated to declare a dividend. It is not anticipated that dividends will be paid in the foreseeable future.
Most holders of our common stock do not have preemptive rights to subscribe to additional shares if issued. There are no conversions, redemption, sinking fund or similar provisions regarding the common stock. All outstanding shares of common stock are fully paid and non-assessable.
Warrants
Each Warrant allows the holder to purchase one additional Common Share (a "Warrant Share") at an exercise price of $2.50 USD per Warrant Share, subject to certain adjustments, over a 36-month exercise period following the date of the issuance of the Warrant.
Other provisions of the Warrants:
1.Unless exercised within the time provided for exercise, the warrants will automatically expire.
2.The exercise price of the warrants may not be increased during the term of the warrants, but the exercise price may be decreased at the discretion of the Company’s Board of Directors by giving each warrant holder notice of such decrease. The exercise period for the warrants may be extended by the Company’s Board of Directors giving notice of such extension to each warrant holder of record.
3.There is no minimum number of shares which must be purchased upon exercise of the warrants.
4. The exercise price of the warrants, as well as the shares issuable upon the exercise of the warrants, will be proportionately adjusted in the event of any stock split, stock dividend, reclassification, capital reorganization or merger.
5.The holders of the warrants have no voting power and are not entitled to dividends. In the event of the liquidation or dissolution of the Company, holders of the warrants will not be entitled to participate in the distribution of the Company’s assets.
33
Preferred Stock
The Company’s Articles of Incorporation currently authorize the issuance of 25,000,000 shares of preferred stock. The Company’s directors have the power to issue shares without shareholder approval, and such shares can be issued with such rights, preferences, and limitations as may be determined by the Company’s board of directors. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of any holders of preferred stock that may be issued in the future.
Although the Company presently has no commitments or contracts to issue any shares of preferred stock, authorized and unissued preferred stock could delay, discourage, hinder or preclude an unsolicited acquisition of the Company, could make it less likely that shareholders receive a premium for their shares as a result of any such attempt, and could adversely affect the market prices of, and the voting and other rights, of the holders of outstanding shares of the Company’s common stock.
On June 21, 2021, the Company issued one share of Series A Preferred Stock to JPMorgan Chase Bank N.A. (“JPM”). JPM, as the sole holder of the Series A Preferred Stock, is entitled to elect one member to the Company’s Board of Directors so long as it holds at least 15% of the outstanding shares of the Company’s common stock, and is entitled to certain protective rights and certain preemptive rights upon the issuance of new securities (including the Units being offered pursuant to this Offering Circular), in each case consistent with the terms of the Certificate of Designation.
Transfer Agent
The Company’s Transfer Agent is Colonial Stock Transfer Company, Inc., 66 Exchange Place, 1st floor, Salt Lake City, UT 84111. Colonial's telephone number is 801-355-5740.
Our Bylaws authorize indemnification of a director, officer, employee or agent against expenses incurred by him in connection with any action, suit, or proceeding to which he is named a party by reason of his having acted or served in such capacity, except for liabilities arising from his own misconduct or negligence in performance of his duty. In addition, even a director, officer, employee, or agent found liable for misconduct or negligence in the performance of his duty may obtain such indemnification if, in view of all the circumstances in the case, a court of competent jurisdiction determines such person is fairly and reasonably entitled to indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers, or controlling persons pursuant to these provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We have filed an offering statement on Form 1-A with the SEC under the Securities Act with respect to the common stock offered by this Offering Circular. This Offering Circular, which constitutes a part of the offering statement, does not contain all of the information set forth in the offering statement or the exhibits filed therewith. For further information with respect to us and our common stock, please see the offering statement and the exhibits filed with the offering statement. Statements contained in this Offering Circular regarding the contents of any contract or any other document that is filed as an exhibit to the offering statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the offering statement. The offering statement, including its exhibits, may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and copies of all or any part of the offering statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The Offering Statement may also be reviewed at the website maintained by the SEC: www.sec.gov
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Consolidated Financial Statements of
SKY QUARRY INC.
formerly, Recoteq Inc.
For the years ended December 31, 2020 and 2019
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INDEPENDENT AUDITOR’S REPORT
March 31, 2021
To: Board of Directors, Sky Quarry Inc.
Re: 2020 consolidated Financial Statement audit
We have audited the accompanying consolidated financial statements of Sky Quarry Inc. (the “Company”), which comprise the balance sheet as of December 31, 2020 and 2019, and the related statements of loss and comprehensive loss, changes in shareholders’ equity, and cash flows for the calendar year period ended 2020 and the inception period of June 4, 2019 through December 31, 2019, and the related notes to such consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of the Company’s financial statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations, shareholder equity and its cash flows for the calendar year ended 2020 and the inception period from June 4, 2019 through December 31, 2019 in accordance with accounting principles generally accepted in the United States of America.
36
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the financial statements, the Company has stated that substantial doubt exists about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding these matters are also described in the Notes to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Sincerely,
IndigoSpire CPA Group
IndigoSpire CPA Group, LLC
Aurora, Colorado
March 31, 2021
We have served as the Company's auditor since January 18, 2021.
37
SKY QUARRY INC.
Consolidated Balance Sheets
As at December 31, 2020 and 2019
See auditor’s report
Expressed in US dollars
|
|
|
|
|
Note |
2020 |
2019 |
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
Cash |
|
$135,787 |
$- |
Trade receivables |
5 |
29,168 |
- |
Prepaid expenses and other receivables |
|
910,547 |
- |
Inventory |
6 |
96,287 |
- |
Total Current Assets |
|
1,171,789 |
- |
|
|
|
|
Non-Current assets: |
|
|
|
Property, plant and equipment |
8 |
344,079 |
- |
Exploration and evaluation assets |
9 |
2,135,420 |
- |
Total Non-Current Assets |
|
2,479,499 |
- |
|
|
|
|
TOTAL ASSETS |
|
$3,651,288 |
$- |
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
Accrued payable and accrued liabilities |
10 |
$265,287 |
$838 |
Notes payable current portion |
11,12 |
1,244,490 |
- |
Total Current Liabilities |
|
1,509,777 |
- |
|
|
|
|
Non-Current Liabilities: |
|
|
|
Notes payable non-current portion |
11,12 |
1,388,403 |
- |
Total Non-Current Liabilities |
|
1,388,403 |
- |
|
|
|
|
Total Liabilities |
|
$2,898,180 |
$838 |
|
|
|
|
SHAREHOLDERS’ EQUITY: |
|
|
|
Share capital |
4,14 |
1,149,733 |
- |
Retained deficit |
|
(317,503) |
(838) |
Accumulated other comprehensive income (loss) |
|
(79,122) |
- |
Total Shareholders’ Equity |
|
753,108 |
(838) |
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
$3,651,288 |
$(838) |
The accompanying notes are an integral part of these consolidated financial statements.
38
SKY QUARRY INC.
Consolidated Statements of Loss and Comprehensive Loss
For the year ended December 31, 2020 and period of inception (June 4, 2019 through December 31, 2019)
See auditor’s report
Expressed in US dollars
The accompanying notes are an integral part of these consolidated financial statements.
39
SKY QUARRY INC.
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31, 2020 and 2019
See auditor’s report
Expressed in US dollars
|
Number of Shares Outstanding |
Share Capital |
Deficit |
Accumulated Other Comprehensive Loss |
Total |
Balance at June 4, 2019 (inception) |
|
- |
- |
- |
- |
Net Loss and Comprehensive Loss |
|
- |
(838) |
- |
(838) |
Balance December 31, 2019 |
|
- |
(838) |
- |
(838) |
Common share subscription |
26,890,235 |
1,149,733 |
- |
- |
1,149,733 |
Net Loss and Comprehensive Loss |
|
- |
(316,665) |
(79,122) |
(395,787) |
Balance December 31, 2020 |
26,890,235 |
$1,149,733 |
$(317,503) |
$(79,122) |
753,108 |
The accompanying notes are an integral part of these consolidated financial statements.
40
SKY QUARRY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ending December 31, 2020 and 2019
See auditor’s report
Expressed in US dollars
|
|
|
|
|
Note |
2020 |
2019 |
|
|
|
|
CASH FLOWS FROM OPERATION ACTIVITIES |
|
|
|
Net loss |
|
$(316,665) |
$(838) |
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable |
|
(29,168) |
- |
Prepaid expenses and deposits |
|
(910,547) |
- |
Inventory |
|
(96,287) |
- |
Accounts payable and accrued liabilities |
10 |
264,450 |
838 |
Net cash from Operating Activities |
|
(1,088,217) |
- |
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Proceeds on equity private placement |
|
1,149,733 |
- |
Proceeds of debt |
|
2,632,893 |
- |
Net cash generated by financing activities |
|
3,782,626 |
- |
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Acquisition of exploration and evaluation assets |
4 |
(2,113,421) |
- |
Acquisition of property, plant, and equipment, net |
4 |
(344,079) |
- |
Additions to exploration and evaluation assets |
|
(21,999) |
|
Net cash generated by investing activities |
|
(2,479,499) |
- |
|
|
|
|
Effects of exchange rate changes on cash and cash equivalents |
|
(79,122) |
- |
|
|
|
|
Increase (decrease) in cash |
|
$135,787 |
$- |
Cash, beginning of the period |
|
- |
- |
|
|
|
|
Cash, end of the period |
|
$135,787 |
$0 |
The accompanying notes are an integral part of these consolidated financial statements.
41
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
1.NATURE OF OPERATIONS
Sky Quarry Inc. and subsidiaries (Sky Quarry, SQI or the “Company”) are collectively a development-stage environmental remediation company formed to deploy technologies to facilitate the recycling of waste asphalt shingles and remediation of oil-saturated soils. The recycling of asphalt shingles will reduce the dependence of the American economy on landfills for the removal of waste and will also reduce the economy’s dependence on virgin crude oil for industrial uses.
The Company’s head office is located at #1400 136 East South Temple, Salt Lake City, Utah 84111. The Company’s registered office is located at The Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
The Company was incorporated as Recoteq Inc. on June 4, 2019 in the state of Delaware and changed its name to Sky Quarry Inc. on April 22, 2020. As set out in Note 5 “Acquisitions” below, on September 16, 2020 the Company acquired a 100% interest in two companies, 2020 Resources LLC (referred to herein as “2020 Utah”) and 2020 Resources (Canada) Ltd. (referred to herein as “2020 Canada”).
2020 Resources (Canada) Ltd. (formerly, USO (Canada) Ltd.) was incorporated on April 26, 2018 in the province of Alberta under the Canada Business Corporations Act. 2020 Resources LLC (formerly, US Oil Sands (Utah) LLC and USO (Utah) LLC) was incorporated on November 2, 2017 in the state of Delaware.
2020 Canada is currently inactive and 2020 Utah is engaged in the exploration and development of oil sands properties using the proprietary solvent extraction technology. Through 2020 Utah, the Company has a 100% working interest in bitumen leases covering 5,930 acres of land in the state of Utah in the PR Spring area. The Company has not earned significant revenues as it is in the pre-production stage.
The consolidated financial statements of the Company as at and for the period from the date of acquisition of operations, September 16, 2020 to December 31, 2020 consist of 2020 Resources (Canada) Ltd., which acts as the Company’s main Canadian operating entity, and 2020 Resources LLC, which acts as the United States operating entity.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)Basis of preparation
The consolidated financial statements have been prepared in accordance with United States generally accepted accounting policies (“US GAAP”) and have been prepared on a historical cost basis except for certain financial assets and financial liabilities which are measured at fair value. The Company’s reporting currency and the functional currency of all of its operations is the U.S. dollar, as it is the principal currency of the primary economic environment in which the Company operates.
(b)Consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries in which it has at least a majority voting interest. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements.
These financial statements have been prepared on a consolidated basis whereby the assets, liabilities and results of Sky Quarry, 2020 Canada and 2020 Utah have been combined. There was no activity in either entity until commencement of research and development and commissioning operations on July 27, 2018. Share capital refers to
42
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
capital contributions in the form of cash provided by previous shareholders to 2020 Canada. Member’s interest refers to cash provided by previous shareholders to 2020 Utah. Both entities were under common control throughout the period July 27, 2018 to September 15, 2020, the date of acquisition by Sky Quarry Inc.
(c)Basis of presentation
The combined financial statements have been prepared under the historical cost convention.
(d)Foreign currency translation adjustments
The Company’s reporting currency and the functional currency of all its operations is the U.S. dollar. Assets and liabilities of the Canadian subsidiary company are translated to U.S. dollars using the applicable exchange rate as of the end of a reporting period. Income, expenses and cash flows are translated using an average exchange rate during the reporting period. Since the reporting currency as well as the functional currency of all entities is the U.S. Dollar there is no translation difference recorded.
(e)Revenue recognition
The Company recognizes revenue in terms of ASC 606 – Revenue from Contracts with
Customers (ASC 606).
Revenue transactions are assessed using a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration in exchange for those goods or services. The five steps are as follows:
i.identify the contract with a customer;
ii.identify the performance obligations in the contract;
iii.determiner the transaction price;
iv.allocate the transaction price to performance obligations in the contract; and
v.recognize revenue as the performance obligation is satisfied.
(f)Cash and cash equivalents
The Company considers all highly liquid investments with original contractual maturities of three months or less to be cash equivalents.
(g)Accounts receivable
The Company had sales of $99,227 during the period of with a total of $29,168 accounts receivable balance.
(h)Oil and gas property and equipment
The Company follows the successful efforts method of accounting for its oil and gas properties. Exploration costs, such as exploratory geological and geophysical costs, and costs associated with delay rentals and exploration overhead are charged against earnings as incurred. Costs of successful exploratory efforts along with acquisition costs and the costs of development of surface mining sites are capitalized.
43
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Site development costs are initially capitalized, or suspended, pending the determination of proved reserves. If proved reserves are found, site development costs remain capitalized as proved properties. Costs of unsuccessful site developments are charged to exploration expense. For site development costs that find reserves that cannot be classified as proved when development is completed, costs continue to be capitalized as suspended exploratory site development costs if there have been sufficient reserves found to justify completion as a producing site and sufficient progress is being made in assessing the reserves and the economic and operating viability of the project. If management determines that future appraisal development activities are unlikely to occur, associated suspended exploratory development costs are expensed. In some instances, this determination may take longer than one year. The Company reviews the status of all suspended exploratory site development costs quarterly.
Capitalized costs of proved oil and gas properties are depleted by an equivalent unit-of-production method. Proved leasehold acquisition costs, less accumulated amortization, are depleted over total proved reserves, which includes proved undeveloped reserves. Capitalized costs of related equipment and facilities, including estimated asset retirement costs, net of estimated salvage values and less accumulated amortization are depreciated over proved developed reserves associated with those capitalized costs. Depletion is calculated by applying the DD&A rate (amortizable base divided by beginning of period proved reserves) to current period production.
Costs associated with unproved properties are excluded from the depletion calculation until it is determined whether or not proved reserves can be assigned to such properties. The Company assesses its unproved properties for impairment annually, or more frequently if events or changes in circumstances dictate that the carrying value of those assets may not be recoverable.
Proved properties will be assessed for impairment annually, or more frequently if events or changes in circumstances dictate that the carrying value of those assets may not be recoverable. Individual assets are grouped for impairment purposes based on a common operating location. If there is an indication the carrying amount of an asset may not be recovered, the asset is assessed for potential impairment by management through an established process. If, upon review, the sum of the undiscounted pre-tax cash flows is less than the carrying value of the asset, the carrying value is written down to estimated fair value. Because there is usually a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants or by comparable transactions. The expected future cash flows used for impairment reviews and related fair value calculations are typically based on judgmental assessments of future production volumes, commodity prices, operating costs, and capital investment plans, considering all available information at the date of review.
Gains or losses are recorded for sales or dispositions of oil and gas properties which constitute an entire common operating field or which result in a significant alteration of the common operating field’s DD&A rate. These gains and losses are classified as asset dispositions in the accompanying consolidated statements of loss and comprehensive loss. Partial common operating field sales or dispositions deemed not to significantly alter the DD&A rates are generally accounted for as adjustments to capitalized costs with no gain or loss recognized.
The Company capitalizes interest costs incurred and attributable to material unproved oil and gas properties and major development projects of oil and gas properties.
44
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(i)Other property and equipment
Other property, plant and equipment, consisting of research and development equipment and mining equipment, is measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures directly attributable to the acquisition of the asset. When parts of an item have different useful lives, they are accounted for as a separate component. At December 31, 2020, none of the assets were available for use and no depreciation has been recorded on the assets.
(j)Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Liabilities for environmental remediation or restoration claims resulting from allegations of improper operation of assets are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Expenditures related to such environmental matters are expensed or capitalized in accordance with the Company’s accounting policy for property and equipment.
(k)Impairment of long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then assets are written down. The impairment loss is the excess of the carrying amount of the asset group over its fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. Due to lack of supported future utilization plan of property, plant and equipment, impairment to the carrying values occurred at the date of acquisition, utilizing the basis of a loan agreement which provided documented Forced Liquidation Value of assets.
(l)Fair value measurement
Certain of the Company’s assets and liabilities are measured at fair value at each reporting date. Fair value represents the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants. This price is commonly referred to as the “exit price.” Fair value measurements are classified according to a hierarchy that prioritizes the inputs underlying the valuation techniques. This hierarchy consists of three broad levels:
● Level 1 – Inputs consist of unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. When available, the Company measures fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value.
● Level 2 – Inputs consist of quoted prices that are generally observable for the asset or liability. Common examples of Level 2 inputs include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in markets not considered to be active.
● Level 3 – Inputs are not observable from objective sources and have the lowest priority. The most common Level 3 fair value measurement is an internally developed cash flow model.
(m)Comparative amounts
The comparative amounts presented in these consolidated financial statements have been reclassified where necessary to conform to the presentation used in the current year.
45
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
3.GOING CONCERN
These consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which assumes that the Company will be able to realize its assets and satisfy its liabilities in the normal course of business for the foreseeable future. Management is aware, in making its going concern assessment, of material uncertainties related to events and conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. As at December 31, 2020 the Company has an accumulated deficit of $321,527 and has not yet been able to generate cash flows from operations.
Whether and when the Company can generate sufficient operating cash flows to pay for its expenditures and settle its obligations as they fall due subsequent to December 31, 2020 is uncertain. Until this time, management will have to raise funds by way of debt or equity issuances or improve profitability. The Company will closely monitor its cash and will take the necessary measures to preserve cash, such as reducing spending as needed until the Company succeeds in proving its extraction technology viable in the open market.
These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary were the going concern assumption inappropriate. These adjustments could be material.
4.ACQUISITIONS
On September 16, 2020, Sky Quarry entered into a membership and share purchase agreement to acquire all of the membership interests of 2020 Resources LLC and all the shares of 2020 Resources (Canada) Inc. for total consideration of $2,648,349, paid by issue of a $300,000 promissory note to the seller, $807,245 in share issuance to seller’s creditor (5,378,047 shares) in total satisfaction of sellers debt and $1,541,104 in cash (see note 11 below). The share purchase agreement closed on September 16, 2020. The values assigned to property, plant, and equipment were determined by reference to third party valuations. The values assigned to exploration and evaluation assets, including the Company’s extraction technology, were determined by the residual value of assets acquired.
The acquisition did not meet the definition of a business combination as (i) the PR Spring properties are at the exploration stage with no defined mineral reserves, and (ii) assets acquired did not contain any business processes. Consequently, the transaction was not characterized as a business combination, and was accounted for as an acquisition of assets.
The fair value of the assets acquired are as follows:
46
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
5.ACCOUNTS RECEIVABLE
The Company’s accounts receivable consists of:
|
December 31,
|
December 31, 2019 |
Trade receivables |
$29,168 |
$0 |
Balance, December 31, 2019 |
$29,168 |
$0 |
Information about the Company’s exposure to credit risks for trade receivables is included in Note 20(a).
6.INVENTORY
During the year ended December 31, 2020, the Company acquired 2020 Resources LLC. This acquisition included inventory of chemicals used in the bitumen extraction process and have been recorded at cost.
7.MINERAL LEASES
|
|
SITLA Mineral Lease |
Total |
Cost |
|
|
|
January 1, 2019 |
|
$63,800 |
$63,800 |
Additions |
|
|
|
December 31, 2019 |
|
63,800 |
63,800 |
Additions |
|
- |
- |
December 31, 2020 |
|
$63,800 |
$63,800 |
|
|
|
|
Accumulated Amortization |
|
|
|
December 31, 2020 and 2019 |
|
$0 |
$0 |
|
|
|
|
Carrying Amounts |
|
|
|
December 31, 2019 |
|
$63,800 |
$63,800 |
December 31, 2020 |
|
$63,800 |
$63,800 |
SITLA Mineral Lease (2020 Resources LLC mineral lease)
Through its acquisition of 2020 Utah, the Company indirectly acquired certain mineral rights under three mineral leases entitled “Utah State Mineral Lease for Bituminous-Asphaltic Sands” between the State of Utah’s School and Institutional Trust Land Administration (“SITLA”), as lessor, and 2020 Utah, as lessee, covering certain lands in the PR Spring Area largely adjacent to each other (the “SITLA Leases”). At this time, the Company (through its subsidiaries) holds mineral leases (or the operating rights under leases) covering approximately 5,930.3 net acres within the State of Utah. Terms of the SITLA Leases are set forth in the table below.
47
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
Reference |
Gross Acres |
Net Acres |
Lease Start Date |
Lease Expiry Date (1) |
Annual Rent (2) |
Annual Advance Minimum Royalty (3) |
Production Royalty Rate |
ML-49579 |
50.42 |
50.42 |
1/1/2005 |
12/31/2024 |
$ 500 |
$ 5,000 |
6.5% |
ML-49927 |
4,319.87 |
4,319.87 |
6/1/2005 |
5/31/2025 |
4,320 |
43,200 |
6.5% |
ML-51705 |
1560 |
1560 |
2/1/2010 |
1/31/2020 |
1,560 |
15,600 |
8% |
|
|
|
|
|
|
|
|
Total |
5,930.3 |
5,930.3 |
|
|
$ 6,380 |
$ 63,800 |
|
Notes:
1.Leases may be extended past expiry date by continued payment of annual rent and annual advance minimum royalty.
2.Annual rent may be credited against production royalties payable during the year.
3.Annual advance minimum royalty may be credited against production royalties payable during the year.
8.PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of research and development equipment and mining equipment. Each class of property, plant and equipment is estimated to have a useful life of 5 years and will be amortized over a straight line basis.
In accordance with IAS 16, as the property, plant and equipment was not available for use as at December 31, 2020, no accumulated depreciation has been recorded within the statement of loss and comprehensive loss.
48
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
9.EXPLORATION AND EVALUATION ASSETS
Exploration and evaluation assets are comprised of the following:
|
Note |
December 31, 2020 |
December 31, 2019 |
Balance, beginning of period |
4 |
$0 |
$0 |
Additions |
|
2,135,420 |
0 |
Balance, December 31, 2020 |
|
$2,135,420 |
$0 |
Exploration and evaluation assets include undeveloped lands, unproved properties and seismic costs where management has not fully evaluated for technical feasibility and commercial viability.
Additions during the year ended December 31, 2020 relate to acquisition of the land and mine in the PR Spring area.
10.ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable as at December 31, 2020 and 2019 consist primarily of amounts outstanding for operating expenses that are non-interest bearing and are normally due on 30 to 60 day terms.
Accrued expenses as at December 31, 2020 and 2019 consist primarily of other operating expenses.
Information about the Company’s exposure to liquidity risk is included in Note 20(c).
11.DEBT
Lender |
Maturity Date |
Interest Rate |
Principal Balance December 31, 2020 |
Principal Balance December 31, 2019 |
|
|
|
|
|
Private Lenders* |
March 16, 2021 |
|
100,000 |
- |
Private Lender* |
December 15, 2020 |
|
200,000 |
|
ACMO USOS LLC |
March 15, 2021 |
10% |
300,000 |
|
Private Lender* |
February 28, 2021 |
|
500,000 |
|
David Sealock |
On Demand |
0% |
19,490 |
- |
JPMorgan Chase |
September 28, 2023 |
10% |
450,000 |
- |
Govt of Canada** |
December 31, 2025 |
nil |
31,416 |
|
Loeb Term Solutions |
September 1, 2024 |
11% |
906,987 |
|
|
|
|
$ 2,507,893 |
$ - |
* Note - Set interest charge amount versus interest rate.
49
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
The maturity date of debt is as follows:
|
|
December 31, 2020 |
December 31,
|
Principal classified as repayable within one year |
|
$1,119,490 |
$- |
Principal classified as repayable later than one year |
|
1,388,403 |
- |
Balance, December 31, 2020 |
|
$2,507,893 |
$- |
(a)Private lenders – presented sequentially as above.
(i)On September 17, 2020, the Company received an advance from two private lenders in aggregate amount of $100,000 bearing a flat interest charge at 25% repayable on March 16, 2021.
(ii)On September 17, 2020, the Company received a $200,000 advance from a private lender bearing a flat interest charge of 10% and repayable on December 15, 2020. The maturity date of the note is currently being renegotiated.
(iii)On September 16, 2020, the Company entered into a promissory note for $300,000 from ACMO USOS LLC which formed part of the Share Purchase Agreement (see Note 5 Acquisitions). The promissory note matures on December 15, 2020 and bears an interest at 10% per annum. On December 13, 2020, the interest rate was increased to 15% thereafter and the maturity date of the note was extended to March 16, 2021.
(iv)On August 28, 2020 the Company entered into a promissory note for $500,000 from a private lender bearing a flat interest charge of 25% and repayable on February 28, 2021.
(v)On September 28, 2020, the Company received a $19,490 advance from David Sealock, a director and CEO of the Company, bearing interest at 0% per annum and repayable on demand.
(vi)On September 16, 2020, the Company entered into a promissory note for $450,000 from JPMorgan Chase Bank N.A.. The promissory note matures on September 28, 2023 and bears interest at 10% per annum.
(vii)2020 Resources (Canada) Ltd. received a Canadian Emergency Business account loan (“CEBA”) in the amount of CDN $40,000 from the Canadian Federal Government in November 2020. The CEBA loan is interest free with no principal payments until December 31, 2022. If the Company repays $30,000 of the total loan prior to December 31, 2022 then the balance of $10,000 will be forgiven. If the balance is not paid by December 31, 2022 then the balance of the loan is converted to a three (3) year term loan with interest at 5% starting on January 1, 2023. The balance of the loan must be paid no later than December 31, 2025. The note was converted to USD $31,416 using the exchange rate quoted by the Bank of Canada as at December 31, 2020, being 0.7854:1.
(viii)On August 31, 2020, the Company entered into a promissory note for $1,000,000 from Loeb Term Solutions LLC. The note ranks senior to all debt and is secured against all of the assets of the Company and of its subsidiaries. The note matures on September 1, 2024 and bears interest at 14.25% per annum. Terms of the note includes a mandatory repayment against principal of $20,000 per monthly instalment. The principal outstanding under the note as at December 31, 2020 is $ 906,986.81.
50
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
12.CONVERTIBLE DEBENTURES
Lender |
|
Maturity Date |
Interest Rate |
Principal due December 31, 2020 |
Principal Due December 31, 2019 |
|
|
|
|
|
|
Private Lender |
|
April 23, 2021 |
4% |
50,000 |
- |
Private Lender |
|
July 21, 2021 |
4% |
- |
- |
Marcus Laun |
|
July 13, 2021 |
4% |
25,000 |
- |
Private Lender |
|
September 12, 2021 |
4% |
50,000 |
- |
|
|
|
|
$125,000 |
$- |
The maturity date of debt is as follows:
|
|
December 31,
|
December 31,
|
Principal classified as repayable within one year |
|
$125,000 |
$- |
Principal classified as repayable later than one year |
|
- |
- |
Balance, December 31, 2020 |
|
$125,000 |
$- |
(a)Private Lender
On April 23, 2020, the Company issued a promissory note in the amount of $50,000, convertible at the election of the holder into shares of common stock at an exercise price of $0.0936 per share with a maturity date of April 23, 2021. The note has a term of twelve months and bears interest at a rate of 4% per annum payable at maturity.
(b)Private Lender
On April 28, 2020, the Company issued a promissory note in the amount of $50,000, convertible at the election of the holder into shares of common stock at an exercise price of $0.0936 per share. The note has a term of twelve months and bears interest at a rate of 4% per annum payable at maturity. On August 7, 2020 at the election of the lender the note was converted into 534,188 shares of common stock of the Company in full and final satisfaction of the note.
(c)Marcus Laun
On July 13, 2020, the Company issued a promissory note in the amount of $25,000 to Marcus Laun, a director of the Company, convertible at the election of the holder into shares of common stock at an exercise price of $0.0936 per share with a maturity date of July 13, 2021. The note has a term of twelve months and bears interest at a rate of 4% per annum payable at maturity.
(d)Private Lender
On September 21, 2020, the Company issued a promissory note in the amount of $50,000, convertible at the election of the holder into shares of common stock at an exercise price of $0.25 per share. The note has a term of twelve months and bears interest at a rate of 4% per annum payable at maturity.
51
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
13.INCOME TAXES
As at December 31, 2019, and December 31, 2020, the Company has incurred losses and does not meet the standard to carry forward any non-capital losses.
14.SHARE STRUCTURE
COMMON SHARES
Authorized50,000,000 common shares with par value of $0.0001
Issued26,890,235 common shares as of December 31, 2020
PREFERRED SHARES
Authorized 25,000,000 preferred shares with par value of $0.001 per share
Issued0 preferred shares as of December 31, 2020
(a)Changes to share structure
On April 14, 2020 the Company authorized an amendment to its Certificate of Incorporation which amended its authorized share structure by, (a) fixing the authorized common shares issuable at a maximum of 50,000,000 and (b) fixing the par value of its common shares at $0.0001 (one hundredth of one cent).
(b)Common share subscriptions
On June 30, 2020, the Company issued 11,400,000 common shares to certain investors for net proceeds of $1,140 at an issue price of $0.0001 per share.
On August 2, 2020 the Company issued 7,988,637 common shares to certain investors for net proceeds of $799 at an issue price of $0.0001 per share.
On September 16, 2020 the Company issued 6,967,410 common shares to certain investors for net proceeds of $1,097,795 at an average issue price of $0.157 per share.
(c)Debt conversions
On September 16, 2020 the Company issued 534,188 common shares for conversion of debt in the amount of $50,000 at a conversion price of $0.0936 per share.
15.STOCK OPTION PLAN
On March 27, 2020 the Company adopted an incentive stock option plan (the “Plan”). The Plan allows the Board of Directors of the Company to grant options to acquire common shares of the Company to directors, officers, key employees and consultants. The option price, term and vesting periods are determined at the discretion of the Board of Directors, subject to certain restrictions as required by the policies of Section 422 of the Internal Revenue Code. The stock option plan is a fixed number plan with a maximum of 5,000,000 common shares reserved for issue at December 31, 2020.
During the twelve months ended December 31, 2020 and the period ended December 31, 2019, the Company did not grant any stock options to directors, officers and consultants of the Company.
During the years ended December 31, 2020 and December 31, 2019, there was no share-based compensation expense.
52
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
16.RELATED PARTY TRANSACTIONS
Related party transactions not otherwise separately disclosed in these consolidated financial statements are:
(a)Key management personnel and director compensation
As at December 31, 2020 there was $0 due to members of key management and directors for unpaid salaries, expenses and director fees (2019 - $0) as salaries and fees were voluntarily waived for FY 2020.
(b)Transactions with related parties
During the year ended December 31, 2020 the following officers, directors, and related parties subscribed for common shares as set forth below.
Notes:
1.Autus Ventures Ltd. is a company controlled by David Sealock, CEO and a director.
2.With this subscription, JPMorgan Chase Bank N.A. acquired a 20% stake in the Company.
As disclosed in Note 11 above, on September 16, 2020 the Company issued a promissory note to JPMorgan Chase, N.A, in the amount of $450,000.
(c)Due to/from director
As disclosed in Note 11 above, on September 28, 2020, the Company received an advance from David Sealock, a director and CEO of the Company, in the amount of $19,490 bearing interest at 0% per annum and repayable on demand.
As disclosed in Note 12(c) above, on July 13, 2020, the Company issued a promissory note in the amount of $25,000 to Marcus Laun, a director of the Company, convertible at the election of the holder into shares of common stock at an exercise price of $0.0936 per share. The note has a term of twelve months and bears interest at a rate of 4% per annum payable at maturity.
53
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
17. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist of the following:
|
|
December 31,
|
December 31,
|
Insurance |
|
$105,675 |
$0 |
|
|
|
0 |
Professional fees |
|
124,913 |
0 |
Salary and wages |
|
31,821 |
0 |
Travel expenses |
|
60,748 |
0 |
Other |
|
22,003 |
838 |
|
|
$345,160 |
$838 |
18. COMMITMENTS AND CONTINGENCIES
The Company is not party to any contractual commitments other than as disclosed elsewhere herein.
19.MANAGEMENT OF CAPITAL
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern and to maintain a flexible capital structure which optimizes the costs of capital. The Company considers its capital for this purpose to be its shareholders’ equity and debt and convertible debentures.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may seek additional financing or dispose of assets.
In order to facilitate the management of its capital requirements, the Company monitors its cash flows and credit policies and prepares expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The budgets are approved by the Board of Directors. There are no external restrictions on the Company’s capital.
20.MANAGEMENT OF FINANCIAL RISKS
The risks to which the Company’s financial instruments are exposed to are:
(a)Credit risk
Credit risk is the risk of unexpected loss if a customer or third party to a financial instrument fails to meet contractual obligations. The Company is exposed to credit risk through its cash held at financial institutions, trade receivables from customers and notes receivable.
The Company has cash balances at various financial institutions. The Company has not experienced any loss on these accounts, although balances in the accounts may exceed the insurable limits. The Company considers credit risk from cash to be minimal.
54
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
For the years ending December 31, 2020 and 2019
Expressed in US dollars
Credit extension, monitoring and collection are performed for each of the Company’s business segments. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness, as determined by a review of the customer’s credit information.
Accounts receivable, collections and payments from customers are monitored and the Company maintains an allowance for estimated credit losses based upon historical experience with customers, current market and industry conditions and specific customer collection issues.
At December 31, 2020 and 2019, the Company had $29,168 and $0, respectively in trade and other receivables. The Company considers its maximum exposure to credit risk to be its trade and other receivables and notes receivable. The Company expects to collect these amounts in full and has not provided an expected credit loss allowance against these amounts.
(c)Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities as they become due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses.
(d)Currency risk
Currency risk is the risk that the value of financial assets and liabilities denominated in currencies, other than the functional currency of the Company, will fluctuate due to changes in foreign currency exchange rates. As at December 31, 2020, the Company’s exposure to currency risk is limited to cash and equivalents denominated in Canadian dollars in the amount of CAD $20,882, accounts payable and accrued liabilities denominated in Canadian dollars in the amount of CAD $30,845. A 1% change in the exchange rate between the US and Canadian dollar would have a $100 impact on the net loss and cash flows of the Company.
(e)Interest rate risk
Interest rate risk is the risk that changes in interest rates will affect the fair value or future cash flows of the Company’s financial instruments. The Company is exposed to interest rate risk as a result of holding fixed rate obligations of varying maturities as well as through certain floating rate instruments. The Company considers its exposure to interest rate risk to be minimal.
21.SUBSEQUENT EVENTS
Except as disclosed elsewhere herein and below, no material events occurred subsequent to March 31, 2021 the date of presentation of these financial statements.
55
2020 Resources (Canada) Ltd.
and
2020 Resources, LLC
|
Combined Financial Statements |
For the years ended December 31, 2019 and 2018 |
|
56
INDEPENDENT AUDITOR’S REPORT
March 31, 2021
To: Board of Directors, 2020 Resources (Canada) Ltd. and 2020 Resources LLC
Re: 2019-2018 Combined Financial Statement audit
We have audited the accompanying combined financial statements of 2020 Resources (Canada) Ltd. and 2020 Resources LLC (together, the “Company”), which comprise the combined statements of financial position as of December 31, 2019 and 2018, and the related combined statement of loss and comprehensive loss, combined statement of changes in equity, and combined statements of cash flows for the calendar year periods ended December 31, 2019 and 2018, and the related notes to such combined financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of the Company’s financial statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations, shareholder equity and its cash flows for the calendar year periods thus ended in accordance with accounting principles generally accepted in the United States of America.
57
Going Concern
The accompanying combined financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the financial statements, the Company has stated that substantial doubt exists about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding these matters are also described in the Notes to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Sincerely,
IndigoSpire CPA Group
IndigoSpire CPA Group, LLC
Aurora, Colorado
March 9, 2021
We have served as the Company's Auditor since January 18, 2021.
58
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Combined Statement of Financial Position
($USD)
As of December 31,
|
|
|
|
|
Note |
2019 |
2018 |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
Cash |
|
$1,381,996 |
$746,957 |
Accounts receivable |
6 |
1,217,221 |
0 |
Prepaid expenses and deposits |
|
1,032,388 |
886,793 |
Inventory |
|
276,373 |
0 |
Total Current Assets |
|
3,907,978 |
1,633,749 |
Property, plant and equipment |
7 |
3,532,715 |
3,533,824 |
Exploration and evaluation assets |
8 |
12,903,111 |
4,885,957 |
Intangible assets |
9 |
19,422 |
8,186 |
|
|
|
|
TOTAL ASSETS |
|
$20,363,226 |
$10,061,716 |
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
Accrued payable and accrued liabilities |
10 |
$2,474,024 |
$157,400 |
Total Liabilities |
|
2,474,024 |
157,400 |
|
|
|
|
Equity: |
|
|
|
Share capital |
12 |
3,831,744 |
1,311,744 |
Member’s interest in LLC |
12 |
17,300,381 |
10,125,381 |
Retained earnings |
|
(1,507,354) |
0 |
Accumulated other comprehensive income (loss) |
|
(78,313) |
(25,455) |
Deficit |
|
(1,657,256) |
(1,507,354) |
Total Equity |
|
17,889,202 |
9,904,316 |
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
$20,363,226 |
$10,061,716 |
See also the auditor’s report.
The accompanying notes are an integral part of the combined financial statements.
59
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Combined Statement of Loss and Comprehensive Loss
For the periods ended December 31,
($USD)
|
2019 |
2018 |
Revenue |
|
|
Sale |
$0 |
$0 |
Cost of Sales |
0 |
0 |
Gross Profit |
0 |
0 |
|
|
|
Expenses: |
|
|
Research & development |
351,095 |
184,200 |
|
|
|
General and administrative |
1,425,062 |
1,348,477 |
Total Expenses |
1,776,156 |
1,532,677 |
Other (income) Expense |
|
|
Finance expense |
(1,370) |
(671) |
Foreign exchange |
(117,531) |
(24,653) |
Total Expenses |
(118,901) |
(25,324) |
|
|
|
Net Loss |
(1,657,256) |
(1,507,354) |
Other Comprehensive Loss (Gain) |
|
|
Exchange loss (gain) on translation of foreign operations |
(78,313) |
(25,454) |
Comprehensive Loss |
$(1,735,569) |
$(1,532,808) |
See also the auditor’s report.
The accompanying notes are an integral part of the combined financial statements.
60
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Combined Statement of Changes in Equity
For the periods ended December 31,
($USD)
|
Share Capital |
Members Interest in LLC |
Deficit |
Accumulated Other Comprehensive Loss |
Total |
Balance, date of commencement of operations, July 27, 2018 |
- |
- |
- |
- |
- |
Capital contributions |
1,311,744 |
10,125,381 |
- |
- |
11,437,125 |
Net Loss and Comprehensive Loss |
- |
- |
(1,507,354) |
(25,455) |
(1,532,809) |
Balance December 31, 2018 |
1,311,744 |
10,125,381 |
(1,507,354) |
(25,455) |
9,904,316 |
Balance, January 1, 2019 |
1,311,744 |
10,125,381 |
(1,507,353) |
(25,454) |
9,904,318 |
Capital contributions |
2,520,000 |
7,175,000 |
- |
- |
9,695,000 |
Net Loss and Comprehensive Loss |
- |
- |
(1,657,256) |
(52,858) |
(1,710,114) |
Balance December 31, 2019 |
3,831,744 |
17,300,381 |
(3,164,610) |
(78,313) |
17,889,202 |
See also the auditor’s report.
The accompanying notes are an integral part of the combined financial statements.
61
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Combined Statements of Cash Flows
For the periods ended December 31,
($USD)
|
Note |
2019 |
2018 |
|
|
|
|
CASH FLOWS FROM OPERATION ACTIVITIES |
|
|
|
Net loss |
|
$(1,657,256) |
$(1,507,354) |
Changes in non-cash working capital items: |
|
|
|
Accounts receivables |
|
(1,217,221) |
0 |
Prepaid expenses and deposits |
|
(145,596) |
(84,728) |
Inventory |
|
(276,373) |
0 |
Accounts payable and accrued liabilities |
10 |
2,316,624 |
157,399 |
Net Cash from Operating Activities |
|
(979,821) |
(1,434,682) |
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Cash contributions from parent |
12 |
9,695,000 |
11,437,125 |
Net cash generated by financing activities |
|
9,695,000 |
11,437,125 |
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Acquisition of exploration and evaluation assets |
5 |
0 |
(5,552,350) |
Acquisition of property, plant, and equipment, net |
5 |
0 |
(3,447,650) |
Additions to exploration and evaluation assets |
8 |
(8,017,154) |
(135,672) |
Additions to property, plant, and equipment |
7 |
1,109 |
0 |
Additions to intangible assets |
9 |
(11,236) |
(8,186) |
Net cash generated by investing activities |
|
(8,027,281) |
(9,143,858) |
|
|
|
|
Effect of change in foreign exchange rates on cash |
|
52,858 |
111,628 |
|
|
|
|
Net increase in cash, and cash equivalents, end of period |
|
$635,039 |
$746,956 |
See also the auditor’s report.
The accompanying notes are an integral part of the combined financial statements.
62
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Notes to the Combined Financial Statements
For the period ending December 31, 2019
($USD)
1.NATURE OF OPERATIONS
USO (Canada) Ltd. was incorporated on April 26, 2018 under the Canada Business Corporations Act and on November 8, 2019 changed its corporate name to 2020 Resources (Canada) Ltd. US Oil Sands (Utah) LLC was formed on November 2, 2017 in the state of Delaware and on December 4, 2017 changed its name to USO (Utah) LLC, and on November 6, 2019 changed its name to 2020 Resources LLC.
Together, 2020 Resources (Canada) Ltd. and 2020 Resources LLC comprise “the Company” or “2020 Resources.” The Company had no financial activity until commencement of operations on July 27, 2018.
2020 Resources (Canada) Ltd. and 2020 Resources LLC are engaged in the exploration and development of oil sands properties and proprietary technology. Through 2020 Resources LLC, the Company has a 100% working interest in bitumen leases covering 5,930 acres of land in the state of Utah in the PR Spring area. The Company has not earned significant revenues as it is in the pre-production stage. The Company’s head office is located at 521 3rd Avenue SW, Calgary, Alberta, Canada, T2P 3T3.
The combined financial statements of the Company as at and for the period from the date of commencement of operations, July 27, 2018, to December 31, 2019 consist of 2020 Resources (Canada) Ltd., which acts as the Company’s main Canadian operating entity, and 2020 Resources LLC, which acts as the United States operating entity.
The Company is managed by its parent Anchorage Capital Partners, L.P. (“Anchorage”), a private Delaware based company. Anchorage manages the business and affairs of 2020 Resources and provides cash contributions to fund development and operations.
2.BASIS OF PRESENTATION
(a)Basis of combination
As described in note 1, 2020 Resources (Canada) Ltd. and 2020 Resources LLC are managed by a single parent entity, Anchorage Capital Partners L.P. These financial statements have been prepared on a combined basis whereby the assets, liabilities and results of 2020 Resources (Canada) Ltd. and 2020 Resources LLC have been combined. There was no activity in either entity until commencement of operations on July 27, 2018. Share capital refers to capital contributions in the form of cash provided by Anchorage to 2020 Resources (Canada) Ltd. Member’s interest refers to cash contributions provided by Anchorage to 2020 Resources LLC. Both entities were under common control throughout the period from inception through to December 31, 2019.
All intercompany balances, income and expenses and unrealized gains and losses resulting from intercompany transactions are eliminated.
(b)Basis of presentation
The consolidated financial statements have been prepared in accordance with United States generally accepted accounting policies (“US GAAP”) and have been prepared on a historical cost basis except for certain financial assets and financial liabilities which are measured at fair value. The Company’s reporting currency and the functional currency of all of its operations is the U.S. dollar, as it is the principal currency of the primary economic environment in which the Company operates.
(c)Functional and presentation currency
These combined financial statements are presented in US dollars, which is the functional currency of 2020 Resources LLC. The functional currency of 2020 Resources (Canada) Ltd. is the Canadian dollar.
63
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Notes to the Combined Financial Statements
For the period ending December 31, 2019
($USD)
(d)Going concern
These combined financial statements have been prepared on the basis that the Company will continue as a going concern, which assumes that 2020 Resources will be able to realize its assets and satisfy its liabilities in the normal course of business for the foreseeable future. Management is aware, in making its going concern assessment, of material uncertainties related to events and conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. As at December 31, 2019 the Company has an accumulated deficit of $3,164,610, and has not yet been able to generate cash flows from operations.
Whether and when the Company can generate sufficient operating cash flows to pay for its expenditures and settle its obligations as they fall due subsequent to December 31, 2019 is uncertain. Until this time, management will have to raise funds by way of debt or equity issuances or improve profitability. The Company will closely monitor its cash and will take the necessary measures to preserve cash, such as reducing spending as needed until the Company succeeds in proving its extraction technology viable in the open market.
These combined financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary were the going concern assumption inappropriate. These adjustments could be material.
3.SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these combined financial statements.
(a)Research and development:
Research costs are expensed when incurred. Internally-generated research and development costs, including technology and patent costs, are capitalized as intangible assets when the Company can demonstrate that the technical feasibility of the project has been established; the Company intends to complete the asset for use or sale and has the ability to do so; the asset can generate probable future economic benefits; the technical and financial resources are available to complete the development; and the Company can reliably measure the expenditure attributable to the intangible asset during its development. After initial recognition, internally-generated intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. These costs are amortized on a straight-line basis over the estimated useful life of 5 years.
(b)Leases:
Leases are classified as either finance or operating leases. Leases that effectively transfer substantially all the risks and rewards of ownership to the Company are finance leases and are accounted for as an acquisition of an asset and an assumption of an obligation at the inception of the lease, measured at the lower of the fair value or the present value of the minimum lease payments. Obligations recorded under finance leases are reduced by the lease payments, net of imputed interest. All other leases are accounted for as operating leases and rental payments are recorded as expenses on a straight-line basis over the term of the related lease.
(c)Foreign currency translation:
Foreign currency transactions are initially recorded in the individual company's functional currency at the transaction date exchange rate. At year end, monetary assets and liabilities denominated in a foreign currency are translated into the functional currency at the year end exchange rate. All foreign currency adjustments are recognized in profit or loss.
64
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Notes to the Combined Financial Statements
For the period ending December 31, 2019
($USD)
Financial statements of companies for which the functional currency is not the presentation currency are translated into US dollars. All asset and liability accounts are translated at the year end exchange rate and all earnings and expense accounts and cash flow statement items are translated at average exchange rates for the year. The resulting translation gains and losses are recorded as foreign currency translation adjustments in other comprehensive income or loss.
(d)Financial instruments:
Financial instruments are measured at fair value on initial recognition, which is typically the transaction price unless a significant financing component is present. Subsequent measurement is dependent on whether the instrument is classified as “amortized cost”, “fair value through profit or loss” or “fair value through other comprehensive income”. The classification of financial assets is determined by their characteristics and their context in the Company's business model.
The Company classifies financial assets and liabilities as follows:
(i)Amortized cost: Cash, accounts payable and accrued liabilities are held by the Company to collect or pay contractual cash flows and are measured at amortized cost. Financial instruments measured at amortized cost are recognized initially at fair value, adjusted for any directly attributable transaction costs. Subsequent to initial recognition, these financial instruments are measured at amortized cost using the effective interest rate method, less any impairment losses.
(ii)Fair value through profit or loss: The Company has no financial instruments held to both collect contractual cash flows and to sell the asset, and accordingly, no financial instruments are measured at fair value through profit or loss.
(iii)Fair value through other comprehensive income: The Company has no financial instruments that do not meet the criteria to be measured at amortized cost or fair value through profit or loss and, accordingly, no financial instruments are measured at fair value through other comprehensive income.
The Company derecognizes a financial asset when the contractual right to the cash flow expires, or the right to receive the contractual cash flows from the financial asset and substantially all the risks and rewards of ownership of the financial asset are transferred. The Company derecognizes a financial liability when the contractual obligations are discharged, cancelled or expired.
(g)Equity:
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities. Capital contributions are classified as equity and represent cash contributions to 2020 Resources (Canada) Ltd. and 2020 Resources LLC made by the parent. Incremental costs directly attributable to the issue of equity are recognized as a deduction from equity, net of tax.
(h)Bitumen interests:
(i) Recognition and measurement
Exploration and evaluation assets:
Pre-license costs incurred before the Company has attained legal rights to explore an area are recognized in profit or loss.
65
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Notes to the Combined Financial Statements
For the period ending December 31, 2019
($USD)
Exploration and evaluation costs, including the costs of acquiring leases and licenses, technical services and studies, geophysical and geological activities, seismic acquisition, exploration drilling and testing are initially capitalized as exploration and evaluation assets. The costs are accumulated in cost centres by exploration area pending determination of technical feasibility and commercial viability. Assets classified as exploration and evaluation are not depleted or depreciated until after these assets are reclassified to property, plant and equipment.
Exploration and evaluation assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, or (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount. When an exploration and evaluation asset is determined not to be technically feasible or commercially viable, or the Company decides not to continue with its activity, the unrecoverable exploration and evaluation costs are charged to profit or loss as exploration and evaluation expense.
The technical feasibility and commercial viability of extracting resources is considered to be determinable when proved and/or probable reserves are determined to exist. A review of each exploration license or field is carried out, at least annually, to ascertain whether proved and/or probable reserves have been discovered. Upon determination of proved and/or probable reserves, exploration and evaluation assets attributable to those reserves are first tested for impairment and then reclassified from exploration and evaluation assets to a separate category within property, plant and equipment referred to as oil and natural gas interests.
Exchanges, swaps and farm-outs that involve only exploration and evaluation assets are accounted for at cost. Any gains or losses from the disposal of exploration and evaluation assets are recognized in profit or loss.
Property, plant and equipment:
All costs directly associated with the development and production of bitumen interests are capitalized on an area-by-area basis as bitumen interests if they extend or enhance the recoverable reserves of the underlying assets. Items of property, plant and equipment, which include bitumen development assets, are measured at cost less accumulated depletion and depreciation and accumulated impairment losses. Development costs include expenditures for areas where technical feasibility and commercial viability has been determined. These costs include property acquisitions with contingent resources, development drilling, completion, gathering and infrastructure, decommissioning costs and transfers of exploration and evaluation assets. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.
Other property, plant and equipment, consisting of research and development equipment and mining equipment, is measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures directly attributable to the acquisition of the asset. When parts of an item have different useful lives, they are accounted for as a separate components. At December 31, 2019, none of the assets were available for use and no depreciation has been recorded on the assets.
Gains and losses on disposal of property, plant and equipment, property swaps and farm-outs, are determined by comparing the proceeds or fair value of the asset received or given up with the carrying amount of property, plant and equipment and are recognized in profit or loss. Exchanges of properties are measured at fair value, unless the transaction lacks commercial substance or fair value cannot be reliably measured. Where the exchange is measured at fair value, a gain or loss is recognized in profit or loss.
66
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Notes to the Combined Financial Statements
For the period ending December 31, 2019
($USD)
(i)Impairment:
The carrying amounts of the Company’s property, plant and equipment and exploration and evaluation assets are reviewed at each reporting date to determine whether there is any indication of impairment. These indicators include, but are not limited to, extended decreases in prices or margins for oil and natural gas commodities or products, a significant downward revision in estimated reserves, an upward revision in future development costs, significant decrease in fair values of undeveloped lands in close proximity to lands held by the Company or management’s decision to no longer pursue certain evaluation projects. If any such indication exists, then the asset’s recoverable amount is estimated.
For the purpose of impairment testing, exploration and evaluation assets and property, plant and equipment are tested separately and are grouped into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets or cash generating units (“CGU”). Geological formation, product type, geography and internal management operations and processes are key factors considered when grouping the Company’s oil and natural gas interests into CGU’s.
The recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs of disposal. Fair value is determined to be the amount for which the asset could be sold in an arm’s-length transaction between knowledgeable and willing parties. Unless indicated otherwise, the recoverable amount used in assessing impairment losses is fair value less costs of disposal. The Company estimates fair value less cost of disposal using discounted future net cash flows of contingent resources based on forecast prices and costs and including future development costs. The cash flows are discounted at an appropriate discount rate which would be applied by a market participant. Value in use is determined by estimating the present value of the future net cash flows to be derived from the continued use of the CGU in its present form. These cash flows are discounted at a rate based on the time value of money and risks specific to the CGU.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. An impairment loss in respect of property, plant and equipment recognized in prior years, is assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depletion and depreciation, if no impairment loss had been recognized.
(j)Taxation and tax credits:
The income tax provision includes current and deferred tax. This expense is recognized in profit or loss, except for income tax related to the components of other comprehensive income or equity. In these specific cases, the income tax expense is recognized in other comprehensive income or equity, respectively.
Deferred taxes are accounted for using the liability method. Under this approach, deferred tax assets and liabilities are determined based on the differences between the carrying amounts and the tax bases of assets and liabilities and are measured using the enacted or substantively enacted tax rates and laws. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
Deferred tax assets are recognized to the extent that it is probable there will be sufficient taxable profits against which to utilize the benefits in the future. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
67
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Notes to the Combined Financial Statements
For the period ending December 31, 2019
($USD)
Income tax receivables and payables are obligations or claims for the current and prior periods to be paid to (or recovered from) taxation authorities that are still outstanding at the end of the reporting period. Current tax is computed based on tax profit which differs from net profit. This calculation was made using tax rates and laws which are enacted or substantively enacted at the end of the reporting period.
Tax credits, including research and development tax credits, are not recognized until there is reasonable assurance that the Company will meet the eligibility criteria of the credits and that they will be received. Tax credits are recognized as a deduction to the related expenses.
(k)Fair value measurement:
A number of the Company's accounting policies and disclosures require the determination of fair value for both financial and non-financial assets and liabilities. Fair values have
been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining the fair values is disclosed in the notes specific to that asset or liability.
The Company classifies the fair value of financial instruments according to the following hierarchy based on the amount of observable inputs used to value the instruments:
Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities.
Level 2: Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.
Level 3: Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
4.SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the combined financial statements in conformity with GAAP requires management to make judgments in applying its accounting policies and estimates and assumptions about the future. These judgments, estimates, and assumptions affect the reported amounts of assets, liabilities at the reporting date and reported amounts of expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The following discusses the most significant accounting judgments, estimates and assumptions that the Company has made in the preparation of its combined financial statements.
(a)Areas of judgment
i.Going concern
Determining if the Company has the ability to continue as a going concern is dependent on its ability raise additional financing and to achieve profitable operations. Certain judgments are made when determining if the Company will be able to continue as a going concern. Further disclosure is included in note 2(d).
68
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Notes to the Combined Financial Statements
For the period ending December 31, 2019
($USD)
ii.Asset acquisition
The application of the Company’s accounting policy for asset acquisitions requires judgment to determine the type and amount of assets to be recognized. Furthermore, judgment is required to determine whether future economic benefits are likely, from either future exploitation or sale, or whether activities have not reached a stage that permits a reasonable assessment of the existence of reserves. Relatively significant costs may be incurred when evaluating, pursuing and completing an acquisition, with such costs often included amongst legal and advisory fees incurred as part of more general consultation and advisory services. Pursuant accounting provisions, only those direct, incremental costs of any such acquisition can be deferred; accordingly, judgment is required in determining which of the expenditures are eligible for deferral. Upon review of the related costs paid by the Company as part of the transaction, all costs related to expenses incurred by the seller on behalf of the Company and were not directly attributable to the asset acquisition (note 5). The value of consideration reflects the aggregate value of the Cash Payment for the assets acquired. Consideration is allocated to exploration property interests acquired principally on the residual basis for property acquired.
iii.Identification of cash generating units (CGU’s)
The Company’s oil interests(is aggregated into a cash-generating unit, for the purposes of calculating impairment, based on their ability to generate largely independent cash flows. The classification of assets into CGU’s required significant judgement and interpretations with respect to the integration between assets, the existence of active markets, external users, shared infrastructures and the way in which management monitors the Company’s operations. The Company has identified PR Spring as its core CGU.
iv.Exploration and evaluation assets
The application of the Company’s accounting policy for exploration and evaluation assets requires management to make certain judgments as to future events and circumstances as to whether economic quantities of contingent resources have been found in assessing economic viability and technical feasibility.
v. Deferred taxes
The Company follows the liability method for calculating deferred taxes. Judgment is required in the calculation of current and deferred taxes in applying tax laws and regulations, estimating the timing of the reversals of temporary differences and estimating the realizability of deferred tax assets.
vi.Functional currency
The functional currency of each entity is the currency of the primary economic environment in which the entity operations. Assessment of functional currency involved certain judgements to determine the primary economic environment. IAS 21, The Effects of Changes in Foreign Exchange Rates, sets out a number of factors that are used in the determination of functional currencies. Where the indicators are mixed and the functional currency is not obvious, management uses judgement to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions of its operating entities. Each entity reconsiders their functional currency if there is a change in events and conditions which determined the primary economic environment.
69
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Notes to the Combined Financial Statements
For the period ending December 31, 2019
($USD)
vii.Assets acquisitions / business combinations
Management estimates the relative fair value of the acquired identifiable net assets at the date of acquisition and specifically in identifying and valuing the exploration and evaluation assets, property, plant and equipment acquired in acquisitions. The relative fair values assigned to the allocation of the purchase price to net assets is based on numerous estimates that affect the valuation of certain assets and liabilities acquired including the discount rates, estimates of contingent resources, estimates of fair values of exploration and evaluation assets including undeveloped lands, estimate of realization of deferred tax assets, future oil and natural gas prices and other factors.
(b)Assumptions and critical estimates
i.Contingent Resources
The assessment of reported recoverable quantities of contingent resources include estimates regarding production volumes, commodity prices, exchange rates, remediation costs, timing and amount of future development costs, and production, transportation and marketing costs for future cash flows. It also requires interpretation of geological and geophysical models in anticipated recoveries. The economical, geological and technical factors used to estimate contingent resources may change from period to period. Changes in reported contingent resources can impact the carrying values of the Company’s oil and natural gas properties and equipment.
ii.Tax assets and liabilities
Provisions for income taxes are made using the best estimate of the amount expected to be paid or recovered based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of each reporting period. However, it is possible that at some future date an additional liability could result from audits by tax authorities. Where the outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.
Deferred tax assets and liabilities contain estimates about the nature and timing of future permanent and temporary differences as well as the future tax rates that will apply to those differences. Changes in tax laws and rates as well as changes to the expected timing of reversals may have a significant impact on the amounts recorded for deferred tax assets and liabilities. Management closely monitors current and potential changes to tax law and bases its estimates on the best available information at each reporting date.
5.ACQUISITIONS
On February 5, 2018, US Oil Sands (Utah) LLC entered into an asset purchase agreement to acquire all of the assets of US Oil Sands Inc. and US Oilsands (Utah) Inc. through FTI Consulting (the “Receiver”) in the PR Spring area in the state of Utah and the research and development facility in the province of Alberta, for total cash consideration of $9,000,000. The asset purchase agreement closed on July 27, 2018. The values assigned to property, plant, and equipment were determined by reference to third party valuations. The values assigned to exploration and evaluation assets, including the Company’s extraction technology, were determined by the residual value of assets acquired.
The acquisition did not meet the definition of a business combination as (i) the PR Spring properties are at the exploration stage with no defined mineral reserves, and (ii) assets acquired did not contain any business processes. Consequently, the transaction was not characterized as a business combination, and was accounted for as an acquisition of assets.
70
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Notes to the Combined Financial Statements
For the period ending December 31, 2019
($USD)
The fair value of the assets acquired are as follows:
Recognized amounts of identifiable net assets acquired |
$ |
Deposits |
802,065 |
Property, plant, and equipment, net |
3,447,650 |
Exploration and evaluation assets |
4,750,285 |
Total assets acquired |
9,000,000 |
|
|
Consideration for the acquisition |
|
Cash paid |
9,000,000 |
6.TRADE ACCOUNTS RECEIVABLES
The Company’s accounts receivables consist of:
|
December 31,
|
December 31,
|
Trade receivables |
$1,217,221 |
$0 |
Balance, December 31, 2019 |
1,217,221 |
0 |
Information about the Company’s exposure to credit risks for trade receivables is included in Note 16(b).
7.PROPERTY, PLANT AND EQUIPMENT
|
December 31,
|
December 31,
|
Balance, beginning of period |
$3,533,824 |
$0 |
Additions |
(1,109) |
3,533,824 |
Balance, December 31, 2019 |
3,532,715 |
3,533,824 |
Property, plant and equipment consists of research and development equipment and mining equipment. Each class of property, plant and equipment is estimated to have a useful life of 5 years and will be amortized over a straight line basis.
In accordance with IAS 16, as the property, plant and equipment was not available for use as at December 31, 2019, no accumulated depreciation has been recorded within the statement of loss and comprehensive loss.
8.EXPLORATION AND EVALUATION ASSETS
Exploration and evaluation assets are comprised of the following:
|
Note |
December 31, 2019 |
December 31, 2018 |
Balance, beginning of period |
5 |
$4,885,957 |
$0 |
Additions |
|
8,017,154 |
4,885,957 |
Balance, December 31, 2019 |
|
12,903,111 |
4,885,957 |
Exploration and evaluation assets include undeveloped lands, unproved properties and seismic costs where management has not fully evaluated for technical feasibility and commercial viability.
71
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Notes to the Combined Financial Statements
For the period ending December 31, 2019
($USD)
Additions during the year ended December 31, 2019 relate to technical feasibility and commercial viability assessments in the PR Spring area.
9.INTANGIBLE ASSETS
Intangible assets are comprised of the following:
|
|
December 31, 2019 |
December 31, 2018 |
Balance, beginning of period |
|
$8,186 |
$0 |
Additions |
|
11,236 |
8,186 |
Balance, December 31, 2019 |
|
19,422 |
8,186 |
Additions during the year relate to technology patents relating to research and development activities in the province of Alberta and carry a useful life of 20 years that will be amortized on a straight line basis.
10.ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As at December 31, 2019, the entire $2,474,024 balance within accounts payable and accrued liabilities relates to trade accounts payables primarily for construction and expansion of PR Springs facility. Trade accounts payable are non-interest bearing and are normally due on 30 to 60 day terms. As at December 31, 2019, the Company has $1,137,820 in trade accounts payable beyond 60 days.
Information about the Company’s exposure to credit risks for trade payables is included in Note 16(c).
11.INCOME TAXES
The income tax provision differs from the amount that would be computed by applying the statutory income tax rates to profit or loss before income taxes.
The reconciliation of the differences is as follows:
|
|
December 31, 2019 |
December 31, 2018 |
Loss before income taxes |
|
$(1,657,256) |
$(1,507,353) |
Weighted average statutory income tax rate |
|
25.32% |
25.32% |
Expected income tax recovery |
|
(419,617) |
(381,662) |
Change in deferred taxes not recognized |
|
419,617 |
381,662 |
Income tax recovery |
|
0 |
0 |
The net deferred tax asset is comprised of the following temporary differences:
|
|
December 31,
|
December 31,
|
Non-capital losses |
|
(419,614) |
(381,662) |
Deferred taxes not recognized |
|
419,614 |
381,662 |
Deferred tax asset |
|
0 |
0 |
72
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Notes to the Combined Financial Statements
For the period ending December 31, 2019
($USD)
12. CAPITAL CONTRIBUTIONS
During the period ended December 31, 2019, Anchorage contributed a total of $7,175,000 to 2020 Resources LLC in the form of membership interest in LLC and a total of $2,520,000 to 2020 Resources (Canada) Ltd. in the form of share capital. Capital contributions were provided to the companies to complete the asset acquisition (note 5), assist with development of exploration and evaluation properties and proprietary technology, and fund day to day operations.
As at December 31, 2019, Anchorage owned the sole outstanding interest in the companies. There are no minimum annual contributions required.
13.RELATED PARTY TRANSACTIONS
During the period ended December 31, 2019, the Company received advances from a related party (note 12) to purchase net assets and to begin operations (note 5) totalling $9,695,000.
Key management is comprised of the Manager, VP of Technology Development, and VP of Operations. Key management compensation is comprised of salary and wages. During the period ended December 31, 2019, key management compensation amounted to $483,076 and is included within general and administrative expense on the statement of loss and comprehensive loss. Key management personnel have accounts payable owing from the Company in the amount of $4,497 at December 31, 2019 relating to reimbursable expenses.
14.COMMITMENTS AND CONTINGENCIES
(a)Commitments
The Company is committed under a lease on office space, terminating May 31, 2020 for future minimum rental payments exclusive of occupancy costs. These payments are as follows:
|
|
December 31,
|
December 31,
|
Commitments |
|
18,552 |
35,145 |
15. CAPITAL MANAGEMENT
The Company optimizes its capital structure with a view to ensure a strong financial position to support its operations and growth strategies. The Company’s capital structure is made up
items that assist in funding operations and include investments from related parties comprised of share capital, accumulated other comprehensive income, and deficit. The Company strives to maximize the value associated with its capital. To maintain or adjust its capital structure, the Company may from time to time adjust its spending.
73
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Notes to the Combined Financial Statements
For the period ending December 31, 2019
($USD)
As at December 31, 2019, the Company’s capital consists of:
|
December 31,
|
December 31,
|
Member’s interest in LLC (note 12) |
$ 17,300,381 |
$ 10,125,381 |
Share capital (note 12) |
3,831,744 |
1,311,744 |
Accumulated other comprehensive income |
(78,313) |
(25,455) |
Retained Earnings |
(1,507,354) |
|
Deficit |
(1,657,256) |
(1,507,354) |
Balance, December 31, 2019 |
17,889,202 |
9,904,316 |
The Company is not subject to externally imposed capital requirements and the Company’s overall strategy with respect to capital risk management remained unchanged during the period presented.
16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company’s risk management policies are established to identify, analyze and manage the risks faced by the Company and to implement appropriate procedures to monitor risks and adherence to established controls. Risk management policies and systems are reviewed periodically in response to the Company’s activities and to ensure applicability.
In the normal course of business, the main risks arising from the Company’s use of financial instruments include credit risk, liquidity risk, market risk and currency risk. These risks, and the actions taken to manage them, include:
(b)Fair value
Due to the short-term nature of cash and accounts payable and accrued liabilities, the Company determined that the carrying amounts of these financial instruments approximate their fair value.
(c)Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises from cash held with banks and financial institutions and accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the Company’s cash and cash equivalents.
The Company minimizes credit risk associated with its cash balance substantially by dealing with major financial institutions in Canada and the United States.
(f)Liquidity risk
Liquidity risk is the risk that the Company will incur difficulties meeting its financial obligations as they come due. As at December 31, 2019 the Company has cash of $1,381,996. Additionally, as at December 31, 2019 the Company has a positive net working capital position of $1,434,144. The Company has an accumulated deficit of $3,164,610 as at December 31, 2018. As the Company is currently not generating revenue or cash flows from operations, the Company will closely monitor its cash and will
take the necessary measures to manage its liquidity risk, such as reducing spending or raising funds as needed.
74
2020 Resources (Canada) Ltd. and
2020 Resources LLC
Notes to the Combined Financial Statements
For the period ending December 31, 2019
($USD)
(g)Currency risk
Currency risk is the risk that the value of financial assets and liabilities denominated in currencies, other than the functional currency of the Company, will fluctuate due to changes in foreign currency exchange rates. As at December 31, 2019, the Company’s exposure to currency risk is limited to cash and equivalents denominated in Canadian dollars in the amount of CAD $549,873, accounts payable and accrued liabilities denominated in Canadian dollars in the amount of CAD $1,266,574. A 1% change in the exchange rate between the US and Canadian dollar would have a $7,167 impact on the net loss and cash flows of the Company.
(h)Interest rate risk
Interest rate risk is the risk that the fair value and cash flows associated with the Company’s interest bearing financial assets and liabilities will fluctuate due to changes in market interest rates. As at December 31, 2019, the Company is not exposed to this risk as all liabilities are non-interest bearing.
17. SUBSEQUENT EVENTS
The Company has evaluated subsequent material events that occurred after December 31, 2019 through March 31, 2021, the issuance date of these financial statements.
Material events occurring during the subsequent period include:
·Sky Quarry Inc, a Delaware corporation, entered into a Share Purchase Agreement with 2020 Resources Holdings LLC, the sole member of 2020 Resources LLC and the sole shareholder of 2020 Resources (Canada) Ltd.
·On September 16, 2020, the transaction was closed. Under the agreement, Sky Quarry Inc acquired a 100% membership interest in 2020 Resources LLC and acquired a 100% shareholder interest in 2020 Resources (Canada) Ltd.
75
Unaudited Consolidated Financial Statements of
SKY QUARRY INC.
formerly, Recoteq Inc.
For the three months ended March 31, 2021 and 2020
76
SQI QUARRY INC.
Consolidated Balance Sheets
As at March 31, 2021 and 2020
Unaudited
Expressed in US dollars
|
|
|
|
|
Note |
2021 |
2020 |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
Cash |
|
$401,022 |
$- |
Trade receivables |
4 |
7,857 |
- |
Prepaid expenses and other receivables |
|
1,050,571 |
- |
Inventory |
5 |
96,287 |
- |
Total Current Assets |
|
1,555,737 |
- |
|
|
|
|
Non-Current assets: |
|
|
|
Property, plant and equipment |
7 |
344,079 |
- |
Exploration and evaluation assets |
8 |
2,161,917 |
- |
Total Non-Current Assets |
|
2,505,996 |
- |
|
|
|
|
TOTAL ASSETS |
|
$4,061,733 |
$- |
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
Accrued payable and accrued liabilities |
9 |
$598,891 |
$838 |
Stock subscription deposit |
10 |
451,537 |
- |
Notes payable current portion |
11,12 |
1,244,490 |
- |
Total Current Liabilities |
|
2,294,918 |
- |
|
|
|
|
Non-Current Liabilities: |
|
|
|
Notes payable non-current portion |
11,12 |
1,491,531 |
- |
Total Non-Current Liabilities |
|
1,491,531 |
- |
|
|
|
|
Total Liabilities |
|
$3,786,449 |
$838 |
|
|
|
|
SHAREHOLDERS’ EQUITY: |
|
|
|
Share capital |
14 |
1,149,733 |
- |
Retained deficit |
|
(798,051) |
(838) |
Accumulated other comprehensive income (loss) |
|
(76,398) |
- |
Total Shareholders’ Equity |
|
275,283 |
(838) |
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
$4,061,733 |
$(838) |
The accompanying notes are an integral part of these consolidated financial statements.
77
SKY QUARRY INC.
Consolidated Statements of Loss and Comprehensive Loss
For the quarters ended March 31, 2021 and 2020
Unaudited
Expressed in US dollars
|
|
|
|
2021 |
2020 |
|
|
|
Revenue |
|
|
Sale, net |
$20,000 |
$- |
Cost of Sales |
- |
- |
Gross Profit |
20,000 |
- |
|
|
|
Expenses: |
|
|
Research & development |
3,366 |
- |
General and administrative |
467,066 |
838 |
Finance costs |
30,165 |
- |
Foreign exchange |
(48) |
- |
|
|
|
Total Expenses |
500,548 |
838 |
|
|
|
Net loss before income taxes |
|
|
Income tax expense |
- |
- |
Net Loss |
(480,548) |
(838) |
Other Comprehensive Loss (Gain) |
|
|
Exchange loss (gain) on translation of foreign operations |
76,398 |
- |
|
|
|
Net loss and Comprehensive loss |
$(556,946) |
$(838) |
The accompanying notes are an integral part of these consolidated financial statements.
78
SKY QUARRY INC.
Consolidated Statements of Changes in Shareholders’ Equity
For the quarters ended March 31, 2021 and 2020
Unaudited
Expressed in US dollars
|
Number of Shares Outstanding |
Share Capital |
Deficit |
Accumulated Other Comprehensive Loss |
Total |
Balance at January 1, 2020 |
|
- |
(838) |
- |
(838) |
Net Loss and Comprehensive Loss |
|
- |
- |
- |
- |
Balance March 31, 2020 |
|
- |
(838) |
- |
(838) |
Common share subscription |
26,890,235 |
1,1,49,733 |
- |
- |
1,149,733 |
Net Loss and Comprehensive Loss |
|
- |
(797,213) |
(76,398) |
(874,449) |
Balance March 31, 2021 |
26,890,235 |
$1,601,270 |
$(798,052) |
$(76,398) |
275,283 |
The accompanying notes are an integral part of these consolidated financial statements.
79
SKY QUARRY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the quarters ending March 31, 2021 and 2020
Unaudited
Expressed in US dollars
|
|
|
|
|
Note |
2021 |
2020 |
|
|
|
|
CASH FLOWS FROM OPERATION ACTIVITIES |
|
|
|
Net loss |
|
$(480,548) |
$(838) |
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable |
|
21,312 |
- |
Prepaid expenses and deposits |
|
(140,024) |
- |
Inventory |
|
- |
- |
Accounts payable and accrued liabilities |
9 |
333,603 |
838 |
Net cash from Operating Activities |
|
(265,657) |
- |
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Proceeds on subscription deposits |
|
451,537 |
- |
Proceeds of debt |
|
71,712 |
- |
Net cash generated by financing activities |
|
523,249 |
- |
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Additions to exploration and evaluation assets |
|
(26,497) |
|
Net cash generated by investing activities |
|
(26,497) |
- |
|
|
|
|
Effects of exchange rate changes on cash and cash equivalents |
|
34,140 |
- |
|
|
|
|
Increase (decrease) in cash |
|
$265,234 |
$- |
Cash, beginning of the period |
|
135,787 |
- |
|
|
|
|
Cash, end of the period |
|
$401,022 |
$0 |
The accompanying notes are an integral part of these consolidated financial statements.
80
SKY QUARRY INC.
Notes to the Unaudited Consolidated Financial Statements
For the three months ending March 31, 2021 and 2020
Expressed in US dollars
1.NATURE OF OPERATIONS
Sky Quarry Inc. and subsidiaries (Sky Quarry, SQI or the “Company”) are collectively a development-stage environmental remediation company formed to deploy technologies to facilitate the recycling of waste asphalt shingles and remediation of oil-saturated soils. The recycling of asphalt shingles will reduce the dependence of the American economy on landfills for the removal of waste and will also reduce the economy’s dependence on virgin crude oil for industrial uses.
The Company’s head office is located at #1400 136 East South Temple, Salt Lake City, Utah 84111. The Company’s registered office is located at The Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
The Company was incorporated as Recoteq Inc. on June 4, 2019 in the state of Delaware and changed its name to Sky Quarry Inc. on April 22, 2020. On September 16, 2020 the Company acquired a 100% interest in two companies, 2020 Resources LLC (referred to herein as “2020 Utah”) and 2020 Resources (Canada) Ltd. (referred to herein as “2020 Canada”).
2020 Resources (Canada) Ltd. (formerly, USO (Canada) Ltd.) was incorporated on April 26, 2018 in the province of Alberta under the Canada Business Corporations Act. 2020 Resources LLC (formerly, US Oil Sands (Utah) LLC and USO (Utah) LLC) was incorporated on November 2, 2017 in the state of Delaware.
2020 Canada is currently inactive and 2020 Utah is engaged in the exploration and development of oil sands properties using the proprietary solvent extraction technology. Through 2020 Utah, the Company has a 100% working interest in bitumen leases covering 5,930 acres of land in the state of Utah in the PR Spring area. The Company has not earned significant revenues as it is in the pre-production stage.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)Basis of preparation
The consolidated financial statements have been prepared in accordance with United States generally accepted accounting policies (“US GAAP”) and have been prepared on a historical cost basis except for certain financial assets and financial liabilities which are measured at fair value. The Company’s reporting currency and the functional currency of all of its operations is the U.S. dollar, as it is the principal currency of the primary economic environment in which the Company operates.
(b)Consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries in which it has at least a majority voting interest. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements.
(c)Basis of presentation
The combined financial statements have been prepared under the historical cost convention.
(d)Foreign currency translation adjustments
The Company’s reporting currency and the functional currency of all its operations is the U.S. dollar. Assets and liabilities of the Canadian subsidiary company are translated to
81
SKY QUARRY INC.
Notes to the Unaudited Consolidated Financial Statements
For the three months ending March 31, 2021 and 2020
Expressed in US dollars
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
U.S. dollars using the applicable exchange rate as of the end of a reporting period. Income, expenses and cash flows are translated using an average exchange rate during the reporting period. Since the reporting currency as well as the functional currency of all entities is the U.S. Dollar there is no translation difference recorded.
(e)Revenue recognition
The Company recognizes revenue in terms of ASC 606 – Revenue from Contracts with
Customers (ASC 606).
Revenue transactions are assessed using a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration in exchange for those goods or services. The five steps are as follows:
i.identify the contract with a customer;
ii.identify the performance obligations in the contract;
iii.determiner the transaction price;
iv.allocate the transaction price to performance obligations in the contract; and
v.recognize revenue as the performance obligation is satisfied.
(f)Cash and cash equivalents
The Company considers all highly liquid investments with original contractual maturities of three months or less to be cash equivalents.
(g)Accounts receivable
The Company had sales of $20,000 during the period of with a total of $0 accounts receivable balance.
(h)Oil and gas property and equipment
The Company follows the successful efforts method of accounting for its oil and gas properties. Exploration costs, such as exploratory geological and geophysical costs, and costs associated with delay rentals and exploration overhead are charged against earnings as incurred. Costs of successful exploratory efforts along with acquisition costs and the costs of development of surface mining sites are capitalized.
Site development costs are initially capitalized, or suspended, pending the determination
of proved reserves. If proved reserves are found, site development costs remain capitalized as proved properties. Costs of unsuccessful site developments are charged to exploration expense. For site development costs that find reserves that cannot be
classified as proved when development is completed, costs continue to be capitalized as suspended exploratory site development costs if there have been sufficient reserves found to justify completion as a producing site and sufficient progress is being made in assessing the reserves and the economic and operating viability of the project. If management determines that future appraisal development activities are unlikely to occur, associated suspended exploratory development costs are expensed. In some instances, this determination may take longer than one year. The Company reviews the status of all suspended exploratory site development costs quarterly.
82
SKY QUARRY INC.
Notes to the Unaudited Consolidated Financial Statements
For the three months ending March 31, 2021 and 2020
Expressed in US dollars
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Capitalized costs of proved oil and gas properties are depleted by an equivalent unit-of-production method. Proved leasehold acquisition costs, less accumulated amortization, are depleted over total proved reserves, which includes proved undeveloped reserves. Capitalized costs of related equipment and facilities, including estimated asset retirement costs, net of estimated salvage values and less accumulated amortization are depreciated over proved developed reserves associated with those capitalized costs. Depletion is calculated by applying the DD&A rate (amortizable base divided by beginning of period proved reserves) to current period production.
Costs associated with unproved properties are excluded from the depletion calculation until it is determined whether or not proved reserves can be assigned to such properties. The Company assesses its unproved properties for impairment annually, or more frequently if events or changes in circumstances dictate that the carrying value of those assets may not be recoverable.
Proved properties will be assessed for impairment annually, or more frequently if events or changes in circumstances dictate that the carrying value of those assets may not be recoverable. Individual assets are grouped for impairment purposes based on a common operating location. If there is an indication the carrying amount of an asset may not be recovered, the asset is assessed for potential impairment by management through an established process. If, upon review, the sum of the undiscounted pre-tax cash flows is less than the carrying value of the asset, the carrying value is written down to estimated fair value. Because there is usually a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants or by comparable transactions. The expected future cash flows used for impairment reviews and related fair value calculations are typically based on judgmental assessments of future production volumes, commodity prices, operating costs, and capital investment plans, considering all available information at the date of review.
Gains or losses are recorded for sales or dispositions of oil and gas properties which constitute an entire common operating field or which result in a significant alteration of the common operating field’s DD&A rate. These gains and losses are classified as asset dispositions in the accompanying consolidated statements of loss and comprehensive loss. Partial common operating field sales or dispositions deemed not to significantly alter the DD&A rates are generally accounted for as adjustments to capitalized costs with no gain or loss recognized.
The Company capitalizes interest costs incurred and attributable to material unproved oil and gas properties and major development projects of oil and gas properties.
(i)Other property and equipment
Other property, plant and equipment, consisting of research and development equipment and mining equipment, is measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures directly attributable to the acquisition of the asset. When parts of an item have different useful lives, they are accounted for as a separate component. At March 31, 2021, none of the assets were available for use and no depreciation has been recorded on the assets.
83
SKY QUARRY INC.
Notes to the Unaudited Consolidated Financial Statements
For the three months ending March 31, 2021 and 2020
Expressed in US dollars
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(j)Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Liabilities for environmental remediation or restoration claims resulting from allegations of improper operation of assets are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Expenditures related to such environmental matters are expensed or capitalized in accordance with the Company’s accounting policy for property and equipment.
(k)Impairment of long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable.
Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then assets are written down. The impairment loss is the excess of the carrying amount of the asset group over its fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. Due to lack of supported future utilization plan of property, plant and equipment, impairment to the carrying values occurred at the date of acquisition, utilizing the basis of a loan agreement which provided documented Forced Liquidation Value of assets.
(l)Fair value measurement
Certain of the Company’s assets and liabilities are measured at fair value at each reporting date. Fair value represents the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants. This price is commonly referred to as the “exit price.” Fair value measurements are classified according to a hierarchy that prioritizes the inputs underlying the valuation techniques. This hierarchy consists of three broad levels:
● Level 1 – Inputs consist of unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. When available, the Company measures fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value.
● Level 2 – Inputs consist of quoted prices that are generally observable for the asset or liability. Common examples of Level 2 inputs include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in markets not considered to be active.
● Level 3 – Inputs are not observable from objective sources and have the lowest priority. The most common Level 3 fair value measurement is an internally developed cash flow model.
(m)Comparative amounts
The comparative amounts presented in these consolidated financial statements have been reclassified where necessary to conform to the presentation used in the current year.
84
SKY QUARRY INC.
Notes to the Unaudited Consolidated Financial Statements
For the three months ending March 31, 2021 and 2020
Expressed in US dollars
3.GOING CONCERN
These consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which assumes that the Company will be able to realize its assets and satisfy its liabilities in the normal course of business for the foreseeable future. Management is aware, in making its going concern assessment, of material uncertainties related to events and conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. As at March 31, 2021 the Company has an accumulated deficit of $721,827 and has not yet been able to generate cash flows from operations.
Whether and when the Company can generate sufficient operating cash flows to pay for its expenditures and settle its obligations as they fall due subsequent to March 31, 2021 is uncertain. Until this time, management will have to raise funds by way of debt or equity issuances or improve profitability. The Company will closely monitor its cash and will take the necessary measures to preserve cash, such as reducing spending as needed until the Company succeeds in proving its extraction technology viable in the open market.
These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary were the going concern assumption inappropriate. These adjustments could be material.
4.ACCOUNTS RECEIVABLE
The Company’s accounts receivable consists of:
|
March 31, 2021 |
March 31, 2020 |
Trade receivables |
$ 7,857 |
$ 0 |
Balance, March 31, 2021 |
$ 7,857 |
$ 0 |
Information about the Company’s exposure to credit risks for trade receivables is included in Note 20(a).
5.INVENTORY
On September 15, 2020, the Company acquired 2020 Resources LLC. This acquisition included inventory of chemicals used in the bitumen extraction process and have been recorded at cost.
85
SKY QUARRY INC.
Notes to the Unaudited Consolidated Financial Statements
For the three months ending March 31, 2021 and 2020
Expressed in US dollars
6.MINERAL LEASES
|
|
SITLA Mineral Lease |
Total |
Cost |
|
|
|
January 1, 2020 |
|
$63,800 |
$63,800 |
Additions |
|
|
|
December 31, 2020 |
|
63,800 |
63,800 |
Additions |
|
- |
- |
March 31, 2021 |
|
$63,800 |
$63,800 |
|
|
|
|
Accumulated Amortization |
|
|
|
March 31, 2021 and 2020 |
|
$0 |
$0 |
|
|
|
|
Carrying Amounts |
|
|
|
December 31, 2020 |
|
$ 63,800 |
$ 63,800 |
March 31, 2021 |
|
$ 63,800 |
$ 63,800 |
SITLA Mineral Lease (2020 Resources LLC mineral lease)
Through its acquisition of 2020 Utah, the Company indirectly acquired certain mineral rights under three mineral leases entitled “Utah State Mineral Lease for Bituminous-Asphaltic Sands” between the State of Utah’s School and Institutional Trust Land Administration (“SITLA”), as lessor, and 2020 Utah, as lessee, covering certain lands in the PR Spring Area largely adjacent to each other (the “SITLA Leases”). At this time, the Company (through its subsidiaries) holds mineral leases (or the operating rights under leases) covering approximately 5,930.3 net acres within the State of Utah. Terms of the SITLA Leases are set forth in the table below.
Reference |
Gross Acres |
Net Acres |
Lease Start Date |
Lease Expiry Date (1) |
Annual Rent (2) |
Annual Advance Minimum Royalty (3) |
Production Royalty Rate |
ML-49579 |
50.42 |
50.42 |
1/1/2005 |
12/31/2024 |
$ 500 |
$ 5,000 |
6.5% |
ML-49927 |
4,319.87 |
4,319.87 |
6/1/2005 |
5/31/2025 |
4,320 |
43,200 |
6.5% |
ML-51705 |
1560 |
1560 |
2/1/2010 |
1/31/2020 |
1,560 |
15,600 |
8% |
|
|
|
|
|
|
|
|
Total |
5,930.3 |
5,930.3 |
|
|
$ 6,380 |
$ 63,800 |
|
Notes:
1.Leases may be extended past expiry date by continued payment of annual rent and annual advance minimum royalty.
2.Annual rent may be credited against production royalties payable during the year.
3.Annual advance minimum royalty may be credited against production royalties payable during the year.
86
SKY QUARRY INC.
Notes to the Unaudited Consolidated Financial Statements
For the three months ending March 31, 2021 and 2020
Expressed in US dollars
7.PROPERTY, PLANT AND EQUIPMENT
|
Shop & Laboratory Equipment |
Mining Equipment |
Corporate and Other |
Total |
Cost |
|
|
|
|
As at January 1, 2020 |
$0 |
$0 |
$0 |
$0 |
Additions |
267,979 |
75,124 |
976 |
344,079 |
Disposals |
- |
- |
- |
- |
As at December 31, 2020 |
$267,979 |
$75,124 |
$976 |
$344,079 |
Additions |
- |
- |
- |
- |
Disposals |
- |
- |
- |
- |
As at March 31, 2021 |
$267,979 |
$75,124 |
$976 |
$344,079 |
Property, plant and equipment consist of research and development equipment and mining equipment. Each class of property, plant and equipment is estimated to have a useful life of 5 years and will be amortized over a straight line basis.
In accordance with IAS 16, as the property, plant and equipment was not available for use as at March 31, 2021, no accumulated depreciation has been recorded within the statement of loss and comprehensive loss.
8.EXPLORATION AND EVALUATION ASSETS
Exploration and evaluation assets are comprised of the following:
|
Note |
March 31, 2021 |
March 31, 2020 |
Balance, beginning of period |
4 |
$2,135,420 |
$0 |
Additions |
|
26,497 |
0 |
Balance, March 31, 2021 |
|
$2,161,917 |
$0 |
Exploration and evaluation assets include undeveloped lands, unproved properties and seismic costs where management has not fully evaluated for technical feasibility and commercial viability.
9.ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable as at March 31, 2021 and 2020 consist primarily of amounts outstanding for operating expenses that are non-interest bearing and are normally due on 30 to 60 day terms.
Accrued expenses as at March 31, 2021 and 2020 consist primarily of other operating expenses.
Information about the Company’s exposure to liquidity risk is included in Note 20(c).
10.SHARE SUBSCRIPTION DEPOSITS
As at March 31, 2021 the Company had received irrevocable subscription agreements for the purchase of 1,368,294 shares of common stock and accompanying subscription funds in the amount of $451,537. These funds are held in deposit pending closing of the Offering.
87
SKY QUARRY INC.
Notes to the Unaudited Consolidated Financial Statements
For the three months ending March 31, 2021 and 2020
Expressed in US dollars
11.DEBT
Lender |
Maturity Date |
Interest Rate |
Principal Balance March 31, 2021 |
Principal Balance March 31, 2020 |
|
|
|
|
|
Private Lenders* |
March 16, 2021 |
|
100,000 |
- |
Private Lender* |
December 15, 2020 |
|
200,000 |
- |
ACMO USOS LLC |
March 15, 2021 |
15% |
297,012 |
- |
Private Lender* |
February 28, 2021 |
|
500,000 |
- |
SBA PPP Loan |
March 1, 2023 |
1% |
152,200 |
- |
JPMorgan Chase |
September 28, 2023 |
10% |
450,000 |
- |
Govt of Canada** |
December 31, 2025 |
nil |
31,809 |
- |
Loeb Term Solutions |
September 1, 2024 |
11% |
880,000 |
- |
|
|
|
$2,611,021 |
$- |
* Note - Set interest charge amount versus interest rate.
The maturity date of debt is as follows:
|
|
March 31, 2021 |
March 31, 2020 |
Principal classified as repayable within one year |
|
$1,097,012 |
$- |
Principal classified as repayable later than one year |
|
1,514,009 |
- |
Balance, March 31, 2021 |
|
$2,611,021 |
$- |
(a)Private lenders – presented sequentially as above.
(i)On September 17, 2020, the Company received an advance from two private lenders in aggregate amount of $100,000 bearing a flat interest charge at 25% repayable on March 16, 2021. The maturity date of the notes are currently being renegotiated.
(ii)On September 17, 2020, the Company received a $200,000 advance from a private lender bearing a flat interest charge of 10% and repayable on December 15, 2020. The maturity date of the note is currently being renegotiated.
(iii)On September 16, 2020, the Company entered into a promissory note for $300,000 from ACMO USOS LLC. The promissory note matures on December 15, 2020 and bears an interest at 10% per annum. On December 13, 2020, the interest rate was increased to 15% thereafter and the maturity date of the note was extended to March 16, 2021. The maturity date of the note is currently being renegotiated.
(iv)On August 28, 2020 the Company entered into a promissory note for $500,000 from a private lender bearing a flat interest charge of 25% and repayable on February 28, 2021. The maturity date of the note is currently being renegotiated.
88
SKY QUARRY INC.
Notes to the Unaudited Consolidated Financial Statements
For the three months ending March 31, 2021 and 2020
Expressed in US dollars
(v)On March 1, 2021 2020 Resources LLC received a loan in the amount of $152,200 through the Payroll Protection Program (PPP) loan from the U.S. Small Business Administration. The loan carries an interest rate of 1%, has a two-year term with no principal payments for 12 months, and which can be forgiven in full if the Company applies for forgiveness and documents that it spent proceeds on allowed expenditures, including payroll cost. The Company believes this loan will be forgiven in full.
(vi)On September 16, 2020, the Company entered into a promissory note for $450,000 from JPMorgan Chase Bank N.A.. The promissory note matures on September 28, 2023 and bears interest at 10% per annum.
(vii)2020 Resources (Canada) Ltd. received a Canadian Emergency Business account loan (“CEBA”) in the amount of CDN $40,000 from the Canadian Federal Government in November 2020. The CEBA loan is interest free with no principal payments until December 31, 2022. If the Company repays $30,000 of the total loan prior to December 31, 2022 then the balance of $10,000 will be forgiven. If the balance is not paid by December 31, 2022 then the balance of the loan is converted to a three (3) year term loan with interest at 5% starting on January 1, 2023. The balance of the loan must be paid no later than December 31, 2025. The note was converted to USD $31,809 using the exchange rate quoted by the Bank of Canada as at March 31, 2021, being 0.7952:1.
(viii)On August 31, 2020, the Company entered into a promissory note for $1,000,000 from Loeb Term Solutions LLC. The note ranks senior to all debt and is secured against all of the assets of the Company and of its subsidiaries. The note matures on September 1, 2024 and bears interest at 14.25% per annum. Terms of the note includes a mandatory repayment against principal of $20,000 per monthly instalment. The principal outstanding under the note as at March 31, 2021 is $ 880,000.00.
12.CONVERTIBLE DEBENTURES
Lender |
|
Maturity Date |
Interest Rate |
Principal due March 31, 2021 |
Principal Due March 31, 2020 |
|
|
|
|
|
|
Private Lender |
|
April 23, 2021 |
4% |
50,000 |
- |
Marcus Laun |
|
July 13, 2021 |
4% |
25,000 |
- |
Private Lender |
|
September 12, 2021 |
4% |
50,000 |
- |
|
|
|
|
$125,000 |
$- |
The maturity date of debt is as follows:
|
|
March 31, 2021 |
March 31, 2020 |
Principal classified as repayable within one year |
|
$125,000 |
$- |
Principal classified as repayable later than one year |
|
- |
- |
Balance, March 31, 2021 |
|
$125,000 |
$- |
89
SKY QUARRY INC.
Notes to the Unaudited Consolidated Financial Statements
For the three months ending March 31, 2021 and 2020
Expressed in US dollars
(a)Private Lender
On April 23, 2020, the Company issued a promissory note in the amount of $50,000, convertible at the election of the holder into shares of common stock at an exercise price of $0.0936 per share with a maturity date of April 23, 2021. The note has a term of twelve months and bears interest at a rate of 4% per annum payable at maturity.
(b)Marcus Laun
On July 13, 2020, the Company issued a promissory note in the amount of $25,000 to Marcus Laun, a director of the Company, convertible at the election of the holder into shares of common stock at an exercise price of $0.0936 per share with a maturity date of July 13, 2021. The note has a term of twelve months and bears interest at a rate of 4% per annum payable at maturity.
(c)Private Lender
On September 21, 2020, the Company issued a promissory note in the amount of $50,000, convertible at the election of the holder into shares of common stock at an exercise price of $0.25 per share. The note has a term of twelve months and bears interest at a rate of 4% per annum payable at maturity.
13.INCOME TAXES
As at March 31, 2021, and December 31, 2020, the Company has incurred losses and does not meet the standard to carry forward any non-capital losses.
14.SHARE STRUCTURE
COMMON SHARES
Authorized 50,000,000 common shares with par value of $0.0001
Issued26,890,235 common shares as of March 31, 2021
PREFERRED SHARES
Authorized 25,000,000 preferred shares with par value of $0.001 per share
Issued 0 preferred shares as of March 31, 2021
(a)Changes to share structure
On April 14, 2020 the Company authorized an amendment to its Certificate of Incorporation which amended its authorized share structure by, (a) fixing the authorized common shares issuable at a maximum of 50,000,000 and (b) fixing the par value of its common shares at $0.0001 (one hundredth of one cent).
(b)Common share subscriptions
On June 30, 2020, the Company issued 11,400,000 common shares to certain investors for net proceeds of $1,140 at an issue price of $0.0001 per share.
On August 2, 2020 the Company issued 7,988,637 common shares to certain investors for net proceeds of $799 at an issue price of $0.0001 per share.
On September 16, 2020 the Company issued 6,967,410 common shares to certain investors for net proceeds of $1,097,795 at an average issue price of $0.157 per share.
(c)Debt conversions
On September 16, 2020 the Company issued 534,188 common shares for conversion of debt in the amount of $50,000 at a conversion price of $0.0936 per share.
90
SKY QUARRY INC.
Notes to the Unaudited Consolidated Financial Statements
For the three months ending March 31, 2021 and 2020
Expressed in US dollars
15.STOCK OPTION PLAN
On March 27, 2020 the Company adopted an incentive stock option plan (the “Plan”). The Plan allows the Board of Directors of the Company to grant options to acquire common shares of the Company to directors, officers, key employees and consultants. The option price, term and vesting periods are determined at the discretion of the Board of Directors, subject to certain restrictions as required by the policies of Section 422 of the Internal Revenue Code. The stock option plan is a fixed number plan with a maximum of 5,000,000 common shares reserved for issue at March 31, 2021.
During the twelve months ended March 31, 2021 and the period ended March 31, 2020, the Company did not grant any stock options to directors, officers and consultants of the Company.
During the years ended March 31, 2021 and March 31, 2020, there was no share-based compensation expense.
16.RELATED PARTY TRANSACTIONS
Related party transactions not otherwise separately disclosed in these consolidated financial statements are:
(a)Key management personnel and director compensation
As at March 31, 2021 there was $0 due to members of key management and directors for unpaid salaries, expenses and director fees (2020 - $0) as salaries and fees were voluntarily waived for the quarter.
(b)Transactions with related parties
During the three months ended March 31, 2021 there were no transactions with related parties.
(c)Due to/from director
As disclosed in Note 10 above, on September 28, 2020, the Company received an advance from David Sealock, a director and CEO of the Company, in the amount of $19,490 bearing interest at 0% per annum and repayable on demand. This note was fully repaid on March 26, 2021.
17. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist of the following:
|
|
March 31, 2021 |
March 31, 2020 |
Insurance |
|
$158,437 |
$- |
Professional fees |
|
281,207 |
- |
Salary and wages |
|
14,980 |
- |
Travel expenses |
|
1,419 |
- |
Other |
|
11,021 |
- |
|
|
$467,066 |
$- |
18. COMMITMENTS AND CONTINGENCIES
The Company is not party to any contractual commitments other than as disclosed elsewhere herein.
91
SKY QUARRY INC.
Notes to the Unaudited Consolidated Financial Statements
For the three months ending March 31, 2021 and 2020
Expressed in US dollars
19.MANAGEMENT OF CAPITAL
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern and to maintain a flexible capital structure which optimizes the costs of capital. The Company considers its capital for this purpose to be its shareholders’ equity and debt and convertible debentures.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may seek additional financing or dispose of assets.
In order to facilitate the management of its capital requirements, the Company monitors its cash flows and credit policies and prepares expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The budgets are approved by the Board of Directors. There are no external restrictions on the Company’s capital.
20.MANAGEMENT OF FINANCIAL RISKS
The risks to which the Company’s financial instruments are exposed to are:
(a)Credit risk
Credit risk is the risk of unexpected loss if a customer or third party to a financial instrument fails to meet contractual obligations. The Company is exposed to credit risk through its cash held at financial institutions, trade receivables from customers and notes receivable.
The Company has cash balances at various financial institutions. The Company has not experienced any loss on these accounts, although balances in the accounts may exceed the insurable limits. The Company considers credit risk from cash to be minimal.
Credit extension, monitoring and collection are performed for each of the Company’s business segments. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness, as determined by a review of the customer’s credit information.
Accounts receivable, collections and payments from customers are monitored and the Company maintains an allowance for estimated credit losses based upon historical experience with customers, current market and industry conditions and specific customer collection issues.
At March 31, 2021 and 2020, the Company had $7,857 and $0, respectively in trade and other receivables. The Company considers its maximum exposure to credit risk to be its trade and other receivables and notes receivable. The Company expects to collect these amounts in full and has not provided an expected credit loss allowance against these amounts.
(c)Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities as they become due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses.
92
SKY QUARRY INC.
Notes to the Unaudited Consolidated Financial Statements
For the three months ending March 31, 2021 and 2020
Expressed in US dollars
(d)Currency risk
Currency risk is the risk that the value of financial assets and liabilities denominated in currencies, other than the functional currency of the Company, will fluctuate due to changes in foreign currency exchange rates. As at March 31, 2021, the Company’s exposure to currency risk is limited to cash and equivalents denominated in Canadian dollars in the amount of CAD $1,650, accounts payable and accrued liabilities denominated in Canadian dollars in the amount of CAD $32,521. A 1% change in the exchange rate between the US and Canadian dollar would have a $309 impact on the net loss and cash flows of the Company.
(e)Interest rate risk
Interest rate risk is the risk that changes in interest rates will affect the fair value or future cash flows of the Company’s financial instruments. The Company is exposed to interest rate risk as a result of holding fixed rate obligations of varying maturities as well as through certain floating rate instruments. The Company considers its exposure to interest rate risk to be minimal.
21.SUBSEQUENT EVENTS
Except as disclosed elsewhere herein and below, no material events occurred subsequent to May 15, 2021 the date of presentation of these financial statements.
On April 20, 2021 the Company amended its certificate of incorporation to increase its maximum number of common shares issuable from 50,000,000 to 100,000,000.
On May 13, 2021 certain noteholders converted $200,475 of debt into 607,500 shares of the Company’s common stock
93
Unaudited Pro Forma Condensed Consolidated
Financial Statements of
SKY QUARRY INC.
formerly, Recoteq Inc.
as at January 1, 2020
94
SKY QUARRY INC.
Consolidated Balance Sheets
As at January 1, 2020
Unaudited
Expressed in US dollars
The accompanying notes are an integral part of these consolidated financial statements.
95
SKY QUARRY INC.
Consolidated Statements of Loss and Comprehensive Loss
For the year ended December 31, 2019
Unaudited
Expressed in US dollars
|
|
Sky Quarry
|
2020
|
Pro Forma
|
Pro Forma
|
Revenue |
|
|
|
|
|
Sales, net |
|
$- |
$- |
$- |
$- |
Cost of Sales |
|
- |
- |
- |
- |
Gross Profit |
|
- |
- |
- |
- |
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
Research and development |
2c |
- |
351,095 |
(351,095) |
- |
General and administrative |
2c |
838 |
1,425,062 |
(1,425,062) |
838 |
Finance costs |
2c |
- |
(1,370) |
1,370 |
- |
Foreign exchange |
2c |
- |
(117,531) |
117,531 |
- |
|
|
|
|
|
|
Total Expenses |
|
838 |
1,655,886 |
(1,655,886) |
838 |
|
|
|
|
|
|
Net loss before income taxes |
|
|
|
|
|
Income tax expense |
|
- |
- |
- |
- |
Net Loss |
|
(838) |
(1,655,886) |
1,655,886 |
838 |
|
|
|
|
|
|
Other Comprehensive Loss (Gain) |
|
|
|
|
|
Exchange loss (gain) on translation of |
|
|
|
|
|
foreign operations |
2c |
- |
(78,313) |
78,313 |
- |
|
|
|
|
|
|
Net loss and Comprehensive loss |
|
(838) |
1,577,573 |
(1,577,573) |
(838) |
96
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
As at January 1, 2020
Unaudited
Expressed in US dollars
1.BASIS OF PRESENTATION
These unaudited pro forma combined financial statements have been prepared in accordance with US GAAP and S-X Article 11 to provide pro forma information with regards to certain business acquisitions and financing transactions, as applicable.
On September 16, 2020, Sky Quarry Inc., a Delaware corporation (the “Company”), entered into a purchase and sale agreement (the “Purchase Agreement”) with 2020 Resource Holdings, LLC (“Holdings”) to acquire all of the membership interests of 2020 Resources LLC and all the shares of 2020 Resources (Canada) Inc. for total consideration of $2,648,349, paid by issue of a $300,000 promissory note to the seller, $807,245 in share issuance to seller’s creditor for satisfaction of sellers debt and $1,541,104 in cash. The transaction will be accounted for as an asset acquisition.
The accompanying unaudited pro forma combined condensed balance sheet and statements of operations of the Company are presented for the period ended January 1, 2020 and include pro forma adjustments to illustrate the estimated effect of the Company’s acquisition described above.
This unaudited pro forma combined financial information is presented for informational purposes only and does not purport to be indicative of the Company’s financial results as if the transactions reflected herein had occurred on the date or been in effect during the period indicated. This pro forma combined financial information should not be viewed as indicative of the Company’s financial results in the future and should be read in conjunction with the Company’s financial statements.
97
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
As at January 1, 2020
Unaudited
Expressed in US dollars
2.PRO FORMA CONSOLIDATED ADJUSTMENTS
The unaudited pro forma condensed consolidated financial statements incorporate the following adjustments:
a.The following table presents the allocation of the purchase price consideration reflecting the estimated fair values of the net assets acquired on September 16, 2020:
98
SKY QUARRY INC.
Notes to the Consolidated Financial Statements
As at January 1, 2020
Unaudited
Expressed in US dollars
The above purchase price allocation is preliminary. Management continues to assess and review the fair values of the net assets acquired. Since the Company continues to finalize the valuation of assets acquired and liabilities assumed at the date of the acquisition, the allocation of the acquisition price could vary significantly from the amounts used in these unaudited pro forma condensed consolidated financial statements.
b.The following table presents the purchase price consideration and the bargain purchase gain:
Consideration for the acquisition |
|
Cash paid |
1,541,104 |
Note payable |
300,000 |
Share issuance (sellers debt) |
807,245 |
NET ASSETS ACQUIRED |
2,648,349 |
c.The decrease in the fair value of the net assets, including the identifiable intangible assets acquired as detailed in the purchase price allocation (note 3(a)). The values assigned to property, plant, and equipment were determined by reference to third party valuations. The values assigned to exploration and evaluation assets, including the Company’s extraction technology, were determined by the residual value of assets acquired.
The acquisition did not meet the definition of a business combination as (i) the PR Spring properties are at the exploration stage with no defined mineral reserves, and (ii) assets acquired did not contain any business processes. Consequently, the transaction was not characterized as a business combination, and was accounted for as an acquisition of assets.
99
PART III
INDEX TO EXHIBITS
The following documents are filed with this Offering Statement.
Exhibit # |
|
Description |
|
|
|
2.1 |
|
|
2.2 |
|
|
2.3 |
|
|
3.1 |
|
|
3.2 |
|
|
3.3 |
|
|
3.4 |
|
|
3.5 |
|
Promissory Note – JPMorgan Chase Bank N.A dated September 16, 2020 |
4 |
|
|
6.1 |
|
Employment Agreements |
6.1.1 |
|
Executive Employment Agreement with David Sealock dated March 15, 2020 |
6.1.2 |
|
Executive Employment Agreement with Marcus Laun dated March 15, 2020 |
6.1.3 |
|
Executive Employment Agreement with Darryl Delwo dated March 15, 2020 |
6.2 |
|
Agreements relating to the acquisition of 2020 Resources LLC and 2020 Resources (Canada) LTD. |
6.2.1 |
|
Securities Purchase Agreement with 2020 Resources Holdings LLC dated September 16, 2020 |
6.2.2 |
|
Credit and Security Agreement with Loeb Term Solutions LLC dated September 21, 2020 |
6.3 |
|
|
6.3.1 |
|
|
6.4 |
|
|
6.5 |
|
|
6.6 |
|
Mineral Leases |
6.6.1 |
|
|
6.6.2 |
|
|
6.6.3 |
|
|
6.7 |
|
|
11 |
|
Consents of Attorneys and Accountants |
11.1 |
|
|
11.2 |
|
Consent of Accountant to 2020 Resources LLC and 2020 Resources (Canada) Ltd. |
11.3 |
|
|
12 |
|
|
16 |
|
100
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this Offering Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Wilmingdon, State of Delaware, on, July 6, 2021.
Sky Quarry Inc. |
|
|
|
|
|
By |
/s/ David Sealock |
|
David Sealock, Chief Executive Officer |
|
|
Sky Quarry, Inc. |
|
The following persons in the capacities and on the dates indicated have signed this Offering Statement.
/s/ David Sealock |
|
David Sealock, Chief Executive Officer,
|
|
Date: July 6, 2021 |
|
|
|
/s/ Marcus Laun |
|
Marcus Laun, Executive Vice-President,
|
|
Date: July 6, 2021 |
|
/s/ Travis Schneider |
|
Travis Schneider, Director |
|
Date: July 6, 2021 |
|
101
RESTATED CERTIFICATE OF INCORPORATION
OF
SKY QUARRY INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Sky Quarry Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”),
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is Sky Quarry Inc., and that this corporation was originally incorporated pursuant to the General Corporation Law on June 4, 2019 under the name Recoteq Inc.
SECOND: That the Board of Directors duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended and restated in its entirety as follows:
1.Name. The name of the corporation is: Sky Quarry Inc.
2.Registered Office. The address of its registered office in the State of Delaware is: Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name of its registered agent at such address is: The Corporation Trust Company.
3.Nature of Business. The nature of the business or purposes to be conducted or promoted is:
(a)To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
(b)To manufacture, purchase or otherwise acquire, invest in, own, mortgage, pledge, sell, assign and transfer or otherwise dispose of, trade, deal in and deal with goods, wares and merchandise and personal property of every class and description.
(c)To acquire, and pay for in cash, stock or bonds of this corporation or otherwise, the good will, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities of any person, firth, association or corporation.
(d)To acquire, hold, use, sell, assign, lease, grant licenses in respect of, mortgage or otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privileges, inventions, improvements and processes, copyrights, trademarks and trade names, relating to or useful in connection with any business of this corporation.
(e)To acquire by purchase, subscription or otherwise, and to receive, hold own, guarantee, self, assign, exchange, transfer, mortgage, pledge or otherwise dispose of or deal In and with any of the shares of the capital stock, or any voting trust certificates in respect of the shares of capital stock, scrip, warrants, rights, bonds, debentures, notes, trust receipts, and other securities, obligations, choses in action and evidences of indebtedness or interest issued or created by any corporations, joint stock companies, syndicates, associations, firms, trusts or persons, public-or private, or by the government of the United State of America, or by any foreign government, or by any state, territory, province, municipality or other political subdivision or by any governmental agency, and as owner thereof to possess and exercise all the rights, powers and privileges of ownership, including the right to execute consents and vote thereon, and to do any and all acts and things necessary or advisable for the preservation, protection, improvement and enhancement in value thereof.
(f)To borrow or raise money for any of the purposes of the corporation and, from time to time without limit as to amount, to draw, make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment of any thereof and of the interest thereon by mortgage upon or pledge, conveyance or assignment in trust of the whole or any part of the property of the corporation, whether at the time owned or thereafter acquired, and to sell, pledge or otherwise dispose of such bonds or other obligations of the corporation for its corporate purposes.
(g)To purchase, receive, take by grant, gift, devise, bequest or otherwise, lease, or otherwise acquire, own, hold, improve, employ, use and otherwise deal In and with real or personal property, or any interest therein, wherever situated, and to sell, convey, lease, exchange, transfer or otherwise dispose of, or mortgage or pledge, all or any of the corporation's property and assets, or any interest therein, wherever situated.
(h)In general, to possess and exercise all the powers and privileges granted by the General Corporation Law of Delaware or by any other law of Delaware or by this Certificate of Incorporation together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business or purposes set forth in this Certificate of Incorporation.
The business and purposes specified in the foregoing clauses shall, except where otherwise expressed, be in nowise limited or restricted by reference to, or inference from, the terms of any other clause in this Certificate of Incorporation, but the business and purposes specified in each of the foregoing clauses of this article shall be regarded as independent business and purposes.
4.Authorized Common Stock. The total number of shares of common stock which the corporation shall have authority to issue is: fifty million shares (50,000,000), par value $0.0001 per share, amounting in the aggregate to Five Thousand Dollars ($5,000.00).
5.Authorized Preferred Stock. The total number of shares of preferred stock which the corporation shall have authority to issue is: Twenty Five Million (25,000,000), par value $0.001 per share, amounting in the aggregate to Twenty Five Thousand Dollars ($ 25,000.00).
6.Perpetual Term. The corporation is to have perpetual existence.
7.Authority of the Board. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized:
(a)To make, alter or repeal the by-laws of the corporation.
- 2 -
(b)To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation.
(c)To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created.
(d)To designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The by-laws may provide that in the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, or in the by-laws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require It; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the General Corporation Law of Delaware to be submitted to stockholders for approval or (ii) adopting, amending or repealing any bylaw of the corporation.
(e)When and as authorized by the stockholders in accordance with law, to sell, lease or exchange all or substantially all of the property and assets of the corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property including shares of stock in, and/or other securities of, any other corporation or corporations, as its board of directors shall deem expedient and for the best interests of the corporation.
8.Election of Directors. Elections of directors need not be by written ballot unless the by-laws of the corporation shall provide. Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation.
9.Settlements. Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of the General Corporation Law of Delaware or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of the General Corporation Law of Delaware order a meeting of the creditors or class of creditors, and /or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.
- 3 -
10.Reservation of Right to Amend. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
11.Liability. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability (a) for any breach of the director's duty of loyalty to the corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the General Corporation Law of Delaware, or (d) for any transaction from which the director derived any improper personal benefit. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.
12.Indemnification.
(a)The corporation shall indemnify, advance expenses, and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the corporation or, while a director or officer of the corporation, is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except for claims for indemnification (following the final disposition of such Proceeding) or advancement of expenses not paid in full, the corporation shall be required to indemnify a covered Person in connection with a Proceeding (or part thereof) commenced by such Covered Person only if the commencement of such Proceeding (or part thereof) by the Covered Person was authorized in the specific case by the board of directors of the corporation. Any amendment to, or repeal or modification of, this paragraph twelve shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.
(b)The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the law. The corporation may create a trust fund, grant a security interest, and/or use other means (including, without limitation, letters of credit, surety bonds, and/or other similar arrangements), as well as enter into contracts providing for indemnification to the fullest extent permitted by law and including as part thereof any or all of the foregoing, to ensure the payment of such sums as may become necessary to effect full indemnification.
* * *
THIRD: The foregoing amendment and restatement was approved by the holders of the requisite number of shares of said corporation in accordance with Section 228 of the General Corporation Law.
- 4 -
FOURTH: That said Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this corporation’s Restated Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 6th day of August, 2020.
_____________________________________
David Sealock, Chief Executive Officer
- 5 -
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
The corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify:
FIRST: That at a meeting of the Board of Directors of SKY QUARRY INC., resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of SKY QUARRY INC., declaring said amendment to be advisable and calling a meeting of the stockholders of SKY QUARRY INC. for consideration thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Articles thereof numbered “4” so that, as amended, said Articles shall be and will read as follows:
4.The total number of shares of common stock which the corporation shall have authority to issue is: One Hundred Million shares (100,000,000) and the par value of each of the such shares is: one hundredth of one cent Dollars ($.0001) amounting in the aggregate to Ten Thousand Dollars ($10,000.00).
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this certificate to be signed this 20th day of April, 2021.
By:____________________________________
Authorized Officer
Title: Corporate Secretary, SKY QUARRY INC.
Name: Harrison Kordestani
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
The corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify:
FIRST: That at a meeting of the Board of Directors of SKY QUARRY INC., resolutions were duly adopted setting forth a proposed amendment of the Restated Certificate of Incorporation of SKY QUARRY INC., declaring said amendment to be advisable and calling a meeting of the stockholders of SKY QUARRY INC. for consideration thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered “5” so that, as amended, said Article shall be and will read as follows:
5.Authorized Preferred Stock; Blank-Check Preferred Stock. The total number of shares of preferred stock which the corporation shall have authority to issue is: Twenty Five Million (25,000,000), par value $0.001 per share, amounting in the aggregate to Twenty Five Thousand Dollars ($25,000.00). The board of directors is authorized to provide, out of the unissued shares of authorized preferred stock, one or more classes of preferred stock or one or more series of preferred stock within any class thereof, and to set the voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, option or other special rights, and qualifications, limitations or restrictions thereof, which may differ from those of any and all other issuances, of each class of preferred stock or series of preferred stock within any class thereof, in accordance with the General Corporation Law of Delaware.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a written consent in lieu of meeting of the stockholders of said corporation was circulated in accordance with Section 228 of the General Corporation Law of the State of Delaware in which stockholders holding the necessary number of shares as required by statute to vote in favor of the amendment provided written consent to such action.
THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this certificate to be signed this 21st day of June, 2021.
By:____________________________________
Name: Harrison Kordestani
Title: Corporate Secretary, SKY QUARRY INC.
RESTATED BYLAWS
OF
SKY QUARRY INC.
(A DELAWARE CORPORATION)
SKY QUARRY INC.
RESTATED BYLAWS
TABLE OF CONTENTS
Page
Number
ARTICLE ONE - OFFICES1
Section 1. Registered Office1
Section 2. Other Offices1
ARTICLE TWO - MEETINGS OF SHAREHOLDERS1
Section 1. Place1
Section 2. Time of Annual Meeting1
Section 3. Call of Special Meetings1
Section 4. Conduct of Meetings1
Section 5. Notice and Waiver of Notice2
Section 6. Business of Special Meeting2
Section 7. Quorum2
Section 8. Voting Per Share3
Section 9. Voting of Shares3
Section 10. Proxies3
Section 11. Shareholder List4
Section 12. Action Without Meeting4
Section 13. Fixing Record Date4
Section 14. Inspectors and Judges5
Section 15. Voting for Directors5
ARTICLE THREE - DIRECTORS5
Section 1. Number, Election and Term.5
Section 2. Vacancies5
Section 3. Powers6
Section 4. Place of Meetings6
Section 5. Annual Meeting6
Section 6. Regular Meetings6
Section 7. Special Meetings and Notice6
Section 8. Quorum; Required Vote; Presumption of Assent6
Section 9. Action Without Meeting7
Section 10. Conference Telephone or Similar Communications Equipment Meetings7
Section 11. Committees7
Section 12. Compensation of Directors7
Section 13. Chairman of the Board8
ARTICLE FOUR - OFFICERS8
Section 1. Positions8
Section 2. Election of Specified Officers by Board8
Section 3. Election or Appointment of Other Officers8
Section 4. Salaries8
Section 5. Term; Resignation8
Section 6. President9
Section 7. Vice Presidents9
Section 8. Secretary9
Section 9. Treasurer9
Section 10. Other Officers, Employees and Agents9
ARTICLE FIVE - CERTIFICATES FOR SHARES10
Section 1. Issue of Certificates10
Section 2. Legends for Preferences and Restrictions on Transfer10
Section 3. Facsimile Signatures10
Section 4. Lost Certificates11
Section 5. Transfer of Shares11
Section 6. Registered Shareholders11
ARTICLE SIX - GENERAL PROVISIONS11
Section 1. Dividends11
Section 2. Reserves11
Section 3. Checks11
Section 4. Fiscal Year11
Section 5. Seal12
Section 6. Gender12
ARTICLE SEVEN - AMENDMENTS OF BYLAWS12
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SKY QUARRY INC.
RESTATED BYLAWS
ARTICLE ONE
OFFICES
Section 1.Registered Office. The registered office of SKY QUARRY INC., a Delaware corporation (the “Corporation”), shall be Corporation Trust Center, 1209 Orange Street, New Castle County, Delaware 19801, unless otherwise designated by the Board of Directors.
Section 2.Other Offices. The Corporation may also have offices at such other places, either within or without the State of Delaware, as the Board of Directors of the Corporation (the “Board of Directors”) may determine from time to time or as the business of the Corporation may require.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
Section 1.Place. All annual meetings of shareholders shall be held at such place, within or without the State of Delaware, as may be designated by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Special meetings of shareholders may be held at such place, within or without the State of Delaware, and at such time as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2.Time of Annual Meeting. Annual meetings of shareholders shall be held on such date and at such time fixed, from time to time, by the Board of Directors, provided that there shall be an annual meeting held every year at which the shareholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting.
Section 3.Call of Special Meetings. Special meetings of the shareholders shall be held if called by the Board of Directors, the President, or if the holders of not less than fifty percent (50%) of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date, and deliver to the Secretary one or more written demands for the meeting describing the purpose or purposes for which it is to be held.
Section 4.Conduct of Meetings. The Chairman of the Board (or in his or her absence, such other designee of the Chairman of the Board) shall preside at the annual and special meetings of shareholders and shall be given full discretion in establishing the rules and procedures to be followed in conducting the meetings, except as otherwise provided by law or in these Bylaws.
BYLAWS – SKY QUARRY INC.
Section 5.Notice and Waiver of Notice. Except as otherwise provided by law, written or printed notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the day of the meeting, either personally or by first-class mail, by or at the direction of the Secretary, or the officer or person calling the meeting, to each shareholder of record entitled to vote at such meeting. If the notice is mailed at least thirty (30) days before the date of the meeting, it may be done by a class of United States mail other than first-class. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his, her or its address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. If a meeting is adjourned to another time and/or place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the Board of Directors, after adjournment, fixes a new record date for the adjourned meeting. Whenever any notice is required to be given to any shareholder, a waiver thereof in writing signed by the person or persons entitled to such notice, whether signed before, during or after the time of the meeting stated therein, and delivered to the Corporation for inclusion in the minutes or filing with the corporate records, shall be equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the shareholders need be specified in any written waiver of notice. Attendance of a person at a meeting shall constitute a waiver of (a) lack of or defective notice of such meeting, unless the person objects at the beginning to the holding of the meeting or the transacting of any business at the meeting, or (b) lack of defective notice of a particular matter at a meeting that is not within the purpose or purposes described in the meeting notice, unless the person objects to considering such matter when it is presented.
Section 6.Business of Special Meeting. Business transacted at any special meeting shall be confined to the purposes stated in the notice thereof.
Section 7.Quorum. Except as otherwise provided in the Articles of Incorporation or by law, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders. If less than a majority of outstanding shares entitled to vote are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. After a quorum has been established at any shareholders’ meeting, the subsequent withdrawal of shareholders, so as to reduce the number of shares entitled to vote at the meeting below the number required for a quorum, shall not affect the validity of any action taken at the meeting or any adjournment thereof. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.
Section 8.Voting Per Share. Except as otherwise provided in the Articles of Incorporation or by law, each shareholder is entitled to one (1) vote for each outstanding share (as hereinafter defined) held by him, her or it on each matter voted at a shareholders' meeting.
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Section 9.Voting of Shares. A shareholder may vote at any meeting of shareholders of the Corporation, either in person or by proxy. Shares standing in the name of another corporation, domestic or foreign, may be voted by the officer, agent or proxy designated by the bylaws of such corporate shareholder or, in the absence of any applicable bylaw, by such person or persons as the board of directors of the corporate shareholder may designate. In the absence of any such designation, or, in case of conflicting designation by the corporate shareholder, the chairman of the board, the president, any vice president, the secretary and the treasurer of the corporate shareholder, in that order, shall be presumed to be fully authorized to vote such shares. Shares held by an administrator, executor, guardian, personal representative, or conservator may be voted by him, her or it, either in person or by proxy, without a transfer of such shares into his, her or its name. Shares standing in the name of a trustee may be voted by him, her or it, either in person or by proxy, but no trustee shall be entitled to vote shares held by him, her or it without a transfer of such shares into his, her or its name or the name of his, her or its nominee. Shares held by or under the control of a receiver, a trustee in bankruptcy proceedings, or an assignee for the benefit of creditors may be voted by such person without the transfer thereof into his, her or its name. If shares stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary of the Corporation is given notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, then acts with respect to voting shall have the following effect: (a) if only one votes, in person or by proxy, his, her or its act binds all; (b) if more than one vote, in person or by proxy, the act of the majority so voting binds all; (c) if more than one vote, in person or by proxy, but the vote is evenly split on any particular matter, each faction is entitled to vote the share or shares in question proportionally; or (d) if the instrument or order so filed shows that any such tenancy is held in unequal interest, a majority or a vote evenly split for purposes hereof shall be a majority or a vote evenly split in interest. The principles of this paragraph shall apply, insofar as possible, to execution of proxies, waivers, consents, or objections and for the purpose of ascertaining the presence of a quorum.
Section 10.Proxies. Any shareholder of the Corporation, other person entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact for such persons may vote the shareholder’s shares in person or by proxy. Any shareholder of the Corporation may appoint a proxy to vote or otherwise act for him, her or it by signing an appointment form, either personally or by his, her or its attorney-in-fact. An executed telegram or cablegram appearing to have been transmitted by such person, or a photographic, photostatic, or equivalent reproduction of an appointment form, shall be deemed a sufficient appointment form. An appointment of a proxy is effective when received by the Secretary of the Corporation or such other officer or agent who is authorized to tabulate votes, and shall be valid for up to 11 months, unless a longer period is expressly provided in the appointment form. The death or incapacity of the shareholder appointing a proxy does not affect the right of the Corporation to accept the proxy’s authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his, her or its authority under the appointment. An appointment of a proxy is revocable by the shareholder unless the appointment is coupled with an interest.
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Section 11.Shareholder List. After fixing a record date for a meeting of shareholders, the Corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of the meeting, the address of each such shareholder, and the number and class and series, if any, of shares held by each shareholder. The shareholders’ list must be available for inspection by any shareholder for a period of ten (10) days prior to the meeting or such shorter time as exists between the record date and the meeting and continuing through the meeting at the Corporation’s principal office, at a place identified in the meeting notice in the city where the meeting will be held, or at the office of the Corporation’s transfer agent or registrar. Any shareholder of the Corporation or his, her or its agent or attorney is entitled on written demand to inspect the shareholders’ list (subject to the requirements of law), during regular business hours and at his, her or its expense, during the period it is available for inspection. The Corporation shall make the shareholders’ list available at the meeting of shareholders, and any shareholder or his, her or its agent or attorney is entitled to inspect the list at any time during the meeting or any adjournment.
Section 12.Action Without Meeting. Any action required by law to be taken at a meeting of shareholders, or any action that may be taken at a meeting of shareholders, may be taken without a meeting or notice if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted with respect to the subject matter thereof, and such consent shall have the same force and effect as a vote of shareholders taken at such a meeting.
Section 13.Fixing Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purposes, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty (60) days, and, in case of a meeting of shareholders, not less than ten (10) days, prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which the notice of the meeting is mailed or the date on which the resolutions of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section 13, such determination shall apply to any adjournment thereof, except where the Board of Directors fixes a new record date for the adjourned meeting or as required by law.
Section 14.Inspectors and Judges. The Board of Directors in advance of any meeting may, but need not, appoint one or more inspectors of election or judges of the vote, as the case may be, to act at the meeting or any adjournment(s) thereof. If any inspector or inspectors, or judge or judges, are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors or judges. In case any person who may be appointed as an inspector or judge fails to appear or act, the vacancy may be filled by the Board of Directors in advance of the
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meeting, or at the meeting by the person presiding thereat. The inspectors or judges, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots and consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate votes, ballots and consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting, the inspector or inspectors or judge or judges, if any, shall make a report in writing of any challenge, question or matter determined by him, her or them, and execute a certificate of any fact found by him, her or them.
Section 15.Voting for Directors. Unless otherwise provided in the Articles of Incorporation, directors shall be elected by a majority of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.
DIRECTORS
Section 1.Number, Election and Term. The number of directors of the Corporation shall be fixed from time to time, within the limits specified by the Articles of Incorporation, by resolution of the Board of Directors; provided, however, no director’s term shall be shortened by reason of a resolution reducing the number of directors. The directors shall be elected at the annual meeting of the shareholders, except as provided in Section 2 of this Article Three, and each director elected shall hold office for the term for which he or she is elected and until his or her successor is elected and qualified or until his or her earlier resignation, removal from office or death. Directors must be natural persons who are 18 years of age or older but need not be residents of the State of Delaware, shareholders of the Corporation or citizens of the United States. Any director may be removed at any time, with or without cause, at a special meeting of the shareholders called for that purpose.
Section 2.Vacancies. A director may resign at any time by giving written notice to the Corporation, the Board of Directors or the Chairman of the Board. Such resignation shall take effect when the notice is delivered unless the notice specifies a later effective date, in which event the Board of Directors may fill the pending vacancy before the effective date if they provide that the successor does not take office until the effective date. Any vacancy occurring in the Board of Directors and any directorship to be filled by reason of an increase in the size of the Board of Directors shall be filled by the affirmative vote of a majority of the current directors though less than a quorum of the Board of Directors, or may be filled by an election at an annual or special meeting of the shareholders called for that purpose, unless otherwise provided by law. A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office, or until the next election of one or more directors by shareholders if the vacancy is caused by an increase in the number of directors.
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Section 3.Powers. Except as provided in the Articles of Incorporation and by law, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, its Board of Directors.
Section 4.Place of Meetings. Meetings of the Board of Directors, regular or special, may be held either within or without the State of Delaware.
Section 5.Annual Meeting. The first meeting of each newly elected Board of Directors shall be held, without call or notice, immediately following each annual meeting of shareholders.
Section 6.Regular Meetings. Regular meetings of the Board of Directors may also be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors.
Section 7.Special Meetings and Notice. Special meetings of the Board of Directors may be called by the Chairman of the Board or by the President and shall be called by the Secretary on the written request of any two directors. Written notice of special meetings of the Board of Directors shall be given to each director at least three (3) business days before the meeting and shall specify the purpose or purposes for which the meeting has been called. Notices to directors shall be in writing and delivered personally or mailed to the directors at their addresses appearing on the books of the Corporation. Notice by mail shall be deemed to be given at the time when the same shall be received. Notice to directors may also be given by telegram, teletype or other form of electronic communication. Notice of a meeting of the Board of Directors need not be given to any director who signs a written waiver of notice before, during or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and a waiver of any and all objections to the place of the meeting, the time of the meeting and the manner in which it has been called or convened, except when a director states, at the beginning of the meeting or promptly upon arrival at the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened.
Section 8.Quorum; Required Vote; Presumption of Assent. A majority of the number of directors fixed by, or in the manner provided in, these Bylaws shall constitute a quorum for the transaction of business; provided, however, that whenever, for any reason, a vacancy occurs in the Board of Directors, a quorum shall consist of a majority of the remaining directors until the vacancy has been filled. The act of a majority of the directors present at a meeting at which a quorum is present when the vote is taken shall be the act of the Board of Directors. A director of the Corporation who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken shall be presumed to have assented to the action taken, unless he or she objects at the beginning of the meeting, or promptly upon his or her arrival, to holding the meeting or transacting specific business at the meeting, or he or she votes against or abstains from the action taken.
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Section 9.Action Without Meeting. Any action required or permitted to be taken at a meeting of the Board of Directors or a committee thereof may be taken without a meeting if a consent in writing, setting forth the action taken, is signed by all of the members of the Board of Directors or the committee, as the case may be, and such consent shall have the same force and effect as a unanimous vote at a meeting. Action taken under this section is effective when the last director signs the consent, unless the consent specifies a different effective date. A consent signed under this Section 9 shall have the effect of a meeting vote and may be described as such in any document.
Section 10.Conference Telephone or Similar Communications Equipment Meetings. Members of the Board of Directors may participate in a meeting of the Board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation in such a meeting shall constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground the meeting is not lawfully called or convened.
Section 11.Committees. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and one or more other committees, each of which, to the extent provided in such resolution, shall have and may exercise all of the authority of the Board of Directors in the business and affairs of the Corporation except where the action of the full Board of Directors is required by statute. Each committee must have two or more members who serve at the pleasure of the Board of Directors. The Board of Directors, by resolution adopted in accordance with this Article Three, may designate one or more directors as alternate members of any committee, who may act in the place and stead of any absent member or members at any meeting of such committee. Vacancies in the membership of a committee shall be filled by the Board of Directors at a regular or special meeting of the Board of Directors. The executive committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. The designation of any such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it, him or her by law.
Section 12.Compensation of Directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
Section 13.Chairman of the Board. The Board of Directors may, in its discretion, choose a chairman of the board who shall preside at meetings of the shareholders and of the directors and shall be an ex officio member of all standing committees. The Chairman of the Board shall have such other powers and shall perform such other duties as shall be designated by the Board of Directors. The Chairman of the Board shall be a member of the Board of Directors but
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no other officers of the Corporation need be a director. The Chairman of the Board shall serve until his or her successor is chosen and qualified, but he or she may be removed at any time by the affirmative vote of a majority of the Board of Directors.
OFFICERS
Section 1.Positions. The officers of the Corporation shall consist of a Chief Executive Officer or President, a Chief Operating Officer or Vice President, a Secretary and a Treasurer, and, if elected by the Board of Directors by resolution, a Chairman of the Board and/or more Vice Presidents. Any two or more offices may be held by the same person.
Section 2.Election of Specified Officers by Board. The Board of Directors at its first meeting after each annual meeting of shareholders shall elect a President, a Vice President, a Secretary, a Treasurer and may elect more Vice Presidents.
Section 3.Election or Appointment of Other Officers. Such other officers and assistant officers and agents as may be deemed necessary may be elected or appointed by the Board of Directors, or, unless otherwise specified herein, appointed by the President of the Corporation. The Board of Directors shall be advised of appointments by the President at or before the next scheduled Board of Directors meeting.
Section 4.Salaries. The salaries of all officers of the Corporation to be elected by the Board of Directors pursuant to Article Four, Section 2 hereof shall be fixed from time to time by the Board of Directors or pursuant to its discretion. The salaries of all other elected or appointed officers of the Corporation shall be fixed from time to time by the President of the Corporation or pursuant to his or her direction.
Section 5.Term; Resignation. The officers of the Corporation shall hold office until their successors are chosen and qualified. Any officer or agent elected or appointed by the Board of Directors or the President of the Corporation may be removed, with or without cause, by the Board of Directors. Any officers or agents appointed by the President of the Corporation pursuant to Section 3 of this Article Four may also be removed from such officer positions by the President, with or without cause. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise shall be filled by the Board of Directors, or, in the case of an officer appointed by the President of the Corporation, by the President or the Board of Directors. Any officer of the Corporation may resign from his or her respective office or position by delivering notice to the Corporation. Such resignation is effective when delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the effective date if the Board provides that the successor does not take office until the effective date.
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Section 6.President. The President shall be the Chief Executive Officer of the Corporation, shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. In the absence of the Chairman of the Board or in the event the Board of Directors shall not have designated a chairman of the board, the President shall preside at meetings of the shareholders and the Board of Directors. Initially, David Sealock shall be the Chief Executive Officer and President of the Corporation.
Section 7.Vice Presidents. The Vice Presidents in the order of their seniority, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President. They shall perform such other duties and have such other powers as the Board of Directors shall prescribe or as the President may delegate from time to time. Initially, Marcus Laun shall be the most senior Vice-President of the Corporation.
Section 8.Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and record all the proceedings of the meetings of the shareholders and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He or she shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he or she shall be. He or she shall keep in safe custody the seal of the Corporation and, when authorized by the Board of Directors, affix the same to any instrument requiring it. Initially, Harrison Kordestani shall be the Secretary of the Corporation.
Section 9.Treasurer. The Treasurer shall have the custody of corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors at its regular meetings or when the Board of Directors so requires an account of all his or her transactions as treasurer and of the financial condition of the Corporation unless otherwise specified by the Board of Directors, the Treasurer shall be the Corporation's Chief Financial Officer. Initially, Marcus Laun shall be the Treasurer of the Corporation.
Section 10.Other Officers, Employees and Agents. Each and every other officer, employee and agent of the Corporation shall possess, and may exercise, such power and authority, and shall perform such duties, as may from time to time be assigned to him, her or it by the Board of Directors, the officer so appointing him, her or it and such officer or officers who may from time to time be designated by the Board of Directors to exercise such supervisory authority.
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ARTICLE FIVE
CERTIFICATES FOR SHARES
Section 1.Certificate of Shares. Shares of the corporation’s stock may be certified or uncertified, as provided under Delaware law, and shall be entered in the books of the corporation and registered as they are issued. Certificates representing shares of the corporation’s stock shall be signed in the name of the corporation by the chairman of the board or vice chairman of the board or the chief executive officer or president or vice president and by the chief financial officer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In the event that any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on the certificate shall have ceased to be that officer, transfer agent, or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent, or registrar at the date of issue.
Within a reasonable time after the issuance or transfer of uncertified shares, the corporation shall send to the registered owner thereof a written notice that shall set forth the name of the corporation, that the corporation is organized under the laws of the State of Delaware, the name of the shareholder, the number and class (and the designation of the series, if any) of the shares represented, and any restrictions on the transfer or registration of such shares imposed by the corporation’s certificate of incorporation, these by-laws, any agreement among shareholders or any agreement between shareholders and the corporation.
Section 2.Legends for Preferences and Restrictions on Transfer. The designations, relative rights, preferences and limitations applicable to each class of shares and the variations in rights, preferences and limitations determined for each series within a class (and the authority of the Board of Directors to determine variations for future series) shall be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the Corporation will furnish the shareholder a full statement of this information on request and without charge. Every certificate representing shares that are restricted as to the sale, disposition, or transfer of such shares shall also indicate that such shares are restricted as to transfer and there shall be set forth or fairly summarized upon the certificate, or the certificate shall indicate that the Corporation will furnish to any shareholder upon request and without charge, a full statement of such restrictions. If the Corporation issues any shares that are not registered under the Securities Act of 1933, as amended, and registered or qualified under the applicable state securities laws, the transfer of any such shares shall be restricted substantially in accordance with the following legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AT
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HOLDER'S EXPENSE, AN OPINION (SATISFACTORY TO THE CORPORATION) OF COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT REQUIRED."
Section 3.Facsimile Signatures. The signatures of the Chairman of the Board, the President or Vice President and the Secretary or Assistant Secretary upon a certificate may be facsimiles, if the certificate is manually signed by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer at the date of the issuance.
Section 4.Lost Certificates. Except as provided in this Section 4, no new certificates for shares or uncertified shares shall be issued to replace an old certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen, or destroyed, authorize the issuance of a replacement certificate of stock, or uncertified shares in place of a certificate previously issued by it on such terms and conditions as the board may require, including provision for indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability on account of the alleged loss, theft, or destruction of the certificate or the issuance of the replacement certificate or uncertified shares.
Section 5.Transfer of Shares. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
Section 6.Registered Shareholders. The Corporation shall be entitled to recognize the exclusive rights of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.
ARTICLE SIX
GENERAL PROVISIONS
Section 1.Dividends. From time to time, the Board of Directors may declare and the Corporation may pay dividends on its outstanding shares in cash, property or its own shares pursuant to law and subject to the provisions of the Articles of Incorporation.
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Section 2.Reserves. The Board of Directors may create by resolution a reserve or reserves out of earned surplus for any proper purpose or purposes, and may abolish any such reserve in the same manner.
Section 3.Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may designate from time to time.
Section 4.Fiscal Year. The fiscal year of the Corporation shall end on December 31st of each year, unless otherwise fixed by resolution of the Board of Directors.
Section 5.Seal. The corporate seal shall have inscribed thereon the name and state of incorporation of the Corporation. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
Section 6.Gender. All pronouns used in these Bylaws in any gender shall extend to and shall include all other genders as the context may require.
ARTICLE SEVEN
AMENDMENTS OF BYLAWS
Unless otherwise provided by law, these Bylaws may be altered, amended or repealed or new Bylaws may be adopted by action of the Board of Directors.
BYLAWS – SKY QUARRY INC.
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SECRETARY'S CERTIFICATE OF ADOPTION OF RESTATED BYLAWS
OF
SKY QUARRY INC.,
a Delaware corporation
I, the undersigned, do hereby certify:
1.That I am the duly elected and acting Secretary of Sky Quarry Inc., a Delaware corporation.
2.That the foregoing Restated Bylaws constitute the Revised Bylaws of said corporation as adopted by Unanimous Written Consent of the Board of Directors dated as of July 28, 2020.
IN WITNESS WHEREOF, I have hereunto set my hand as of July 28, 2020.
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HARRISON KORDESTANI
Corporate Secretary
Attested:
DAVID SEALOCK
Chief Executive Officer
BYLAWS – SKY QUARRY INC.
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AMENDMENT TO
RESTATED BYLAWS
The undersigned, being the duly acting and appointed Secretary of Sky Quarry Inc., a Delaware corporation (the “Corporation”), hereby certifies that the following amendment (the “Amendment”) to the Restated Bylaws of the Corporation adopted on July 28, 2020 (the “Bylaws”), was approved as an amendment to the Bylaws by action of the Board of Directors of the Corporation at a duly called meeting held on June 16, 2021.
AMENDMENT
1.Article Three, Section 7 of the Bylaws is hereby amended and restated to read in its entirety as follows:
Section 7. Special Meetings and Notice. Special meetings of the Board of Directors may be called by the Chairman of the Board or by the President and shall be called by the Secretary on the written request of any two directors. Written notice of special meetings of the Board of Directors shall be given to (i) each director, and (ii) JPMorgan Chase Bank, N.A. (or its designee) (the “JPM Stockholder”) for so long as the JPM Stockholder or one of its affiliates is a stockholder of the Corporation, in each case, at least three (3) business days before the meeting and shall specify the purpose or purposes for which the meeting has been called. Notices to directors and the JPM Stockholder shall be in writing and delivered personally or mailed to the directors and the JPM Stockholder at their addresses appearing on the books of the Corporation. Notice by mail shall be deemed to be given at the time when the same shall be received. Notice to directors and the JPM Stockholder may also be given by telegram, teletype or other form of electronic communication. Notice of a meeting of the Board of Directors need not be given to any director who signs a written waiver of notice before, during or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and a waiver of any and all objections to the place of the meeting, the time of the meeting and the manner in which it has been called or convened, except when a director states, at the beginning of the meeting or promptly upon arrival at the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened.
2.Article Three, Section 8 of the Bylaws is hereby amended and restated to read in its entirety as follows:
Section 8. Quorum; Required Vote; Presumption of Assent. The presence of a majority of the directors then in office shall constitute a quorum for the transaction of business at a meeting; provided, however, that such majority must include the Series A Director (as such term is defined in the Certificate of Designation of Series A Preferred Stock of the Corporation); provided further that if the Series A Director is not present for three consecutive duly called meetings, then the presence of a majority of Directors shall constitute a quorum for the next duly called meeting. If a quorum is not achieved at any duly called
meeting, such meeting may be postponed to a time no earlier than 48 hours after written notice of such postponement has been given to the Directors. The act of a majority of the directors present at a meeting at which a quorum and the is present when the vote is taken shall be the act of the Board of Directors. A director of the Corporation who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken shall be presumed to have assented to the action taken, unless he or she objects at the beginning of the meeting, or promptly upon his or her arrival, to holding the meeting or transacting specific business at the meeting, or he or she votes against or abstains from the action taken.
3.Except as expressly amended as set forth herein, the Bylaws shall remain in full force and effect in accordance with their terms.
For and on behalf of SKY QUARRY INC.
Harrison Kordestani, Secretary
SKY QUARRY INC.
WARRANT TO PURCHASE COMMON STOCK
This Warrant to Purchase Common Stock (this “Warrant”) is to certify that, FOR VALUE RECEIVED, ________ (the “Holder”), is entitled to purchase, subject to the provisions of this Warrant, from Sky Quarry Inc., a Delaware corporation (the “Company”), ____ shares of the common stock of the Company (“Common Stock”). This Warrant may be exercised at an exercise price of $2.50 per share at any time on or prior to _____ (the "Expiration Date"). The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for a share of Common Stock may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, as may be adjusted from time to time, are hereinafter sometimes referred to as “Warrant Stock”; and the exercise price of a share of Common Stock in effect at any time, and as may be adjusted from time to time, is hereinafter sometimes referred to as the "Exercise Price.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in part at any time or from time to time but not later than 5:00 P.M., Mountain time, on the Expiration Date. If the Expiration Date is a day on which banking institutions are authorized by law to close, then this Warrant may be exercised on the next succeeding day which shall not be such a day, by presentation and surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of shares of Warrant Stock specified in such form.
If this Warrant should be exercised in part only, the Company, upon the Holder’s surrender of this Warrant for cancellation, shall execute and shall deliver a new Warrant evidencing the right of the Holder to purchase the balance of the shares of Warrant Stock purchasable hereunder. Such new Warrant shall in all other respects be identical to this Warrant, including the date of the end of the Exercise Period. Upon receipt by the Company of this Warrant at the office or the agency of the Company, in proper form for exercise, the Holder shall be deemed to be the Holder of record of the shares of Warrant Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Warrant Stock shall not then be actually delivered to the Holder.
(b) Fractional Shares. No fractional shares of Warrant Stock or scrip representing fractional shares of Warrant Stock shall be issued upon the exercise of this Warrant. With respect to any fraction of a share of Warrant Stock called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share determined as follows:
(i)If the Company's Common Stock is publicly traded, the average daily closing prices for thirty (30) consecutive trading days immediately preceding the date of exercise of this Warrant. The closing price for each day shall be the last sale price regular-way or, in case no such sale takes place on such date, the average of the closing
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bid and asked prices regular-way, on the principal national securities exchange in which the Company's Common Stock is listed or admitted to trading, or if it is not listed or admitted to trading on any national securities exchange, the last sale price of such Common Stock on the consolidated transaction reporting system of the National Association of Securities Dealers ("NASD"), if such last sale information is reported on such system, or if not so reported, the average of the closing bid and asked prices of such Common Stock on the National Association of Securities Dealers Automatic Quotation system ("NASDAQ"), or any comparable system, or if the Common Stock is not listed on NASDAQ, or a comparable system, the average of the closing bid and asked prices as furnished by two members of the NASD selected from time to time by the Company for that purpose.
(ii)If the Company's Common Stock is not publicly traded, the current value shall be an amount, not less than the book value, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company using valuation techniques then prevailing in the securities industry assuming full disclosure of all relevant information and a reasonable period of time for effectuating such sale and modelled so as to determine, as closely as possible, a price equal to that obtainable by the Company of a like issuance of its own shares.
(c)Representations, Warranties and Covenants of the Company.
(i) Issuance of Warrant. This Warrant is, and any Warrant issued in substitution for or replacement of this Warrant shall be, upon issuance, duly authorized and validly issued.
(ii) Issuance of Shares. The Company shall ensure that shares of Warrant Stock, when issued pursuant to the exercise of this Warrant, will be duly and validly issued, fully paid and nonassessable and free from all taxes, liens, and charges with respect to the issuance thereof. The Company shall take all such actions as may be necessary to ensure that all such shares of Warrant Stock are issued without violation by the Company of any applicable law or governmental regulation. The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery of Warrant Stock upon exercise of this Warrant, excepting the Holder’s income taxes, for which they will be personally liable.
(iii) Reservation of Shares of Warrant Stock. Throughout the Exercise Period, the Company shall at all times reserve and keep available for issuance and/or delivery out of its authorized but unissued capital stock constituting Warrant Stock, solely for the purpose of issuance upon the exercise of this Warrant, the maximum number of shares of Warrant Stock issuable upon the exercise of this Warrant, and the par value per share of Warrant Stock shall at all times be less than or equal to the applicable Exercise Price. The Company shall not increase the par value of any share of Warrant Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and shall take all such actions as may be necessary or appropriate in order that the Company may validly
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and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.
(iv)No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but shall at all times in good faith assist in the carrying out of all the provisions of this Warrant.
(d)Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the Holder thereof to purchase in the aggregate the same number of shares of Warrant Stock purchasable hereunder. This Warrant may not be sold, hypothecated, assigned, or transferred prior to the date this Warrant is first exercisable. Any assignment shall be made subject to the provisions of this Section (d) by surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and with funds sufficient to pay any transfer tax; whereupon, the Company, without charge, shall execute and shall deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled.
This Warrant may be divided or may be combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and the denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants issued in substitution for or replacement of this Warrant or into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction, or mutilation of this Warrant, and (in the case of loss, theft, or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and will deliver a new Warrant. Such new Warrant shall in all other respects be identical to this Warrant, including the date of the end of the Exercise Period. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone.
(e)Rights of the Holder. Prior to the exercise of this Warrant, the Holder, by virtue hereof, shall not be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein; provided, however, in addition to any adjustments pursuant to Section (f) below, if at any time the Company grants, issues or sells any shares of Common Stock, options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of the Company’s capital stock, (any of the foregoing, “Purchase Rights”), then the Holder shall be entitled to acquire, upon the terms applicable to such Purchase Rights, an aggregate amount of Purchase Rights or capital stock equal to the original principal amount of that certain Promissory Note by
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and between the Holder and AmeriCann Colorado of even date herewith. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section (e), the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.
(f)Anti-Dilution Provisions.
(i) Adjustment of Price. Anything in this Section (f) to the contrary notwithstanding, if the Company shall issue, at any time, Common Stock or convertible securities by way of dividend, forward stock split or other distribution on any stock of the Company or subdivide or combine the outstanding shares of capital stock, the Exercise Price shall be proportionately decreased in the case of such issuance, forward stock split, or distribution (on the day following the date fixed for determining stockholders entitled to receive such additional shares) or proportionately increased in the case of such combination (on the date that such combination shall become effective), provided, however, should the Company cancel or fail to make such dividend or other distribution or other issuance, the Exercise Price shall be forthwith adjusted to the price which would have prevailed prior to the Company setting such record date.
(ii)No Adjustment for Small Amounts. Anything in this Section to the contrary notwithstanding, the Company shall not be required to give effect to any adjustment in the Exercise Price unless and until the net effect of one or more adjustments, determined as above provided, shall have required a change of the Exercise Price by at least one cent, but when the cumulative net effect of more than one adjustment so determined shall be to change the actual Exercise Price by at least one cent, such change in the Exercise Price shall thereupon be given effect.
(iii)Number of Shares Adjusted. Upon any adjustment of the Exercise Price, the Holder of this Warrant shall thereafter (until another such adjustment) be entitled to purchase, at the new Exercise Price, the number of shares of Warrant Stock, calculated to the nearest full shares, obtained by multiplying the number of shares of Warrant Stock initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the new Exercise Price.
(g)Officer's Certificate. Whenever the Exercise Price shall be adjusted as required by the provisions of Section (f) hereof, the Company shall forthwith file with its Secretary or an Assistant Secretary at its principal office, and with its stock transfer agent, if any, an Officer's Certificate showing the adjusted Exercise Price, determined as herein provided, and setting forth in reasonable detail the facts requiring such adjustment. Each such Officer's Certificate shall be made available at all reasonable times for inspection by the Holder; and the Company, after each such adjustment, shall forthwith deliver a copy of such certificate to the Holder. Such certificate shall be conclusive as to the correctness of such adjustment.
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(h)Notices to Warrant Holders. So long as this Warrant shall be outstanding and unexercised (i) if the Company shall pay any dividend or shall make any distribution upon the Common Stock or (ii) if the Company shall offer to the holders for subscription or purchase by them any shares of stock of any class or any other rights or (iii) if any capital reorganization of the Company; reclassification of the capital stock of the Company; consolidation or merger of the Company with or into another corporation; sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation; or voluntary or involuntary dissolution, liquidation, or winding up of the Company shall be effected, then, in any such case, the Company shall cause to be delivered to the Holder, at least ten (l0) days prior to the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution, or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation, or winding up is to take place and the date, if any, is to be fixed, as of which the holders of record shall be entitled to exchange their Shares for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation, or winding up.
(i)Reclassification, Reorganization or Merger. In case of any reclassification, or capital reorganization (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of an issuance of Common Stock by way of dividend or other distribution or of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary, in which merger the Company is the continuing corporation and which does not result in any reclassification, or capital reorganization) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the Company shall cause effective provision to be made so that the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of capital stock and other securities and property receivable upon such reclassification, capital reorganization, or other consolidation, merger, sale, or conveyance as may be issued or payable with respect to or in exchange for the number of shares of Warrant Stock purchasable upon the exercise of this Warrant had such recapitalization, capital reorganization, or other consolidation, merger, sale or conveyance not taken place. Any such provisions shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (i) shall similarly apply to successive reclassifications, capital reorganizations, and to successive consolidations, mergers, sales, or conveyances.
In the event that in any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares shall be issued in exchange, conversion, substitution or payment, in whole or in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section (g) hereof with the amount of the consideration received upon the issue thereof being determined by the Board of Directors of the Company in the manner described in clause (c)(ii) above.
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(j)Transfer to Comply with the Securities Act of l933.
(i)Unless registered pursuant to the Securities Act of 1933 or qualified under Regulation A this Warrant or the Warrant Stock or any other security issued or issuable upon exercise of this Warrant may not be sold, transferred, or otherwise disposed of except to a person who, in the opinion of counsel for the Company, is a person to whom this Warrant or such Warrant Stock may legally be transferred pursuant to Section (d) hereof without registration or qualification and without the delivery of a current Prospectus under the Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section (j) with respect to any resale or other disposition of such securities.
(ii)The Company may cause the following legend or one similar thereto to be set forth on each certificate representing Warrant Stock or any other security issued or issuable upon exercise of this Warrant not theretofore distributed to the public or sold to underwriters for distribution to the public pursuant to Section (j) hereof, unless counsel for the Company is of the opinion as to any such certificate that such legend is unnecessary:
The shares represented by this Certificate have not been registered under the Securities Act of l933 (the "Act") and are "restricted securities" as that term is defined in Rule 144 under the Act. The shares may not be offered for sale, sold, or otherwise transferred except pursuant to an effective registration statement under the Act or pursuant to an exemption from registration under the Act, the availability of which is to be established to the satisfaction of the Company.
(k)Applicable Law. This Warrant shall be governed by and construed in accordance with the laws of Delaware.
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SkyQuarry Warrant to Purch. 6-16-21
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PURCHASE FORM
Dated .
The undersigned hereby irrevocable elects to exercise the within Warrant to the extent of purchasing shares of Warrant Stock and hereby makes payment of $ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
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ASSIGNMENT FORM
FOR VALUE RECEIVED, hereby sells, assigns, and transfers unto:
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the right to purchase the Common Stock represented by this Warrant to the extent of shares as to which such right is exercisable and does hereby irrevocably constitute and appoint attorney, to transfer the same on the books of the Company with full power of substitution in the premises.
Dated: .Signature
SkyQuarry Warrant to Purch. 6-16-21
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SKY QUARRY INC.
2020 STOCK PLAN
1.Purposes of the Plan. The purposes of this 2020 Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants, and to promote the success of the Company’s business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an Option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. Restricted Stock may also be granted under the Plan.
2.Definitions. As used herein, the following definitions shall apply:
(a)“Administrator” means the Board or a Committee.
(b)“Affiliate” means (i) an entity other than a Subsidiary which, together with the Company, is under common control of a third person or entity and (ii) an entity other than a Subsidiary in which the Company and /or one or more Subsidiaries own a controlling interest.
(c)“Applicable Laws” means all applicable laws, rules, regulations and requirements, including, but not limited to, all applicable U.S. federal or state laws, any Stock Exchange rules or regulations, and the applicable laws, rules or regulations of any other country or jurisdiction where Options or Restricted Stock are granted under the Plan or Participants reside or provide services, as such laws, rules, and regulations shall be in effect from time to time.
(d)“Award” means any award of an Option or Restricted Stock under the Plan.
(e)“Board” means the Board of Directors of the Company.
(f)“California Participant” means a Participant whose Award is issued in reliance on Section 25102(o) of the California Corporations Code.
(g)“Cashless Exercise” means a program approved by the Administrator in which payment of the Option exercise price or tax withholding obligations or other required deductions may be satisfied, in whole or in part, with Shares subject to the Option, including by delivery of an irrevocable direction to a securities broker (on a form prescribed by the Company) to sell Shares and to deliver all or part of the sale proceeds to the Company in payment of such amount.
(h)“Cause” for termination of a Participant’s Continuous Service Status will exist (unless another definition is provided in an applicable Option Agreement, Restricted Stock Purchase Agreement, employment agreement or other applicable written agreement) if the Participant’s Continuous Service Status is terminated for any of the following reasons: (i) any material breach by Participant of any material written agreement between Participant and the Company and Participant’s failure to cure such breach within 30 days after receiving written notice thereof; (ii) any failure by Participant to comply with the Company’s material written policies or rules as they may be in effect from time to time; (iii) neglect or persistent unsatisfactory performance of Participant’s duties and Participant’s failure to cure such condition within 30 days after receiving written notice thereof; (iv) Participant’s repeated failure to follow reasonable and lawful instructions from the Board or Chief Executive Officer and Participant’s failure to cure such condition within 30 days after receiving written notice thereof; (v) Participant’s conviction of, or plea of guilty or nolo contendere to, any crime that results in, or is reasonably expected to result in, material harm to the business or reputation of the Company; (vi) Participant’s commission of or participation in an act of fraud against the Company; (vii) Participant’s intentional material damage to the Company’s business, property or reputation; or (viii) Participant’s unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom the Participant owes an obligation of nondisclosure as a result of his or her relationship with the Company. For purposes of clarity, a termination without “Cause” does not include any termination that occurs as a result of Participant’s death or disability. The determination as to whether a Participant’s Continuous Service Status has been terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Participant. The foregoing definition does not in any way limit the Company’s ability to terminate a Participant’s employment or consulting relationship at any time, and the term “Company” will be interpreted to include any Subsidiary, Parent, Affiliate, or any successor thereto, if appropriate.
(i)“Change of Control” means (i) a sale of all or substantially all of the Company’s assets other than to an Excluded Entity (as defined below), (ii) a merger, consolidation or other capital reorganization or business combination transaction of the Company with or into another corporation, limited liability company or other entity other than an Excluded Entity, or (iii) the consummation of a transaction, or series of related transactions, in which any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of all of the Company’s then outstanding voting securities.
Notwithstanding the foregoing, a transaction shall not constitute a Change of Control if its purpose is to (A) change the jurisdiction of the Company’s incorporation, (B) create a holding company that will be owned in substantially the same proportions by the persons who hold the Company’s securities immediately before such transaction, or (C) obtain funding for the Company in a financing that is approved by the Company’s Board. An “Excluded Entity” means a corporation or other entity of which the holders of voting capital stock of the Company outstanding immediately prior to such transaction are the direct or indirect holders of voting securities representing at least a majority of the votes entitled to be cast by all of such corporation’s or other entity’s voting securities outstanding immediately after such transaction.
(j)“Code” means the Internal Revenue Code of 1986, as amended.
(k)“Committee” means one or more committees or subcommittees of the Board consisting of two (2) or more Directors (or such lesser or greater number of Directors as shall constitute the minimum number permitted by Applicable Laws to establish a committee or sub-committee of the Board) appointed by the Board to administer the Plan in accordance with Section 0 below.
(l)“Common Stock” means the Company’s common stock.
(m)“Company” means Sky Quarry Inc., a Delaware corporation.
(n)“Consultant” means any person or entity, including an advisor but not an Employee, that renders, or has rendered, services to the Company, or any Parent, Subsidiary or Affiliate and is compensated for such services, and any Director whether compensated for such services or not.
(o)“Continuous Service Status” means the absence of any interruption or termination of service as an Employee or Consultant. Continuous Service Status as an Employee or Consultant shall not be considered interrupted or terminated in the case of: (i) Company approved sick leave; (ii) military leave; (iii) any other bona fide leave of absence approved by the Company, provided that, if an Employee is holding an Incentive Stock Option and such leave exceeds 3 months then, for purposes of Incentive Stock Option status only, such Employee’s service as an Employee shall be deemed terminated on the 1st day following such 3-month period and the Incentive Stock Option shall thereafter automatically become a Nonstatutory Stock Option in accordance with Applicable Laws, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to a written Company policy. Also, Continuous Service Status as an Employee or Consultant shall not be considered interrupted or terminated in the case of a transfer between locations of the Company or between the Company, its Parents, Subsidiaries or Affiliates, or their respective successors, or a change in status from an Employee to a Consultant or from a Consultant to an Employee.
(p)“Director” means a member of the Board.
(q)“Disability” means “disability” within the meaning of Section 22(e)(3) of the Code.
(r)“Employee” means any person employed by the Company, or any Parent, Subsidiary or Affiliate, with the status of employment determined pursuant to such factors as are deemed appropriate by the Company in its sole discretion, subject to any requirements of Applicable Laws, including the Code. The payment by the Company of a director’s fee shall not be sufficient to constitute “employment” of such director by the Company or any Parent, Subsidiary or Affiliate.
(s)“Exchange Act” means the Securities Exchange Act of 1934, as amended.
(t)“Fair Market Value” means, as of any date, the per share fair market value of the Common Stock, as determined by the Administrator in good faith on such basis as it deems appropriate and applied consistently with respect to Participants. Whenever possible, the determination of Fair Market Value shall be based upon the per share closing price for the Shares as reported in The Wall Street Journal for the applicable date.
(u)“Family Members” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (including adoptive relationships) of the Participant, any person sharing the Participant’s household (other than a tenant or employee), a trust in which these persons (or the Participant) have more than 50% of the beneficial interest, a foundation in which these persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than 50% of the voting interests.
(v)“Incentive Stock Option” means an Option intended to, and which does, in fact, qualify as an incentive stock option within the meaning of Section 422 of the Code.
(w)“Involuntary Termination” means (unless another definition is provided in the applicable Option Agreement, Restricted Stock Purchase Agreement, employment agreement or other applicable written agreement) the termination of a Participant’s Continuous Service Status other than for (i) death, (ii) Disability or (iii) for Cause by the Company or a Parent, Subsidiary, Affiliate or successor thereto, as appropriate.
(x)“Listed Security” means any security of the Company that is listed or approved for listing on a national securities exchange or designated or approved for designation as a national market system security on an interdealer quotation system by the Financial Industry Regulatory Authority (or any successor thereto).
(y)“Nonstatutory Stock Option” means an Option that is not intended to, or does not, in fact, qualify as an Incentive Stock Option.
(z)“Option” means a stock option granted pursuant to the Plan.
(aa)“Option Agreement” means a written document, the form(s) of which shall be approved from time to time by the Administrator, reflecting the terms of an Option granted under the Plan and includes any documents attached to or incorporated into such Option Agreement, including, but not limited to, a notice of stock option grant and a form of exercise notice.
(bb)“Option Exchange Program” means a program approved by the Administrator whereby outstanding Options (i) are exchanged for Options with a lower exercise price, Restricted Stock, cash or other property or (ii) are amended to decrease the exercise price as a result of a decline in the Fair Market Value.
(cc)“Optioned Stock” means Shares that are subject to an Option or that were issued pursuant to the exercise of an Option.
(dd)“Optionee” means an Employee or Consultant who receives an Option.
(ee)“Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of grant of the Award, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.
(ff)“Participant” means any holder of one or more Awards or Shares issued pursuant to an Award.
(gg)“Plan” means this 2020 Stock Plan.
(hh)“Restricted Stock” means Shares acquired pursuant to a right to purchase or receive Common Stock granted pursuant to Section 0 below.
(ii)“Restricted Stock Purchase Agreement” means a written document, the form(s) of which shall be approved from time to time by the Administrator, reflecting the terms of Restricted Stock granted under the Plan and includes any documents attached to such agreement.
(jj)“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time, or any successor provision.
(kk)“Share” means a share of Common Stock, as adjusted in accordance with Section 0 below.
(ll)“Stock Exchange” means any stock exchange or consolidated stock price reporting system on which prices for the Common Stock are quoted at any given time.
(mm)“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of grant of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.
(nn)“Ten Percent Holder” means a person who owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary measured as of an Award’s date of grant.
3.Stock Subject to the Plan. Subject to the provisions of Section 0 below, the maximum aggregate number of Shares that may be issued under the Plan is Five Million (5,000,000) Shares, all of which Shares may be issued under the Plan pursuant to Incentive Stock Options. The Shares issued under the Plan may be authorized, but unissued, or reacquired Shares. If an Award should expire or become unexercisable for any reason without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unissued Shares that were subject thereto shall, unless the Plan shall have been terminated, continue to be available under the Plan for issuance pursuant to future Awards. In addition, any Shares which are retained by the Company upon exercise of an Award in order to satisfy the exercise or purchase price for such Award or any withholding taxes due with respect to such Award shall be treated as not issued and shall continue to be available under the Plan for issuance pursuant to future Awards. Shares issued under the Plan and later forfeited to the Company due to the failure to vest or repurchased by the Company at the original purchase price paid to the Company for the Shares (including, without limitation, upon forfeiture to or repurchase by the Company in connection with the termination of a Participant’s Continuous Service Status) shall again be available for future grant under the Plan. Notwithstanding the foregoing, subject to the provisions of Section 0 below, in no event shall the maximum aggregate number of Shares that may be issued under the Plan pursuant to Incentive Stock Options exceed the number set forth in the first sentence of this Section 0 plus, to the extent allowable under Section 422 of the Code and the Treasury Regulations promulgated there under, any Shares that again become available for issuance pursuant to the remaining provisions of this Section 0.
(a)General. The Plan shall be administered by the Board, a Committee appointed by the Board, or any combination thereof, as determined by the Board. The Plan may be administered by different administrative bodies with respect to different classes of Participants and, if permitted by Applicable Laws, the Board may authorize one or more officers of the Company to make Awards under the Plan to Employees and Consultants (who are not subject to Section 16 of the Exchange Act) within parameters specified by the Board.
(b)Committee Composition. If a Committee has been appointed pursuant to this Section 0, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies (however caused) and dissolve a Committee and thereafter directly administer the Plan, all to the extent permitted by Applicable Laws and, in the case of a Committee administering the Plan in accordance with the requirements of Rule 16b-3 or Section 162(m) of the Code, to the extent permitted or required by such provisions.
(c)Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its sole discretion:
(i)to determine the Fair Market Value in accordance with Section 0 above, provided that such determination shall be applied consistently with respect to Participants under the Plan;
(ii)to select the Employees and Consultants to whom Awards may from time to time be granted;
(iii)to determine the number of Shares to be covered by each Award;
(iv)to approve the form(s) of agreement(s) and other related documents used under the Plan;
(v)to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder, which terms and conditions include but are not limited to the exercise or purchase price, the time or times when Awards may vest and/or be exercised (which may be based on performance criteria), the circumstances (if any) when vesting will be accelerated or forfeiture restrictions will be waived, and any restriction or limitation regarding any Award, Optioned Stock, or Restricted Stock;
(vi)to amend any outstanding Award or agreement related to any Optioned Stock or Restricted Stock, including any amendment adjusting vesting (e.g., in connection with a change in the terms or conditions under which such person is providing services to the Company), provided that no amendment shall be made that would materially and adversely affect the rights of any Participant without his or her consent;
(vii)to determine whether and under what circumstances an Option may be settled in cash under Section 0 below instead of Common Stock;
(viii)subject to Applicable Laws, to implement an Option Exchange Program and establish the terms and conditions of such Option Exchange Program without consent of the holders of capital stock of the Company, provided that no amendment or adjustment to an Option that would materially and adversely affect the rights of any Participant shall be made without his or her consent;
(ix)to approve addenda pursuant to Section 0 below or to grant Awards to, or to modify the terms of, any outstanding Option Agreement or Restricted Stock Purchase Agreement or any agreement related to any Optioned Stock or Restricted Stock held by Participants who are foreign nationals or employed outside of the United States with such terms and conditions as the Administrator deems necessary or appropriate to accommodate differences in local law, tax policy or custom which deviate from the terms and conditions set forth in this Plan to the extent necessary or appropriate to accommodate such differences; and
(x)to construe and interpret the terms of the Plan, any Option Agreement or Restricted Stock Purchase Agreement, and any agreement related to any Optioned Stock or Restricted Stock, which constructions, interpretations and decisions shall be final and binding on all Participants.
(d)Indemnification. To the maximum extent permitted by Applicable Laws, each member of the Committee (including officers of the Company, if applicable), or of the Board, as applicable, shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or pursuant to the terms and conditions of any Award except for actions taken in bad faith or failures to act in good faith, and (ii) any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her, provided that such member shall give the Company an opportunity, at its own expense, to handle and defend any such claim, action, suit or proceeding before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any other power that the Company may have to indemnify or hold harmless each such person.
5.Eligibility.
(a)Recipients of Grants. Nonstatutory Stock Options and Restricted Stock may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees, provided that Employees of Affiliates shall not be eligible to receive Incentive Stock Options.
(b)Type of Option. Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
(c)ISO $100,000 Limitation. Notwithstanding any designation under Section 0 above, to the extent that the aggregate Fair Market Value of Shares with respect to which options designated as incentive stock options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess options shall be treated as nonstatutory stock options. For purposes of this Section 0, incentive stock options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares subject to an incentive stock option shall be determined as of the date of the grant of such option.
(d)No Employment Rights. Neither the Plan nor any Award shall confer upon any Employee or Consultant any right with respect to continuation of an employment or consulting relationship with the Company (any Parent, Subsidiary or Affiliate), nor shall it interfere in any way with such Employee’s or Consultant’s right or the Company’s (Parent’s, Subsidiary’s or Affiliate’s) right to terminate his or her employment or consulting relationship at any time, with or without cause.
6.Term of Plan. The Plan shall become effective upon its adoption by the Board and shall continue in effect for a term of 10 years unless sooner terminated under Section 0 below.
(a)Term of Option. The term of each Option shall be the term stated in the Option Agreement; provided that the term shall be no more than 10 years from the date of grant thereof or such shorter term as may be provided in the Option Agreement and provided further that, in the case of an Incentive Stock Option granted to a person who at the time of such grant is a Ten Percent Holder, the term of the Option shall be 5 years from the date of grant thereof or such shorter term as may be provided in the Option Agreement.
(b)Option Exercise Price and Consideration.
(i)Exercise Price. The per Share exercise price for the Shares to be issued pursuant to the exercise of an Option shall be such price as is determined by the Administrator and set forth in the Option Agreement, but shall be subject to the following:
(1)In the case of an Incentive Stock Option
a.granted to an Employee who at the time of grant is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value on the date of grant;
b.granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value on the date of grant;
(2)Except as provided in subsection 0 below, in the case of a Nonstatutory Stock Option the per Share exercise price shall be such price as is determined by the Administrator, provided that, if the per Share exercise price is less than 100% of the Fair Market Value on the date of grant, it shall otherwise comply with all Applicable Laws, including Section 409A of the Code; and
(3)Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction.
(ii)Permissible Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option and to the extent required by Applicable Laws, shall be determined at the time of grant) and may consist entirely of (1) cash; (2) check; (3) to the extent permitted under, and in accordance with, Applicable Laws, delivery of a promissory note with such recourse, interest, security and redemption provisions as the Administrator determines to be appropriate (subject to the provisions of Section 152 of the Delaware General Corporation Law); (4) cancellation of indebtedness; (5) other previously owned Shares that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option is exercised; (6) a Cashless Exercise; (7) such other consideration and method of payment permitted under Applicable Laws; or (8) any combination of the foregoing methods of payment. In making its determination as to
the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company and the Administrator may, in its sole discretion, refuse to accept a particular form of consideration at the time of any Option exercise.
(c)Exercise of Option.
(i)General.
(1)Exercisability. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, consistent with the terms of the Plan and reflected in the Option Agreement, including vesting requirements and/or performance criteria with respect to the Company, and Parent, Subsidiary or Affiliate, and/or the Optionee.
(2)Leave of Absence. The Administrator shall have the discretion to determine at any time whether and to what extent the vesting of Options shall be tolled during any leave of absence; provided, however, that in the absence of such determination, vesting of Options shall continue during any paid leave and shall be tolled during any unpaid leave (unless otherwise required by Applicable Laws). Notwithstanding the foregoing, in the event of military leave, vesting shall toll during any unpaid portion of such leave, provided that, upon an Optionee’s returning from military leave (under conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment Rights Act), he or she shall be given vesting credit with respect to Options to the same extent as would have applied had the Optionee continued to provide services to the Company (or any Parent, Subsidiary or Affiliate, if applicable) throughout the leave on the same terms as he or she was providing services immediately prior to such leave.
(3)Minimum Exercise Requirements. An Option may not be exercised for a fraction of a Share. The Administrator may require that an Option be exercised as to a minimum number of Shares, provided that such requirement shall not prevent an Optionee from exercising the full number of Shares as to which the Option is then exercisable.
(4)Procedures for and Results of Exercise. An Option shall be deemed exercised when written notice of such exercise has been received by the Company in accordance with the terms of the Option Agreement by the person entitled to exercise the Option and the Company has received full payment for the Shares with respect to which the Option is exercised and has paid, or made arrangements to satisfy, any applicable taxes, withholding, required deductions or other required payments in accordance with Section 0 below. The exercise of an Option shall result in a decrease in the number of Shares that thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(5)Rights as Holder of Capital Stock. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a holder of capital stock shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock is issued, except as provided in Section 0 below.
(ii)Termination of Continuous Service Status. The Administrator shall establish and set forth in the applicable Option Agreement the terms and conditions upon which an Option shall remain exercisable, if at all, following termination of an Optionee’s Continuous Service Status, which provisions may be waived or modified by the Administrator at any time. To the extent that an Option Agreement does not specify the terms and conditions upon which an Option shall terminate upon termination of an Optionee’s Continuous Service Status, the following provisions shall apply:
(1)General Provisions. If the Optionee (or other person entitled to exercise the Option) does not exercise the Option to the extent so entitled within the time specified below, the Option shall terminate and the Optioned Stock underlying the unexercised portion of the Option shall revert to the Plan. In no event may any Option be exercised after the expiration of the Option term as set forth in the Option Agreement (and subject to this Section 0).
(2)Termination other than Upon Disability or Death or for Cause. In the event of termination of an Optionee’s Continuous Service Status other than under the circumstances set forth in the subsections 0 through 0 below, such Optionee may exercise any outstanding Option at any time within 3 month(s) following such termination to the extent the Optionee is vested in the Optioned Stock.
(3)Disability of Optionee. In the event of termination of an Optionee’s Continuous Service Status as a result of his or her Disability, such Optionee may exercise any outstanding Option at any time within 12 month(s) following such termination to the extent the Optionee is vested in the Optioned Stock.
(4)Death of Optionee. In the event of the death of an Optionee during the period of Continuous Service Status since the date of grant of any outstanding Option, or within 3 month(s) following termination of the Optionee’s Continuous Service Status, the Option may be exercised by any beneficiaries designated in accordance with Section 0 below, or if there are no such beneficiaries, by the Optionee’s estate, or by a person who acquired the right to exercise the Option by bequest or inheritance, at any time within 12 month(s) following the date the Optionee’s Continuous Service Status terminated, but only to the extent the Optionee is vested in the Optioned Stock.
(5)Termination for Cause. In the event of termination of an Optionee’s Continuous Service Status for Cause, any outstanding Option (including any vested portion thereof) held by such Optionee shall immediately terminate in its entirety upon first notification to the Optionee of termination of the Optionee’s Continuous Service Status for Cause. If an Optionee’s Continuous Service Status is suspended pending an investigation of whether the Optionee’s Continuous Service Status will be terminated for Cause, all the Optionee’s rights under any Option, including the right to exercise the Option, shall be suspended during the investigation period. Nothing in this Section 0 shall in any way limit the Company’s right to purchase unvested Shares issued upon exercise of an Option as set forth in the applicable Option Agreement.
(iii)Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted under the Plan based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made.
(a)Rights to Purchase. When a right to purchase or receive Restricted Stock is granted under the Plan, the Company shall advise the recipient in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, if any (which shall be as determined by the Administrator, subject to Applicable Laws, including any applicable securities laws), and the time within which such person must accept such offer. The permissible consideration for Restricted Stock shall be determined by the Administrator and shall be the same as is set forth in Section 0 above with respect to exercise of Options. The offer to purchase Shares shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.
(b)Repurchase Option.
(i)General. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the Participant’s Continuous Service Status for any reason (including death or Disability) at a purchase price for Shares equal to the original purchase price paid by the purchaser to the Company for such Shares and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine.
(ii)Leave of Absence. The Administrator shall have the discretion to determine at any time whether and to what extent the lapsing of Company repurchase rights shall be tolled during any leave of absence; provided, however, that in the absence of such determination, such lapsing shall continue during any paid leave and shall be tolled during any unpaid leave (unless otherwise required by Applicable Laws). Notwithstanding the foregoing, in the event of military leave, the lapsing of Company repurchase rights shall toll during any unpaid portion of such leave, provided that, upon a Participant’s returning from military leave (under
conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment Rights Act), he or she shall be given vesting credit with respect to Shares purchased pursuant to the Restricted Stock Purchase Agreement to the same extent as would have applied had the Participant continued to provide services to the Company (or any Parent, Subsidiary or Affiliate, if applicable) throughout the leave on the same terms as he or she was providing services immediately prior to such leave.
(c)Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock Purchase Agreements need not be the same with respect to each Participant.
(d)Rights as a Holder of Capital Stock. Once the Restricted Stock is purchased, the Participant shall have the rights equivalent to those of a holder of capital stock, and shall be a record holder when his or her purchase and the issuance of the Shares is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Restricted Stock is purchased, except as provided in Section 0 below.
(a)As a condition of the grant, vesting and exercise of an Award, the Participant (or in the case of the Participant’s death or a permitted transferee, the person holding or exercising the Award) shall make such arrangements as the Administrator may require for the satisfaction of any applicable U.S. federal, state, local or foreign tax, withholding, and any other required deductions or payments that may arise in connection with such Award. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied.
(b)The Administrator may, to the extent permitted under Applicable Laws, permit a Participant (or in the case of the Participant’s death or a permitted transferee, the person holding or exercising the Award) to satisfy all or part of his or her tax, withholding, or any other required deductions or payments by Cashless Exercise or by surrendering Shares (either directly or by stock attestation) that he or she previously acquired; provided that, unless specifically permitted by the Company, any such Cashless Exercise must be an approved broker-assisted Cashless Exercise or the Shares withheld in the Cashless Exercise must be limited to avoid financial accounting charges under applicable accounting guidance and any such surrendered Shares must have been previously held for any minimum duration required to avoid financial accounting charges under applicable accounting guidance. Any payment of taxes by surrendering Shares to the Company may be subject to restrictions, including, but not limited to, any restrictions required by rules of the Securities and Exchange Commission.
10.Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions.
(a)Changes in Capitalization. Subject to any action required under Applicable Laws by the holders of capital stock of the Company, (i) the numbers and class of Shares or other stock or securities: (x) available for future Awards under Section 0 above and (y) covered by each outstanding Award, (ii) the exercise price per Share of each such outstanding Option, and (iii) any repurchase price per Share applicable to Shares issued pursuant to any Award, shall be automatically proportionately adjusted in the event of a stock split, reverse stock split, stock dividend, combination, consolidation, reclassification of the Shares or subdivision of the Shares. In the event of any increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, a declaration of an extraordinary dividend with respect to the Shares payable in a form other than Shares in an amount that has a material effect on the Fair Market Value, a recapitalization (including a recapitalization through a large nonrecurring cash dividend), a rights offering, a reorganization, merger, a spin-off, split-up, change in corporate structure or a similar occurrence, the Administrator shall make appropriate adjustments, in its discretion, in one or more of (i) the numbers and class of Shares or other stock or securities: (x) available for future Awards under Section 0 above and (y) covered by each outstanding Award, (ii) the exercise price per Share of each outstanding Option and (iii) any repurchase price per Share applicable to Shares issued pursuant to any Award, and any such adjustment by the Administrator shall be made in the Administrator’s sole and absolute discretion and shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Award. If, by reason of a transaction described in this Section 0 or an adjustment pursuant to this Section 0, a Participant’s Award agreement or agreement related to any Optioned Stock or Restricted Stock covers additional or different shares of stock or securities, then such additional or different shares, and the Award agreement or agreement related to the Optioned Stock or Restricted Stock in respect thereof, shall be subject to all of the terms, conditions and restrictions which were applicable to the Award, Optioned Stock and Restricted Stock prior to such adjustment.
(b)Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company, each Award will terminate immediately prior to the consummation of such action, unless otherwise determined by the Administrator.
(c)Corporate Transactions. In the event of (i) a transfer of all or substantially all of the Company’s assets, (ii) a merger, consolidation or other capital reorganization or business combination transaction of the Company with or into another corporation, entity or person, or (iii) the consummation of a transaction, or series of related transactions, in which any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of more than 50% of the Company’s then outstanding capital stock (a “Corporate Transaction”), each outstanding Award (vested or unvested) will be treated as the Administrator determines, which determination may be made without the consent of any Participant and need not treat all outstanding Awards (or portion thereof) in an identical manner.
Such determination, without the consent of any Participant, may provide (without limitation) for one or more of the following in the event of a Corporate Transaction: (A) the continuation of such outstanding Awards by the Company (if the Company is the surviving corporation); (B) the assumption of such outstanding Awards by the surviving corporation or its parent; (C) the substitution by the surviving corporation or its parent of new options or equity awards for such Awards; (D) the cancellation of such Awards in exchange for a payment to the Participants equal to the excess of (1) the Fair Market Value of the Shares subject to such Awards as of the closing date of such Corporate Transaction over (2) the exercise price or purchase price paid or to be paid for the Shares subject to the Awards; or (E) the cancellation of any outstanding Options or an outstanding right to purchase Restricted Stock, in either case, for no consideration. Notwithstanding anything under this Plan, any Award agreement or otherwise, any escrow, holdback, earn-out or similar provisions agreed to pursuant to, or in connection with, a Corporate Transaction shall, unless otherwise determined by the Board, apply to any payment or other right a Participant may be entitled to under this Plan, if any, to the same extent and in the same manner as such provisions apply generally to the holders of the Company’s Common Stock with respect to the Corporate Transaction, but only to extent permitted by Applicable Law, including (without limitation), Section 409A of the Code.
11.Non-Transferability of Awards.
(a)General. Except as set forth in this Section 0, Awards (or any rights of such Awards) may not be sold, pledged, encumbered, assigned, hypothecated, or disposed of or otherwise transferred in any manner other than by will or by the laws of descent or distribution. The designation of a beneficiary by a Participant will not constitute a transfer. An Option may be exercised, during the lifetime of the holder of the Option, only by such holder or a transferee permitted by this Section 0.
(b)Limited Transferability Rights. Notwithstanding anything else in this Section 0, the Administrator may in its sole discretion provide that any Nonstatutory Stock Options may be transferred by instrument to an inter vivos or testamentary trust in which the Options are to be passed to beneficiaries upon the death of the trustor (settlor) or by gift to Family Members. Further, beginning with (i) the period when the Company begins to rely on the exemption described in Rule 12h-1(f)(1) promulgated under the Exchange Act, as determined by the Board in its sole discretion, and (ii) ending on the earlier of (A) the date when the Company ceases to rely on such exemption, as determined by the Board in its sole discretion, or (B) the date when the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, an Option, or prior to exercise, the Shares subject to the Option, may not be pledged, hypothecated or otherwise transferred or disposed of, in any manner, including by entering into any short position, any “put equivalent position” or any “call equivalent position” (as defined in Rule 16a-1(h) and Rule 16a-1(b) of the Exchange Act, respectively), other than to (i) persons who are Family Members through gifts or domestic relations orders, or (ii) to an executor or guardian of the Participant upon the death or disability of the Participant. Notwithstanding the foregoing sentence, the Board, in its sole discretion, may permit transfers of Nonstatutory Stock Options to the Company or in connection with a Change of Control or other acquisition transactions involving the Company to the extent permitted by Rule 12h-1(f).
12.Non-Transferability of Stock Underlying Awards.
(a)General. Notwithstanding anything to the contrary, no Participant or other stockholder shall Transfer (as such term is defined below) any Shares (or any rights of or interests in such Shares) acquired pursuant to any Award (including, without limitation, Shares acquired upon exercise of an Option) to any person or entity unless such Transfer is approved by the Company prior to such Transfer, which approval may be granted or withheld in the Company’s sole and absolute discretion. “Transfer” shall mean, with respect to any security, the direct or indirect assignment, sale, transfer, tender, pledge, hypothecation, or the grant, creation or suffrage of a lien or encumbrance in or upon, or the gift, placement in trust, or the Constructive Sale (as such term is defined below) or other disposition of such security (including transfer by testamentary or intestate succession, merger or otherwise by operation of law) or any right, title or interest therein (including, but not limited to, any right or power to vote to which the holder thereof may be entitled, whether such right or power is granted by proxy or otherwise), or the record or beneficial ownership thereof, the offer to make such a sale, transfer, Constructive Sale or other disposition, and each agreement, arrangement or understanding, whether or not in writing, to effect any of the foregoing. “Constructive Sale” shall mean, with respect to any security, a short sale with respect to such security, entering into or acquiring an offsetting derivative contract with respect to such security, entering into or acquiring a futures or forward contract to deliver such security, or entering into any other hedging or other derivative transaction that has the effect of materially changing the economic benefits and risks of ownership. Any purported Transfer effected in violation of this Section 0 shall be null and void and shall have no force or effect and the Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of the Plan or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
(b)Approval Process. Any Participant or stockholder seeking the approval of the Company to Transfer some or all of its Shares shall give written notice thereof to the Secretary of the Company that shall include: (1) the name of the stockholder; (2) the proposed transferee; (3) the number of shares of the Transfer of which approval is thereby requested; and (4) the purchase price, if any, of the shares proposed for Transfer. The Company may require the Participant to supplement its notice with such additional information as the Company may request or as may otherwise be required by the applicable Option Agreement, Restricted Stock Purchase Agreement or other applicable written agreement. In addition such request for Transfer shall be subject to such right of first refusal, transfer provisions and any other terms and conditions as may be set forth in the applicable Option Agreement, Restricted Stock Purchase Agreement or other applicable written agreement.
13.Time of Granting Awards. The date of grant of an Award shall, for all purposes, be the date on which the Administrator makes the determination granting such Award, or such other date as is determined by the Administrator.
14.Amendment and Termination of the Plan. The Board may at any time amend or terminate the Plan, but no amendment or termination shall be made that would materially and adversely affect the rights of any Participant under any outstanding Award, without his or her consent. In addition, to the extent necessary and desirable to comply with Applicable Laws, the Company shall obtain the approval of holders of capital stock with respect to any Plan amendment in such a manner and to such a degree as required.
15.Conditions Upon Issuance of Shares. Notwithstanding any other provision of the Plan or any agreement entered into by the Company pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure, to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with Applicable Laws, with such compliance determined by the Company in consultation with its legal counsel. As a condition to the exercise of any Option or purchase of any Restricted Stock, the Company may require the person exercising the Option or purchasing the Restricted Stock to represent and warrant at the time of any such exercise or purchase that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is advisable or required by Applicable Laws. Shares issued upon exercise of Options or purchase of Restricted Stock prior to the date, if ever, on which the Common Stock becomes a Listed Security shall be subject to a right of first refusal in favor of the Company pursuant to which the Participant will be required to offer Shares to the Company before selling or transferring them to any third party on such terms and subject to such conditions as is reflected in the applicable Option Agreement or Restricted Stock Purchase Agreement.
16.Beneficiaries. If permitted by the Company, a Participant may designate one or more beneficiaries with respect to an Award by timely filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Participant’s death. Except as otherwise provided in an Award agreement, if no beneficiary was designated or if no designated beneficiary survives the Participant, then after a Participant’s death any vested Award(s) shall be transferred or distributed to the Participant’s estate or to any person who has the right to acquire the Award by bequest or inheritance.
17.Approval of Holders of Capital Stock. If required by Applicable Laws, continuance of the Plan shall be subject to approval by the holders of capital stock of the Company within 12 months before or after the date the Plan is adopted or, to the extent required by Applicable Laws, any date the Plan is amended. Such approval shall be obtained in the manner and to the degree required under Applicable Laws.
18.Addenda. The Administrator may approve such addenda to the Plan as it may consider necessary or appropriate for the purpose of granting Awards to Employees or Consultants, which Awards may contain such terms and conditions as the Administrator deems necessary or appropriate to accommodate differences in local law, tax policy or custom, which may deviate from the terms and conditions set forth in this Plan. The terms of any such addenda shall supersede the terms of the Plan to the extent necessary to accommodate such differences but shall not otherwise affect the terms of the Plan as in effect for any other purpose.
19.Information to Holders of Options. In the event the Company is relying on the exemption provided by Rule 12h-1(f) under the Exchange Act, the Company shall provide the information described in Rule 701(e)(3), (4) and (5) of the Securities Act of 1933, as amended, to all holders of Options in accordance with the requirements thereunder until such time as the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. The Company may request that holders of Options agree to keep the information to be provided pursuant to this Section confidential. If the holder does not agree to keep the information to be provided pursuant to this Section confidential, then the Company will not be required to provide the information unless otherwise required pursuant to Rule 12h-1(f)(1) of the Exchange Act.
ADDENDUM A
2020 STOCK PLAN
(California Participants)
Prior to the date, if ever, on which the Common Stock becomes a Listed Security and/or the Company is subject to the reporting requirements of the Exchange Act, the terms set forth herein shall apply to Awards issued to California Participants. All capitalized terms used herein but not otherwise defined shall have the respective meanings set forth in the Plan.
1.The following rules shall apply to any Option in the event of termination of the Participant’s Continuous Service Status:
(a)If such termination was for reasons other than death, “Permanent Disability” (as defined below), or Cause, the Participant shall have at least 30 days after the date of such termination to exercise his or her Option to the extent the Participant is entitled to exercise on his or her termination date, provided that in no event shall the Option be exercisable after the expiration of the term as set forth in the Option Agreement.
(b)If such termination was due to death or Permanent Disability, the Participant shall have at least 6 months after the date of such termination to exercise his or her Option to the extent the Participant is entitled to exercise on his or her termination date, provided that in no event shall the Option be exercisable after the expiration of the term as set forth in the Option Agreement.
(c)“Permanent Disability” for purposes of this Addendum shall mean the inability of the Participant, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of the Participant’s position with the Company or any Parent or Subsidiary because of the sickness or injury of the Participant.
2.Notwithstanding anything to the contrary in Section 0 of the Plan, the Administrator shall in any event make such adjustments as may be required by Section 25102(o) of the California Corporations Code.
3.Notwithstanding anything stated herein to the contrary, no Option shall be exercisable on or after the 10th anniversary of the date of grant and any Award agreement shall terminate on or before the 10th anniversary of the date of grant.
4.The Company shall furnish summary financial information (audited or unaudited) of the Company’s financial condition and results of operations, consistent with the requirements of Applicable Laws, at least annually to each California Participant during the period such Participant has one or more Awards outstanding, and in the case of an individual who acquired Shares pursuant to the Plan, during the period such Participant owns such Shares; provided, however, the Company shall not be required to provide such information if (i) the issuance is limited to key persons whose duties in connection with the Company assure their access to
equivalent information or (ii) the Plan or any agreement complies with all conditions of Rule 701 of the Securities Act of 1933, as amended; provided that for purposes of determining such compliance, any registered domestic partner shall be considered a “family member” as that term is defined in Rule 701.
CERTIFICATE OF DESIGNATION
OF
SERIES A PREFERRED STOCK
OF
SKY QUARRY INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
NOW THEREFORE, BE IT RESOLVED, that pursuant to authority of the Board of Directors of Sky Quarry Inc. (the “Corporation”) set forth in Article 5 of the Corporation’s Certificate of Incorporation (as the same may be amended, modified, supplemented or restated from time to time, the “Certificate”) and Section 151 of the Delaware General Corporation Law (the “DGCL”), the Corporation certifies that the Board of Directors of the Corporation has approved this Certificate of Designation and has designated the powers, designations, preferences, and relative, participating, optional and other special rights and the qualifications, limitations and restrictions, of a series of Preferred Stock of the Corporation as set forth below:
1.Designation of Amount. One (1) share of the authorized, undesignated and unissued Preferred Stock of the Corporation is hereby designated “Series A Preferred Stock” with the following rights, preferences, powers, privileges and restrictions, qualifications and limitations. Unless otherwise indicated, references to “Sections” or “Subsections” in this Certificate of Designation refer to sections and subsections of this Certificate of Designation.
2.Dividends. The holder of the Series A Preferred Stock will not participate in the receipt of any dividends which may be declared by the Board of Directors or paid by the Corporation.
3.Liquidation, Dissolution or Winding Up. The holder of the Series A Preferred Stock will have no right to participate in the distribution of any assets of the Corporation upon its liquidation or in any other transaction involving the distribution of any of the Corporation’s assets.
4.1No General Voting Rights. Except (i) as set forth in Subsections 4.2 and 4.3, or (ii) as may otherwise be required by non-waivable provision of the DGCL, other applicable law, the Certificate or this Certificate of Designation, the Series A Preferred Stock shall not be entitled to vote (or render written consents) on any matter submitted for a vote (or written consents in lieu of a vote as permitted by the DGCL, the Certificate and the Corporation’s Bylaws (as the same may be amended, modified, supplemented or restated from time to time, the “Bylaws”)).
4.2Series A Director. For so long as the holder of the Series A Preferred Stock shall hold at least 15% of the Corporation’s issued and outstanding common stock, par value $0.0001 per share (“Common Stock”), the holder of the Series A Preferred Stock, exclusively and voting or consenting as a single class, shall be entitled to elect one director (the “Series A Director”) to the Board of Directors of the Corporation (the “Board”) The Series A Director may be removed without cause by, and only by, the affirmative vote of the holder of the Series A Preferred Stock. Any vacancy in the position of the Series A Director shall be filled exclusively by the holder of the Series A Preferred Stock. For so long as the holder of the Series A Preferred Stock has the right to elect the Series A Director, any committee of the Corporation’s Board of Directors shall include the Series A Director except that such Director shall recuse himself or herself in such cases where the Series A Director would have a conflict of interest with the business of the committee.
4.3Series A Preferred Stock Protective Provisions. At any time when the share of Series A Preferred Stock is outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate) the written consent or affirmative vote of the holder of the Series A Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class:
(a)amend, modify or waive the Certificate or Bylaws or any governing or organizational documents of the Corporation or any of its subsidiaries;
(b)for so long as the holder of the Series A Preferred Stock has the right to elect the Series A Director, change the number of directors constituting the Board;
(c)(i) issue or sell Common Stock or other equity securities of the Corporation (whether or not currently authorized), including, but not limited to, any rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities, to any person or (ii) enter into or effect any transaction or series of related transactions involving the repurchase, redemption or other acquisition of Common Stock from any person, in each case, other than any Excluded Securities (as defined below);
(d)initiate or consummate an Initial Public Offering (as defined below) or make a public offering and sale of Common Stock or any other securities; or
(e)dissolve, wind-up or liquidate the Corporation or initiate a bankruptcy proceeding involving the Corporation.
“Excluded Securities” means any Common Stock or other equity securities issued in connection with: (a) a grant to any existing or prospective consultants, employees, officers or directors pursuant to any stock option, employee stock purchase or similar equity-based plans or other compensation agreement; (b) the exercise or conversion of options to purchase shares of Common Stock, or shares of Common Stock issued to any existing or prospective consultants, employees, officers or directors pursuant to any stock option, employee stock purchase or similar equity-based plans or any other compensation agreement; (c) any acquisition by the Corporation of the stock, assets, properties or business of any individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity; (d) any merger, consolidation or other business combination involving the Corporation; (e) the commencement of any Initial Public Offering or any transaction or series of related transactions involving a change of control of the Corporation; (f) a stock split, stock dividend or any similar recapitalization; or (g) any issuance of Common Stock, warrants or other similar rights to purchase Common Stock (“Financing Equity”) to lenders or other institutional investors (excluding the existing stockholders) in an arm’s length transaction providing debt financing to the Corporation, where such Financing Equity, together with all then outstanding Financing Equity, is not equal to, and is not convertible into, an aggregate of more than 5% of the outstanding Common Stock on a fully diluted basis at the time of the issuance of such Financing Equity, in each case, approved in accordance with the terms of this Agreement.
“Initial Public Offering” means any offering of Common Stock pursuant to a registration statement filed in accordance with the Securities Act of 1933, as amended.
5.Conversion. The share of Series A Preferred Stock is not convertible into or exchangeable for any other property or securities of the Corporation.
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6.Redemption. The share of Series A Preferred Stock shall be redeemed by the Corporation immediately prior to an Initial Public Offering or at the election of the holder of the Series A Preferred Stock out of funds lawfully available therefor at a price per share equal to $1.00.
7.Preemptive Right. The holder of the Series A Preferred Stock shall have the right, but not the obligation, to purchase its pro rata portion of any New Securities (as defined below) (other than any Excluded Securities) that the Corporation may from time to time propose to issue or sell to any party upon the terms and at the purchase price proposed for such issuance or sale. The holder’s pro rata portion of such New Securities shall mean the amount of New Securities equal to the product of (x) the total number of New Securities to be issued by the Corporation in such issuance and (y) a fraction determined by dividing (A) the number of shares of Common Stock owned by such holder of Series A Preferred Stock immediately prior to such issuance by (B) the total number of shares of Common Stock outstanding immediately prior to such issuance.
“New Securities” means shares of Common Stock or any other equity securities of the Corporation, whether or not currently authorized, as well as rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities.
8.Redeemed or Otherwise Acquired Shares. Any shares of Series A Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights, powers, preferences or privileges granted to the holders of Series A Preferred Stock following redemption.
9.Notices. Any notice required or permitted by the provisions of this Certificate of Designation to be given to the holder of the share of Series A Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the DGCL, and shall be deemed sent upon such mailing or electronic transmission.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by the undersigned, this 21st day of June, 2021
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Exhibit 3.4
See attached pdf
Exhibit 3.5
See attached pdf
SUBSCRIPTION AGREEMENT
Sky Quarry Inc.
NOTICE TO INVESTORS
The securities of Sky Quarry Inc., a Delaware corporation (the “Company”), to which this Subscription Agreement relates, represent an investment that involves a high degree of risk, suitable only for persons who can bear the economic risk for an indefinite period of time and who can afford to lose their entire investments. Investors should further understand that this investment is illiquid and is expected to continue to be illiquid for an indefinite period of time. No public market exists for the securities to which this Subscription Agreement relates.
The securities offered hereby have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities or blue sky laws and are being offered and sold in reliance on exemptions from the registration requirements of the Securities Act and state securities or blue sky laws. Although an Offering Statement has been filed with the Securities and Exchange Commission (the “SEC”), that Offering Statement does not include the same information that would be included in a Registration Statement under the Securities Act. The securities offered hereby have not been approved or disapproved by the SEC, any state securities commission or other regulatory authority, nor have any of the foregoing authorities passed upon the merits of the offering to which this Subscription Agreement relates or the adequacy or accuracy of this Subscription Agreement or any other materials or information made available to prospective investors in connection with the offering to which this Subscription Agreement. Any representation to the contrary is unlawful.
The securities offered hereby cannot be sold or otherwise transferred, except in compliance with the Securities Act. In addition, the securities offered hereby cannot be sold or otherwise transferred, except in compliance with applicable state securities or “blue sky” laws. Investors who are not “accredited investors” (as that term is defined in Section 501 of Regulation D promulgated under the Securities Act) are subject to limitations on the amount they may invest, as described in Section 4(g) of this Subscription Agreement.
To determine the availability of exemptions from the registration requirements of the Securities Act as such may relate to the offering to which this Subscription Agreement relates, the Company is relying on each investor’s representations and warranties included in this Subscription Agreement and the other information provided by each investor in connection herewith.
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Prospective investors may not treat the contents of this Subscription Agreement, the Offering Circular or any of the other materials provided by the Company (collectively, the “Offering Materials”), or any prior or subsequent communications from the Company or any of its officers, employees or agents (including “Testing the Waters” materials), as investment, legal or tax advice. In making an investment decision, investors must rely on their own examinations of the Company and the terms of the offering to which this Subscription Agreement relates, including the merits and the risks involved. Each prospective investor should consult such investor’s own counsel, accountants and other professional advisors as to investment, legal, tax and other related matters concerning such investor’s proposed investment in the Company.
The Offering Materials may contain forward-looking statements and information relating to, among other things, the Company, its business plan, its operating strategy and its industries. These forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to, the Company’s management. When used in the Offering Materials, the words “estimate,” “project,” “believe,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements, which constitute forward looking statements. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties that could cause the Company’s actual results to differ materially from those contained in the forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company does not undertake any obligation to revise or update these forward-looking statements to reflect events or circumstances after such date or to reflect the occurrence of unanticipated events.
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1. Subscription.
(a) Investor hereby irrevocably subscribes for, and agrees to purchase, the Offered Securities set forth on the signature page hereto, upon the terms and conditions set forth herein. The aggregate purchase price for the Offered Securities subscribed by Investor (the “Purchase Price”) is payable to the Company in the manner in Section 2(a).
(b) Investor understands that the Offered Securities are being offered pursuant to the Regulation A Offering Circular dated _____________, 2021, and its exhibits (collectively, the “Offering Circular”), as filed with the SEC. By subscribing for the Offered Securities, Investor acknowledges that Investor has received and reviewed a copy of the Offering Circular and any other information required by Investor to make an investment decision with respect to the Offered Securities.
(c) This Subscription Agreement may be accepted or rejected in whole or in part, for any reason or for no reason, at any time prior to the termination date of the Offering, by the Company in its sole and absolute discretion. The Company will notify Investor whether this Subscription Agreement is accepted or rejected. If rejected, Investor’s payment shall be returned to Investor without interest and all of Investor’s obligations hereunder shall terminate, except for Section 5 hereof, which shall remain in force and effect.
(d) The terms of this Subscription Agreement shall be binding upon Investor and Investors’ permitted transferees, heirs, successors and assigns (collectively, the “Transferees”); provided, however, that for any such transfer to be deemed effective, the proposed Transferee shall have executed and delivered to the Company, in advance, an instrument in form acceptable to the Company in its sole discretion, pursuant to which the proposed Transferee shall acknowledge and agree to be bound by the representations and warranties of Investor and the terms of this Subscription Agreement. No transfer of this Agreement may be made without the consent of the Company, which consent may be withheld by the Company in its sole and absolute discretion.
2. Payment and Purchase Procedure. The Purchase Price shall be paid simultaneously with Investor’s delivery of this Subscription Agreement. Investor shall deliver payment of the Purchase Price of the Offered Securities in the manner set forth in Section 8 hereof. Investor acknowledges that, in order to subscribe for Offered Securities, Investor must comply fully with the purchase procedure requirements set forth in Section 8 hereof.
3. Representations and Warranties of the Company. The Company represents and warrants to Investor that each of the following is true and complete in all material respects as of the date of this Subscription Agreement:
(a) the Company is a corporation duly formed, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite power and authority to own and operate its properties and assets, to execute and deliver this Subscription Agreement, the Offered Securities and any other agreements or instruments required hereunder. The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on the Company or its business;
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(b) The issuance, sale and delivery of the Offered Securities in accordance with this Subscription Agreement have been duly authorized by all necessary corporate action on the part of the Company. The Offered Securities, when issued, sold and delivered against payment therefor in accordance with the provisions of this Subscription Agreement, will be duly and validly issued, fully paid and non-assessable; and
(c) the acceptance by the Company of this Subscription Agreement and the consummation of the transactions contemplated hereby are within the Company’s powers and have been duly authorized by all necessary corporate action on the part of the Company. Upon the Company’s acceptance of this Subscription Agreement, this Subscription Agreement shall constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except (1) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and (2) as limited by general principles of equity that restrict the availability of equitable remedies.
4. Representations and Warranties of Investor. Investor represents and warrants to the Company that each of the following is true and complete in all material respects as of the date of this Subscription Agreement:
(a) Requisite Power and Authority. Investor has all necessary power and authority under all applicable provisions of law to execute and deliver this Subscription Agreement and to carry out the provisions hereof. Upon due delivery hereof, this Subscription Agreement will be a valid and binding obligation of Investor, enforceable in accordance with its terms, except (1) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and (2) as limited by general principles of equity that restrict the availability of equitable remedies.
(b) Company Offering Circular; Company Information. Investor acknowledges the public availability of the Offering Circular which can be viewed on the SEC Edgar Database, and that Investor has reviewed the Offering Circular. Investor acknowledges that the Offering Circular makes clear the terms and conditions of the Offering and that the risks associated therewith are described. Investor has had an opportunity to discuss the Company’s business, management and financial affairs with directors, officers and management of the Company and has had the opportunity to review the Company’s operations and facilities. Investor has also had the opportunity to ask questions of, and receive answers from, the Company and its management regarding the terms and conditions of the Offering. Investor acknowledges that, except as set forth herein, no representations or warranties have been made to Investor, or to any advisor or representative of Investor, by the Company with respect to the business or prospects of the Company or its financial condition.
(c) Investment Experience; Investor Suitability. Investor has sufficient experience in financial and business matters so as to be capable of evaluating the merits and risks of an investment in the Offered Securities, and to make an informed decision relating thereto. Alternatively, Investor has utilized the services of a purchaser representative and, together, they have sufficient experience in financial and business matters so as to be capable of evaluating the merits and risks of an investment in the Offered Securities, and to make an informed decision relating thereto. Investor has evaluated the risks of an investment in the Offered Securities, including those described in the section of the Offering Circular entitled “Risk Factors”, and has determined that such an investment is suitable for Investor. Investor has adequate financial
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resources for an investment of this character. Investor is capable of bearing a complete loss of Investor’s investment in the Offered Securities.
(d) No Registration. Investor understands that the Offered Securities are not being registered under the Securities Act, on the ground that the issuance thereof is exempt under Regulation A promulgated under the Securities Act, and that reliance on such exemption is predicated, in part, on the truth and accuracy of Investor’s representations and warranties, and those of the other purchasers of the Offered Securities in the Offering.
Investor further understands that the Offered Securities are not being registered under the securities laws of any state, on the basis that the issuance thereof is exempt as an offer and sale not involving a registrable public offering in such state, since the Offered Securities are “covered securities” under the National Securities Market Improvement Act of 1996.
Investor covenants not to sell, transfer or otherwise dispose of any Offered Securities, unless such Offered Securities have been registered under the Securities Act and under applicable state securities laws, or exemptions from such registration requirements are available.
(e) Illiquidity and Continued Economic Risk. Investor acknowledges and agrees that there is no ready public market for the Offered Securities and that there is no guarantee that a market for their resale will ever exist. Investor must, therefore, bear the economic risk of the investment in the Offered Securities indefinitely and Investor acknowledges that Investor is able to bear the economic risk of losing Investor’s entire investment in the Offered Securities.
(f) Accredited Investor Status or Investment Limits. Investor represents that either:
(1) Investor is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act; or
(2) that the Purchase Price, together with any other amounts previously used to purchase Offered Securities in the Offering, does not exceed ten percent (10%) of the greater of Investor’s annual income or net worth (or, in the case where Investor is a non-natural person, Investor’s revenue or net assets for such Investor’s most recently completed fiscal year end).
Investor represents that, to the extent Investor has any questions with respect to Investor’s status as an accredited investor, or the application of the investment limits, Investor has sought professional advice.
(g) Investor Information. Within five (5) days after receipt of a request from the Company, Investor hereby agrees to provide such information with respect to Investor’s status as a Company shareholder and to execute and deliver such documents as may reasonably be necessary to comply with any and all laws and regulations to which the Company is, or may become, Shares, including, without limitation, the need to determine the accredited investor status of the Company’s shareholders. Investor further agrees that, in the event Investor transfers
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any Offered Securities, Investor will require the transferee of any such Offered Securities to agree to provide such information to the Company as a condition of such transfer.
(h) Valuation; Arbitrary Determination of Share Purchase Price by the Company. Investor acknowledges that the Purchase Price of the Offered Securities in the Offering was set by the Company on the basis of the Company’s internal valuation and no warranties are made as to value. Investor further acknowledges that future offerings of securities of the Company may be made at lower valuations, with the result that Investor’s investment will bear a lower valuation.
(i) Domicile. Investor maintains Investor’s domicile (and is not a transient or temporary resident) at the address provided herein.
(j) Foreign Investors. If Investor is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), Investor hereby represents that Investor is in full compliance with the laws of Investor’s jurisdiction in connection with any invitation to subscribe for the Offered Securities or any use of this Subscription Agreement, including, without limitation, (1) the legal requirements within Investor’s jurisdiction for the purchase of the Offered Securities, (2) any foreign exchange restrictions applicable to such purchase, (3) any governmental or other consents that may need to be obtained, and (4) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Offered Securities. Investor’s subscription and payment for and continued beneficial ownership of the Offered Securities will not violate any applicable securities or other laws of Investor’s jurisdiction.
(k) Fiduciary Capacity. If Investor is purchasing the Offered Securities in a fiduciary capacity for another person or entity, including, without limitation, a corporation, partnership, trust or any other juridical entity, Investor has been duly authorized and empowered to execute this Subscription Agreement and all other related documents. Upon request of the Company, Investor will provide true, complete and current copies of all relevant documents creating Investor, authorizing Investor’s investment in the Company and/or evidencing the satisfaction of the foregoing.
5. Indemnity. The representations, warranties and covenants made by Investor herein shall survive the consummation of this Subscription Agreement. Investor agrees to indemnify and hold harmless the Company and its officers, directors and agents, and each other person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all reasonable attorneys’ fees, including attorneys’ fees on appeal) and expenses reasonably incurred in investigating, preparing or defending against any false representation or warranty or breach of failure by Investor to comply with any covenant or agreement made by Investor herein or in any other document furnished by Investor to any of the foregoing in connection with the transaction contemplated hereby.
6. Governing Law; Jurisdiction; Waiver of Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of the Offering Circular, including, without limitation, this Subscription Agreement, shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflicts of law thereof. In any action, suit or proceeding in any jurisdiction brought by any party against any other party, each of the parties each knowingly and
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intentionally, to the greatest extent permitted by applicable law, hereby absolutely, unconditionally, irrevocably and expressly waives forever trial by jury.
7. Notices. Notice, requests, demands and other communications relating to this Subscription Agreement and the transactions contemplated herein shall be in writing and shall be deemed to have been duly given if and when (a) delivered personally, on the date of such delivery; or (b) mailed by registered or certified mail, postage prepaid, return receipt requested, in the third day after the posting thereof; or (c) e-mailed to the Company at: dsealock@skyquarry.com; Attention: David Sealock or to the Investor, at Investor’s address supplied in connection herewith, or to such other address as may be specified by written notice from time to time by the party entitled to receive such notice. Any notices, requests, demands or other communications by email shall be confirmed by letter given in accordance with (a) or (b) above.
8. Miscellaneous. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or persons or entity or entities may require. Other than as set forth herein, this Subscription Agreement is not transferable or assignable by Investor. The representations, warranties and agreements contained herein shall be deemed to be made by, and be binding upon, Investor and Investor’s heirs, executors, administrators and successors and shall inure to the benefit of the Company and its successors and assigns. None of the provisions of this Subscription Agreement may be waived, changed or terminated orally or otherwise, except as specifically set forth herein or except by a writing signed by the Company and Investor. In the event any part of this Subscription Agreement is found to be void or unenforceable, the remaining provisions are intended to be separable and binding with the same effect as if the void or unenforceable part were never in this Subscription Agreement. This Subscription Agreement supersedes all prior discussions and agreements between the Company and Investor, if any, with respect to the subject matter hereof and contains the sole and entire agreement between the Company and Investor with respect to the subject matter hereof. The terms and provisions of this Subscription Agreement are intended solely for the benefit of each party hereto and their respective successors and assigns, and it is not the intention of the parties to confer, and no provision hereof shall confer, third-party beneficiary rights upon any other person. The headings used in this Subscription Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof. In the event that either party hereto shall commence any suit, action or other proceeding to interpret this Subscription Agreement, or determine to enforce any right or obligation created hereby, then such party, if it prevails in such action, shall recover its reasonable costs and expenses incurred in connection therewith, including, but not limited to, reasonable attorneys’ fees and expenses and costs of appeal, if any. All notices and communications to be given or otherwise made to Investor shall be deemed to be sufficient if sent by e-mail to such address provided by Investor herein. Unless otherwise specified in this Subscription Agreement, Investor shall send all notices or other communications required to be given hereunder to the Company via e-mail at _______. Any such notice or communication shall be deemed to have been delivered and received on the first business day following that on which the e-mail has been sent (assuming that there is no error in delivery). As used in this Section 9, the term “business day” shall mean any day other than a day on which banking institutions in the State of Delaware are legally closed for business. This Subscription Agreement may be executed in one or more counterparts. No failure or delay by any party in exercising any right, power or privilege under this Subscription Agreement shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right,
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power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
9. Consent to Electronic Delivery of Notices, Disclosures and Forms. Investor understands that, to the fullest extent permitted by law, any notices, disclosures, forms, privacy statements, reports or other communications (collectively, “Communications”) regarding the Company, Investor’s investment in the Company and the Offered Securities (including annual and other updates and tax documents) may be delivered by electronic means, such as by e-mail. Investor hereby consents to electronic delivery as described in the preceding sentence. In so consenting, Investor acknowledges that e-mail messages are not secure and may contain computer viruses or other defects, may not be accurately replicated on other systems or may be intercepted, deleted or interfered with, with or without the knowledge of the sender or the intended recipient. Investor also acknowledges that an e-mail from the Company may be accessed by recipients other than Investor and may be interfered with, may contain computer viruses or other defects and may not be successfully replicated on other systems. Neither the Company, nor any of its respective officers, directors and affiliates, and each other person, if any, who controls the Company within the meaning of Section 15 of the Securities Act (collectively, the “Company Parties”), gives any warranties in relation to these matters. Investor further understands and agrees to each of the following: (a) other than with respect to tax documents in the case of an election to receive paper versions, none of the Company Parties will be under any obligation to provide Investor with paper versions of any Communications; (b) electronic Communications may be provided to Investor via e-mail or a website of a Company Party upon written notice of such website’s internet address to such Investor. In order to view and retain the Communications, Investor’s computer hardware and software must, at a minimum, be capable of accessing the Internet, with connectivity to an internet service provider or any other capable communications medium, and with software capable of viewing and printing a portable document format (“PDF”) file created by Adobe Acrobat. Further, Investor must have a personal e-mail address capable of sending and receiving e-mail messages to and from the Company Parties. To print the documents, Investor will need access to a printer compatible with his or her hardware and the required software; (c) if these software or hardware requirements change in the future, a Company Party will notify the Investor through written notification. To facilitate these services, Investor must provide the Company with his or her current e-mail address and update that information as necessary. Unless otherwise required by law, Investor will be deemed to have received any electronic Communications that are sent to the most current e-mail address that the Investor has provided to the Company in writing; (d) none of the Company Parties will assume liability for non-receipt of notification of the availability of electronic Communications in the event Investor’s e-mail address on file is invalid; Investor’s e-mail or Internet service provider filters the notification as “spam” or “junk mail”; there is a malfunction in Investor’s computer, browser, internet service or software; or for other reasons beyond the control of the Company Parties; and (e) solely with respect to the provision of tax documents by a Company Party, Investor agrees to each of the following: (1) if Investor does not consent to receive tax documents electronically, a paper copy will be provided, and (2) Investor’s consent to receive tax documents electronically continues for every tax year of the Company until Investor withdraws its consent by notifying the Company in writing.
Investor certifies that Investor has read this entire Subscription Agreement and that every statement made by Investor herein is true and complete.
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The Offering Materials do not constitute an offer or solicitation in any state or jurisdiction in which the Offered Securities are not being offered. The information presented in the Offering Materials was prepared by the Company solely for the use by prospective investors in connection with the Offering. Nothing contained in the Offering Materials is or should be relied upon as a promise or representation as to the future performance of the Company.
The Company reserves the right, in its sole discretion and for any reason whatsoever, to modify, amend and/or withdraw all or a portion of the Offering Offered Securities. Except as otherwise indicated, the Offering Materials speak as of their date. Neither the delivery nor the purchase of the Offered Securities shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since that date.
The undersigned has (have) executed this Subscription Agreement on this __ day of ___, 2021 at __________.
SUBSCRIBER
Signature
(Print name of Subscriber)
(Street Address)
(City, State, and Zip)
(Social Security or Tax Identification Number)
Number of Units:
Dollar Amount of Units ($____ per Unit) $
The foregoing subscription is hereby accepted on behalf of Sky Quarry Inc., this ______ day of _________________, 2021.
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Title: |
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SkyQuarry Subscription Agree. 6-7-21
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EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of the 15th day of March, 2020 (the “Effective Date”) by and between:
MR. DAVID SEALOCK, businessman and resident of Calgary, Alberta
(the “Executive”)
and
SKY QUARRY INC., a company incorporated under the laws of the State of Delaware, USA
(the “Corporation”).
WHEREAS The Corporation and the Executive wish to enter into this Agreement to confirm in writing the rights and obligations of each of them in respect of the Executive’s employment with the Corporation, including the terms regarding the Executive’s termination of employment.
AND WHEREAS the Corporation and the Executive agree that their future relationship will be governed by the terms and conditions of this Executive Employment Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES THAT IN CONSIDERATION of the mutual covenants and agreements contained in this Agreement and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Corporation and the Executive agree as follows:
1.Definitions
In this Agreement, the following terms shall have the following meanings.
(a)“Agreement” means this agreement as it may be amended or supplemented from time to time, and the expressions “hereof”, “herein”, “hereto”, “hereunder”, “hereby” and similar expressions refer to this agreement and unless otherwise indicated, references to Sections are to sections in this agreement.
(b)“Board” means the board of directors of the Corporation.
(c)“Base Salary” shall mean the Executive’s current annual base salary provided in Section 5, as increased from time to time.
(d)“Business Day” means any day, other than Saturday, Sunday or any statutory holiday in the State of Delaware.
(e)“Committee” means the Compensation Committee of the Board, or such other committee with similar responsibilities as may be appointed from time to time.
(f)“Change of Control” means any one or more of:
(i)the election by the shareholders of the Corporation of less than a majority of the persons named by management of the Corporation as nominated or intended to be nominated by management in an information circular prepared by management in connection with an annual or special meeting of shareholders of the Corporation;
(ii)the sale of net assets of the Corporation having a value greater than 50% of the fair market value of the net assets all or substantially all the assets of the Corporation determined on a consolidated basis prior to such sale whether such sale or acquisition occurs by way of reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, merger, transfer, sale or otherwise;
(iii)any change in the holding, direct or indirect, of shares of the Corporation by a person not affiliated with the Corporation as a result of which such person, or a group of persons, or persons acting in concert, or persons associated or affiliated with any such person or group, are in a position to exercise effective control of the Corporation whether such change in the holding of such shares occurs by way of takeover bid, reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, merger, transfer, sale or otherwise; and for the purposes of this Agreement, a person or group of persons holding shares or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 50% or more of the votes attaching to all shares of the Corporation which, directly or following conversion of the convertible securities forming part of the holdings of the person or group of persons noted above, may be cast to elect directors of the Corporation shall be deemed, to be in a position to exercise effective control of the Corporation;
(iv)the sale, exchange or other disposition of a majority of the issued and outstanding common shares of the Corporation in a single transaction or series of related transactions;
(v)any reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, merger, transfer, sale or other transaction involving the Corporation where all of the shareholders of the Corporation immediately prior to such reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, merger, transfer, sale or other transaction hold greater than 50% of the shares of the Corporation or of the continuing corporation following completion of such reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, transfer, sale or other transaction;
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(vi)merger, amalgamation or arrangement of the Corporation in a transaction or series of transactions in which the Corporation’s shareholders receive less than 51% of the shares of the new or continuing company issued and outstanding upon completion of such transaction or series of transactions;
(vii)the dissolution of the Corporation’s business or the liquidation of its assets; or
(viii)any event or transaction which the Board, in its discretion, deems to be a Change of Control.
(g)“Confidential Information” means all confidential or proprietary information, intellectual property (including trade secrets) and confidential facts relating to the business and affairs of the Corporation and its Affiliates.
(h)“Constructive Dismissal” means any material reduction in the responsibilities, salary or benefits of the Executive without the Executive’s consent.
(i)“Good Reason” means any one or more of the following:
(i)without the express written consent of the Executive, any material adverse change to the Executive’s duties or position, reporting relationships, responsibilities, title or office held by the Executive in the Corporation, provided that the Executive has given the Corporation written notice that such change constitutes Good Reason and the Corporation has not remedied the change within 30 days of receipt by the Corporation of such notice; or
(ii)a material reduction by the Corporation of the Executive’s salary, benefits or any other form of remuneration or any change in the basis upon which the Executive’s salary, benefits or any other form of remuneration payable by the Corporation is determined or any failure by the Corporation to increase the Executive’s salary, benefits or any other forms of remuneration payable by the Corporation in a manner consistent (both as to frequency and percentage increase) with practices in effect from time to time with respect to the senior executives of the Corporation, whichever is more favourable to the Executive; or
(iii)any failure by the Corporation to continue in effect any benefit, bonus, profit sharing, incentive, remuneration or compensation plan, stock ownership or purchase plan, pension plan or retirement plan in which the Executive is participating or entitled to participate from time to time, or the Corporation taking any action or failing to take any action that would adversely affect the Executive’s participation in or reduce his rights or benefits under or pursuant to any such plan, or the Corporation failing to increase or improve such rights or benefits on a basis consistent with practices with respect to the senior executives of the Corporation, whichever is more favourable to the Executive; or
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(iv)any breach by the Corporation of any material provision of this Agreement; or
(v)the failure by the Corporation to obtain, in a form satisfactory to the Executive, an effective assumption of the Corporation’s obligations hereunder by any successor to the Corporation, including a successor to a material portion of its business; or
(vi)the good faith determination by the Executive that the Corporation has requested he misrepresent information to external parties, vendors, shareholders or any other party; or
(j)“Option” means an option to purchase common shares of the Corporation, granted pursuant to the Option Plan.
(k)“Option Plan” means an Employee and Director Stock Option Plan of the Corporation, as adopted by the Corporation, subject to approval by the Corporation’s shareholders, as amended from time to time.
(l)“Payout Period”, means for the purposes of Section 10 and 13, a period to twelve (12) months.
(m)“Person” means any individual, partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative, regulatory body or agency, government or governmental agency, authority or entity however designated or constituted.
(n)“Salary” has the meaning set out in Section 5(a).
(o)“Severance Period” means six (6) months for the first year of employment. Subsequent to the first year it means twelve (12) months plus three (3) months for each full or partial year of the Executive’s employment with the Corporation, thereafter commencing on the Effective date and to maximum of twenty-four (24) months.
(p)“Tandem SARs” means stock appreciation rights which may be issued together with Options under the Option Plan.
(q)“Termination Date” means that date at which the Executive is severed from the Corporation in accordance with the articles of this Agreement, and which constitutes the Executive’s final day of active work on the Corporation behalf.
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2.Employment of the Executive
The Corporation shall employ the Executive, and the Executive shall serve the Corporation, in the position of Chief Executive Officer of the Corporation, without a probation period. In such position, the Executive shall perform or fulfill such duties and responsibilities as are usually associated with such position and such other duties and responsibilities as the Board may designate. The Executive shall report to the Board of Directors.
3.Performance of Duties
The Executive shall faithfully, honestly and diligently serve the Corporation and shall use his best efforts to promote the interests of the Corporation. It shall not be a violation of this Section 3 for the Executive to engage in a voluntary activity, other public service or private and public Director and or Board designations that does not interfere or are in conflict with the Executive’s duties under this agreement.
4.Employment Period
The Corporation shall employ the Executive and the Executive shall serve the Corporation as an employee, without probation, in accordance with this Agreement for the indefinite period continuing from the date hereof and ending on the effective date the employment of the Executive under this Agreement is terminated.
5.Remuneration
(a)Basic Remuneration. The Corporation shall pay the Executive a gross annual salary (the “Base Salary”) (before applicable statutory deductions and other withholdings) of $120,000. Salary shall be payable in arrears in equal semi-monthly installments. The Executive’s Base Salary shall be reviewed annually by the Board, or any committee thereof administering the Corporation’s executive compensation.
(b)Benefits. The Corporation shall provide to the Executive benefits pursuant to all benefit plans as are provided from time to time by the Corporation for its senior management in accordance with and subject to the terms and conditions of such plans from time to time. These benefits may be amended from time to time, provided, that the aggregate value of the Executive’s benefits shall not be materially reduced.
(c)Vacation. The Executive shall be entitled to vacation with pay of 25 days per year, subject to increase from time to time, in accordance with the Corporation’s policies applicable to senior management. Vacation shall be taken by the Executive at such time as may be acceptable to the Corporation having regard to its operation. Unused vacation may not be carried over for more than 12 months after the completion of each calendar year and any unused vacation will be paid out in cash.
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(d)Bonus Plan. The Executive shall be eligible to receive an annual performance-based bonus pursuant to any incentive compensation program in effect from time to time for executives or employees of the Corporation in an amount and based upon criteria to be determined and authorized by the Board in its sole and absolute discretion. In the event that a Bonus is awarded, it will be paid within 45 days following the final accounting of the Corporation’s financial statements for the preceding financial year.
(e)Other Benefits. The Executive shall be eligible to participate in any share option plan, share purchase plan, retirement plan, pension plan, group health benefits plan, or other benefits or incentives, whether embodied in a formal plan or not, offered by the Corporation to its senior management, in the manner and to the extent, if any, authorized by the Board or any committee thereof administering such plans, benefits or incentives.
(f)Retirement Plan. The Executive shall be eligible to participate in any retirement plan, pension plan, benefits or incentives, whether or not embodied in a formal plan, offered by the Corporation to its senior management, in the manner and to the extent, if any, authorized by the Board, or any committee thereof administering t retirement plan, pension plan, benefits or incentives.
(g)Payment of compensation and status as a taxable employee. It is hereby also acknowledged and agreed that the Executive will be classified as a taxable employee of the Corporation for all purposes, such that all compensation which is provided by the Corporation to the Executive under this Agreement, or otherwise, will be calculated and payable on a net basis for which all required statutory taxes will first be deducted by the Corporation and remitted on behalf of the Executive to all applicable taxation authorities in each instance.
6.Expenses
The Corporation shall pay or reimburse the Executive for all travel and out-of-pocket expenses reasonably incurred or paid by the Executive in the performance of his duties upon presentation of expense statements and receipts or other supporting documentation as the Corporation may reasonably require, in accordance with the Corporation’s expense policies.
7.Rights of Executive on Termination
On Termination of the Executive’s employment without Just Cause, or resignation by the Executive for Good Reason or upon a Change of Control, the following provisions shall apply:
(a)The Executive shall be entitled to receive from the Corporation, in full satisfaction of any and all entitlement that the Executive may have to notice of termination or payment in lieu of such notice, severance pay and any other payments to which the Executive may otherwise be entitled pursuant to applicable law:
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(i)all unpaid earned Base Salary up to the Termination Date (less deductions and withholdings);
(ii)all accrued and unused vacation to the Termination Date (less deductions and withholdings);
(iii)continuation of Salary (less deductions and withholdings) for the Severance Period;
(iv)the Corporation shall maintain for the benefit of the Executive its current directors’ and officers’ insurance policy or an equivalent policy, subject in either case to terms and conditions no less advantageous to the Executive than those contained in the policy in effect on the date hereof, covering claims made at any time prior to or within two years after the Executive ceases to be employed by the Corporation; and
(v)continued eligibility to participate in all benefits (excluding short and long term disability and life insurance which shall cease on the Termination Date), subject to the terms of the applicable plan, until the earlier of: (a) the end of the Severance Period; and (b) the date the Executive obtains comparable benefits from a subsequent employer.
(b)The payments and benefits referred to in Section 7(a) (excluding the benefits referred to in Section 7(a)(iv) are not subject to the Executive’s duty to mitigate and will not be reduced by any amounts received by the Executive from subsequent employment.
(c)The Executive may direct the Corporation to make the payments referred to in Section 7(a)(i) through (iii) in either form of lump sum or in equal instalments at the Executive’s current rate of pay and as per general payroll practice of the Corporation.
(d)Any Options and Tandem SARs which may be held by the Executive under the Option Plan shall be dealt with pursuant to the terms of the Option Plan.
(e)Any Performance Stock Units which may be held by the Executive under the PSU Plan shall be dealt with pursuant to the terms of the PSU Plan.
(f)Any Restricted Stock Units which may be held by the Executive under the RSU Plan shall be dealt with pursuant to the terms of the RSU Plan.
(g)The Executive shall, on or before the Termination Date:
(i)resign all offices held by him in the Corporation or any Affiliate;
(ii)deliver to the Corporation all Materials, including contact records, in his possession, including electronic copies and files;
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(iii)deliver to the Corporation all credit and charge cards issued to him by or on behalf of the Corporation;
(iv)vacate any accommodation provided to him by the Corporation.
8.Voluntary Termination By the Executive
The Executive may terminate the Executive’s employment under this Agreement for any reason by providing not less than 120 calendar days’ notice in writing to the Company; provided, however, that the Company may waive or abridge any notice period specified in such notice in its sole and absolute discretion.
Upon the date of termination of the employment of the Executive, the Executive shall only be entitled to any Base Salary due and owing up to the date of termination, all expenses properly incurred up to the date of termination in the carrying out of his duties and any accrued but unused vacation pay due and outstanding and will not be entitled to any severance or other payments under this Agreement or otherwise.
9.Termination By Employer For Just Cause
The Corporation may terminate this agreement and the Executive’s employment for Just Cause with 30 days’ notice to the Executive and without payment to the Executive of any compensation or severance in lieu of notice past the 30 day notice period.
Upon termination of employment for Just Cause, the Executive shall only be entitled to any Base Salary due and owing up to the date of termination, all expenses properly incurred up to the date of termination in the carrying out of his duties and any accrued but unused vacation pay due and outstanding.
“Just Cause” shall mean the Executive’s:
(a)dishonesty in the performance of the Executive’s duties hereunder (including, but not limited to, theft or embezzlement of Company funds or assets);
(b)conviction of, or guilty plea or no contest plea, to a felony charge or any misdemeanor involving moral turpitude, or the entry of a consent decree with any governmental body;
(c)noncompliance in any material respect with any laws or regulations, foreign or domestic, affecting the operation of the Corporation’s business;
(d)violation of any express direction or any rule, regulation or policy established by the Board that is consistent with the terms of this Agreement, if such violation is likely to have a material adverse effect on the Corporation;
(e)material breach of this Agreement or material breach of the Executive’s fiduciary duties to the Corporation;
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(f)gross incompetence, gross neglect, or gross misconduct in the performance of the Executive’s duties;
(g)repeated and consistent failure to be present at work during normal business hours except during vacation periods, absences due to temporary illness or time spent away from the office due to travel in connection with the performance of the Executive’s duties; or
(h)abuse of alcohol or drugs which interferes with the Executive’s performance of his duties.
With respect to those circumstances of Just Cause set forth in the preceding clauses (c) through (h) that are reasonably susceptible to cure, Just Cause shall only exist where the Corporation has provided the Executive with written notice of the alleged problem and the Executive has failed to cure such condition to the satisfaction of the Corporation within ten (10) business days.
10.Termination By Employer Without Just Cause
If the Executive’s employment is terminated by the Corporation as a result of a Constructive Dismissal or for any reason other than Just Cause and other than in accordance with Section 12, the Corporation will provide to the Executive within fifteen business days of the Termination Date:
(a)all Base Salary earned, but not yet paid up to the Termination Date, less required withholdings;
(b)the Corporation shall pay a lump sum amount that equals $1,000 for each month in the Payout Period, to the Executive for the failure to continue all benefits;
(c)the Corporation shall maintain for the benefit of the Executive its current directors’ and officers’ insurance policy or an equivalent policy, subject in either case to terms and conditions no less advantageous to the Executive than those contained in the policy in effect on the date hereof, covering claims made at any time prior to or within two years after the Executive ceases to be employed by the Corporation; and
(d)subject to Section 6, reimbursement of out-of-pocket expenses incurred but not yet paid up to the Termination Date;
provided that the Executive shall deliver to the Corporation a duly executed full and final release in favour of the Corporation, in a form reasonably satisfactory to the Corporation, acting reasonably and limited to employment obligations and specifically excluding indemnity obligations and written resignations of all officer and director positions held on the Corporation or its subsidiaries.
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11.Permanent Disability Of The Executive
“Permanent Disability” means the mental or physical state of the Executive is such, that:
(a)the Executive has to a substantial degree been unable, due to illness, disease, affliction, mental or physical disability or similar cause, to fulfill his obligations as an employee or officer of the Corporation either for any consecutive two (2) month period or for any period of three (3) months (whether or not consecutive) in any consecutive twelve (12) month period; or
(b)a court of competent jurisdiction has declared the Executive to be mentally incompetent of incapable of managing his affairs;
provided that, in either case, the Permanent Disability shall be acknowledged and accepted by the Corporation’s long-term disability insurer, if any.
Termination Upon Permanent Disability of Executive:
If the Executive shall suffer a Permanent Disability, the employment of the Executive may be terminated by the Corporation upon giving of notice of at least thirty (30) days; provided that such termination does not adversely affect the Executive’s entitlement to long-term disability benefits under the Corporation’s benefit plan, if applicable. Notwithstanding anything contained in this Agreement or elsewhere, in the event of termination pursuant to the provisions of this Section 11, the Corporation shall pay to the Executive (or his trustee) a sum equal to his annual Base Salary, together with payment of accrued but unpaid salary and vacation pay to the Termination Date, and the Executive shall continue to be entitled to such insurance and other benefits which may be provided pursuant to any long-term disability plan or the benefits plan of the Corporation in effect at the time, provided the Executive (or his trustee) provides the Corporation with a duly executed full and final release in favour of the Corporation, in a form reasonably satisfactory to substantiate a written resignation of all officer and director positions held in the Corporation and its subsidiaries.
12.Termination – Death of Executive
This agreement and the Executive’s employment shall be deemed to have terminated upon the death of the Executive. The Corporation shall pay the Executive’s estate or Executive’s designated beneficiary, within fifteen (15) business days (unless otherwise specified below) or receipt of notice of the Executive’s death, the following payments:
(a)All Base Salary earned but not yet paid up to the date of the Executive’s death, less required holdings;
(b)All vacation pay associated with vacation time carried over from any previous period(s) and appropriately approved, and all accrued but unused vacation pay, less required holdings;
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(c)Subject to Section 6, reimbursement of out-of-pocket expenses incurred but not yet reimbursed up to date of the date of the Executive’s death;
(d)Any bonus of other incentive which has been declared and earned but not yet paid, plus an amount to represent the Executive’s bonus or other incentive for the period up to the Executive’s death, with such amount estimated in good faith by the Executive’s supervisor and paid at the time which would normally have been paid by the Corporation; and
(e)In the event of the death of the Executive on or prior to the expiry of any of the Executive’s unexercised Stock Options, the legal personal representative of the Executive may exercise such remaining Stock Options and Restricted Stock Unit grants, subject to the vesting schedule for such remaining Stock Options and Restricted Stock Unit grants, at any time up to and including (but not after) the earlier of: (a) a date one year following the date of the death of the Executive, and (b) the scheduled expiry time.
13.Change of Control
In the event of a Change of Control, together with a Good Reason, the Executive may elect to terminate this Agreement within the later of six (6) months from the deemed date of the Change of Control or thirty (30) days of the deemed date of the event of Good Reason (the “Termination Date”) and the Corporation will provide to the Executive within fifteen (15) business days of the Termination Date:
(a)all Base Salary earned, but not yet paid up to the Termination Date, less required withholdings;
(b)all accrued but unused vacation pay, less required withholdings;
(c)the Corporation shall maintain for the benefit of the Executive its current directors’ and officers’ insurance policy or an equivalent policy, subject in either case to terms and conditions no less advantageous to the Executive than those contained in the policy in effect on the date hereof, covering claims made at any time prior to or within two years after the Executive ceases to be employed by the Corporation; and
(d)subject to Section 6, reimbursement of out-of-pocket expenses incurred but not yet paid up to the Termination Date;
provided that the Executive shall deliver to the Corporation a duly executed full and final release in favour of the Corporation, in a form reasonably satisfactory to the Corporation, acting reasonably and limited to employment obligations and specifically excluding indemnity obligations, and written resignation of all officer and director positions held in the Corporation and its subsidiaries.
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14.Non-Solicitation
The Executive shall not, during the period of his employment and for twelve (12) months thereafter, directly or indirectly, induce or solicit or attempt to induce or solicit any employee of the Corporation or assist or encourage any employee of the Corporation to accept employment or engagement elsewhere, unless such former employee has been out of the employ of the Corporation for at least four months or was terminated by the Corporation excluding any unsolicited response to a general advertisement..
15.Non-Disclosure and Confidentiality
The Executive shall not, either during the period of his employment or at any time thereafter, directly or indirectly, use or disclose to any Person any Confidential Information provided, however, that nothing in this section shall preclude the Executive from disclosing or using Confidential Information if:
(a)the Confidential Information is disclosed in the course of the Executive’s employment as an employee or director of the Corporation or any predecessor, successor or assigns;
(b)the Confidential Information is available to the public or in the public domain at the time of such disclosure or use, without breach of this Agreement; or
(c)disclosure of the Confidential Information is required to be made by any law, regulation, governmental body or authority or by court order.
The Executive acknowledges and agrees that the obligations under this section are to remain in effect in perpetuity.
16.Fiduciary
The Executive acknowledges that he is fiduciary. The obligations contained in Sections 14, 15 and 17 do not restrict any implied confidentiality, proprietary rights or fiduciary obligations or any duty of loyalty and good faith that the Executive may now or hereafter owe to the Corporation.
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17.Corporate Indemnity
The Executive will be indemnified by the Corporation in accordance with the provisions of the Corporation’s Bylaws and the indemnity agreement in place for each executive, executed by the parties on the Effective Date, for actions brought against him for the performance of the Executive’s duties and such indemnity agreement shall indemnify the Executive to the fullest extent permitted by law. The Corporation will maintain Directors and Officer Liability Insurance and Errors and Omissions Insurance with a minimum coverage not less than $3,000,000 per occurrence, such insurance to include payment of all associated legal costs.
18.Notices
Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by hand delivery or courier delivery or email as hereinafter provided. Any such notice or other communication, if sent by facsimile, shall be deemed to have been received on the Business Day following the sending, or if delivered by hand shall be deemed to have been received at the time it is delivered to the Executive in person, or to the Corporation at the address noted below either to the individual designated below or to an individual at such address having apparent authority to accept deliveries on behalf of the addressee. Notice of change of address shall also be governed by this section. Notices and other communications shall be addressed as follows:
(a)if to the Executive:
Mr. David Sealock
[redacted]
email: david.sealock@outlook.com
(b)if to the Corporation:
Sky Quarry Inc.
136 E S Temple, Suite 1400
Salt Lake City, UT 84111
Email: tschneider@skyquarry.com
19.Headings
The inclusion of headings in this Agreement is for convenience of reference only and shall not affect the construction or interpretation hereof.
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20.Invalidity of Provisions
Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity or unenforceability of any such provision by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof.
21.Entire Agreement, Waiver
This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and shall supersede and replace any and all prior agreements, undertakings, representations or negotiations pertaining to the subject matter of this Agreement . There are no warranties, representations or agreements between the parties in connection with such subject matter except as specifically set forth or referred to in this Agreement. Except as expressly provided in this Agreement, no amendment or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any provision of this Agreement shall constitute a waiver of any other provision nor shall any waiver of any provision of this Agreement constitute a continuing waiver unless otherwise expressly provided.
22.Currency
Except as expressly provided in this Agreement, all amounts in this Agreement are stated and shall be paid in United States Dollars. At the election of the Executive such payments may be converted and paid in Canadian Dollars. In such case, conversion shall be calculated using the daily exchange rate set by the Bank of Canada for the date such payment is due.
23.Governing Law and Venue
This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as applicable to contracts executed and performed entirely within and by residents of such state.
Each of the parties submits to the exclusive jurisdiction of any state or federal court sitting in California in any action or proceeding arising out of or relating to this Agreement and further agrees that all claims in respect of the action or proceeding may be heard and determined in any such court and agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner so provided by law.
The parties irrevocably submit to the exclusive jurisdiction of these courts and waive the defense of inconvenient forum to the maintenance of any action or proceeding in these venues.
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24.Disputes and Attorney’s Fees
The Corporation shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment, in seeking in good faith to obtain or enforce any benefit or right provided in this Agreement. Such payments shall be made within five (5) business days after delivery of the Executive’s written request for payment accompanied with such evidence of fees and expenses incurred as the Corporation may reasonably require.
In the event any action or proceeding, at law or in equity, is filed to enforce or interpret this Agreement, the prevailing party in such action or proceeding will be entitled to recover reasonable attorneys' fees and costs in addition to any other award of the court or tribunal, as the case may be.
25.Counterparts
This Agreement may be signed in counterparts and by facsimile transmission and each of such counterparts shall constitute an original document and such counterparts, taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date first written above.
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EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of the 15th day of March, 2020 (the “Effective Date”) by and between:
MR. MARCUS LAUN, businessman and resident of Los Angeles, California
(the “Executive”)
And
SKY QUARRY INC., a company incorporated under the laws of the State of Delaware, USA
(the “Corporation”).
WHEREAS The Corporation and the Executive wish to enter into this Agreement to confirm in writing the rights and obligations of each of them in respect of the Executive’s employment with the Corporation, including the terms regarding the Executive’s termination of employment.
AND WHEREAS the Corporation and the Executive agree that their future relationship will be governed by the terms and conditions of this Executive Employment Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES THAT IN CONSIDERATION of the mutual covenants and agreements contained in this Agreement and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Corporation and the Executive agree as follows:
1.Definitions
In this Agreement, the following terms shall have the following meanings.
(a)“Agreement” means this agreement as it may be amended or supplemented from time to time, and the expressions “hereof”, “herein”, “hereto”, “hereunder”, “hereby” and similar expressions refer to this agreement and unless otherwise indicated, references to Sections are to sections in this agreement.
(b)“Board” means the board of directors of the Corporation.
(c)“Base Salary” shall mean the Executive’s current annual base salary provided in Section 5, as increased from time to time.
(d)“Business Day” means any day, other than Saturday, Sunday or any statutory holiday in the State of Delaware.
(e)“Committee” means the Compensation Committee of the Board, or such other committee with similar responsibilities as may be appointed from time to time.
(f)“Change of Control” means any one or more of:
(i)the election by the shareholders of the Corporation of less than a majority of the persons named by management of the Corporation as nominated or intended to be nominated by management in an information circular prepared by management in connection with an annual or special meeting of shareholders of the Corporation;
(ii)the sale of net assets of the Corporation having a value greater than 50% of the fair market value of the net assets all or substantially all the assets of the Corporation determined on a consolidated basis prior to such sale whether such sale or acquisition occurs by way of reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, merger, transfer, sale or otherwise;
(iii)any change in the holding, direct or indirect, of shares of the Corporation by a person not affiliated with the Corporation as a result of which such person, or a group of persons, or persons acting in concert, or persons associated or affiliated with any such person or group, are in a position to exercise effective control of the Corporation whether such change in the holding of such shares occurs by way of takeover bid, reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, merger, transfer, sale or otherwise; and for the purposes of this Agreement, a person or group of persons holding shares or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 50% or more of the votes attaching to all shares of the Corporation which, directly or following conversion of the convertible securities forming part of the holdings of the person or group of persons noted above, may be cast to elect directors of the Corporation shall be deemed, to be in a position to exercise effective control of the Corporation;
(iv)the sale, exchange or other disposition of a majority of the issued and outstanding common shares of the Corporation in a single transaction or series of related transactions;
(v)any reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, merger, transfer, sale or other transaction involving the Corporation where all of the shareholders of the Corporation immediately prior to such reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, merger, transfer, sale or other transaction hold greater than 50% of the shares of the Corporation or of the continuing corporation following completion of such reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, transfer, sale or other transaction;
(vi)merger, amalgamation or arrangement of the Corporation in a transaction or series of transactions in which the Corporation’s shareholders receive less than 51% of the shares of the new or continuing company issued and outstanding upon completion of such transaction or series of transactions;
(vii)the dissolution of the Corporation’s business or the liquidation of its assets; or
(viii)any event or transaction which the Board, in its discretion, deems to be a Change of Control.
(g)“Confidential Information” means all confidential or proprietary information, intellectual property (including trade secrets) and confidential facts relating to the business and affairs of the Corporation and its Affiliates.
(h)“Constructive Dismissal” means any material reduction in the responsibilities, salary or benefits of the Executive without the Executive’s consent.
(i)“Good Reason” means any one or more of the following:
(i)without the express written consent of the Executive, any material adverse change to the Executive’s duties or position, reporting relationships, responsibilities, title or office held by the Executive in the Corporation, provided that the Executive has given the Corporation written notice that such change constitutes Good Reason and the Corporation has not remedied the change within 30 days of receipt by the Corporation of such notice; or
(ii)a material reduction by the Corporation of the Executive’s salary, benefits or any other form of remuneration or any change in the basis upon which the Executive’s salary, benefits or any other form of remuneration payable by the Corporation is determined or any failure by the Corporation to increase the Executive’s salary, benefits or any other forms of remuneration payable by the Corporation in a manner consistent (both as to frequency and percentage increase) with practices in effect from time to time with respect to the senior executives of the Corporation, whichever is more favourable to the Executive; or
(iii)any failure by the Corporation to continue in effect any benefit, bonus, profit sharing, incentive, remuneration or compensation plan, stock ownership or purchase plan, pension plan or retirement plan in which the Executive is participating or entitled to participate from time to time, or the Corporation taking any action or failing to take any action that would adversely affect the Executive’s participation in or reduce his rights or benefits under or pursuant to any such plan, or the Corporation failing to increase or improve such rights or benefits on a basis consistent with practices with respect to the senior executives of the Corporation, whichever is more favourable to the Executive; or
(iv)any breach by the Corporation of any material provision of this Agreement; or
(v)the failure by the Corporation to obtain, in a form satisfactory to the Executive, an effective assumption of the Corporation’s obligations hereunder by any successor to the Corporation, including a successor to a material portion of its business; or
(vi)the good faith determination by the Executive that the Corporation has requested he misrepresent information to external parties, vendors, shareholders or any other party; or
(j)“Option” means an option to purchase common shares of the Corporation, granted pursuant to the Option Plan.
(k)“Option Plan” means an Employee and Director Stock Option Plan of the Corporation, as adopted by the Corporation, subject to approval by the Corporation’s shareholders, as amended from time to time.
(l)“Payout Period”, means for the purposes of Section 10 and 13, a period to twelve (12) months.
(m)“Person” means any individual, partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative, regulatory body or agency, government or governmental agency, authority or entity however designated or constituted.
(n)“Salary” has the meaning set out in Section 5(a).
(o)“Severance Period” means six (6) months for the first year of employment. Subsequent to the first year it means twelve (12) months plus three (3) months for each full or partial year of the Executive’s employment with the Corporation, thereafter commencing on the Effective date and to maximum of twenty-four (24) months.
(p)“Tandem SARs” means stock appreciation rights which may be issued together with Options under the Option Plan.
(q)“Termination Date” means that date at which the Executive is severed from the Corporation in accordance with the articles of this Agreement, and which constitutes the Executive’s final day of active work on the Corporation behalf.
2.Employment of the Executive
The Corporation shall employ the Executive, and the Executive shall serve the Corporation, in the position of Executive Vice President of the Corporation, without a probation period. In such position, the Executive shall perform or fulfill such duties and responsibilities as are usually associated with such position and such other duties and responsibilities as the Chief Executive Officer and/or Board may designate. The Executive shall report to the Chief Executive Officer.
3.Performance of Duties
The Executive shall faithfully, honestly and diligently serve the Corporation and shall use his best efforts to promote the interests of the Corporation. It shall not be a violation of this Section 3 for the Executive to engage in a voluntary activity, other public service or private and public Director and or Board designations that does not interfere or are in conflict with the Executive’s duties under this agreement.
4.Employment Period
The Corporation shall employ the Executive and the Executive shall serve the Corporation as an employee, without probation, in accordance with this Agreement for the indefinite period continuing from the date hereof and ending on the effective date the employment of the Executive under this Agreement is terminated.
5.Remuneration
(a)Basic Remuneration. The Corporation shall pay the Executive a gross annual salary (the “Base Salary”) (before applicable statutory deductions and other withholdings) of $120,000. Salary shall be payable in arrears in equal semi-monthly installments. The Executive’s Base Salary shall be reviewed annually by the Board, or any committee thereof administering the Corporation’s executive compensation.
(b)Benefits. The Corporation shall provide to the Executive benefits pursuant to all benefit plans as are provided from time to time by the Corporation for its senior management in accordance with and subject to the terms and conditions of such plans from time to time. These benefits may be amended from time to time, provided, that the aggregate value of the Executive’s benefits shall not be materially reduced.
(c)Vacation. The Executive shall be entitled to vacation with pay of 25 days per year, subject to increase from time to time, in accordance with the Corporation’s policies applicable to senior management. Vacation shall be taken by the Executive at such time as may be acceptable to the Corporation having regard to its operation. Unused vacation may not be carried over for more than 12 months after the completion of each calendar year and any unused vacation will be paid out in cash.
(d)Bonus Plan. The Executive shall be eligible to receive an annual performance-based bonus pursuant to any incentive compensation program in effect from time to time for executives or employees of the Corporation in an amount and based upon criteria to be determined and authorized by the Board in its sole and absolute discretion. In the event that a Bonus is awarded, it will be paid within 45 days following the final accounting of the Corporation’s financial statements for the preceding financial year.
(e)Other Benefits. The Executive shall be eligible to participate in any share option plan, share purchase plan, retirement plan, pension plan, group health benefits plan, or other benefits or incentives, whether embodied in a formal plan or not, offered by the Corporation to its senior management, in the manner and to the extent, if any, authorized by the Board or any committee thereof administering such plans, benefits or incentives.
(f)Retirement Plan. The Executive shall be eligible to participate in any retirement plan, pension plan, benefits or incentives, whether or not embodied in a formal plan, offered by the Corporation to its senior management, in the manner and to the extent, if any, authorized by the Board, or any committee thereof administering t retirement plan, pension plan, benefits or incentives.
(g)Payment of compensation and status as a taxable employee. It is hereby also acknowledged and agreed that the Executive will be classified as a taxable employee of the Corporation for all purposes, such that all compensation which is provided by the Corporation to the Executive under this Agreement, or otherwise, will be calculated and payable on a net basis for which all required statutory taxes will first be deducted by the Corporation and remitted on behalf of the Executive to all applicable taxation authorities in each instance.
6.Expenses
The Corporation shall pay or reimburse the Executive for all travel and out-of-pocket expenses reasonably incurred or paid by the Executive in the performance of his duties upon presentation of expense statements and receipts or other supporting documentation as the Corporation may reasonably require, in accordance with the Corporation’s expense policies.
7.Rights of Executive on Termination
On Termination of the Executive’s employment without Just Cause, or resignation by the Executive for Good Reason or upon a Change of Control, the following provisions shall apply:
(a)The Executive shall be entitled to receive from the Corporation, in full satisfaction of any and all entitlement that the Executive may have to notice of termination or payment in lieu of such notice, severance pay and any other payments to which the Executive may otherwise be entitled pursuant to applicable law:
(i)all unpaid earned Base Salary up to the Termination Date (less deductions and withholdings);
(ii)all accrued and unused vacation to the Termination Date (less deductions and withholdings);
(iii)continuation of Salary (less deductions and withholdings) for the Severance Period;
(iv)the Corporation shall maintain for the benefit of the Executive its current directors’ and officers’ insurance policy or an equivalent policy, subject in either case to terms and conditions no less advantageous to the Executive than those contained in the policy in effect on the date hereof, covering claims made at any time prior to or within two years after the Executive ceases to be employed by the Corporation; and
(v)continued eligibility to participate in all benefits (excluding short and long term disability and life insurance which shall cease on the Termination Date), subject to the terms of the applicable plan, until the earlier of: (a) the end of the Severance Period; and (b) the date the Executive obtains comparable benefits from a subsequent employer.
(b)The payments and benefits referred to in Section 7(a) (excluding the benefits referred to in Section 7(a)(iv) are not subject to the Executive’s duty to mitigate and will not be reduced by any amounts received by the Executive from subsequent employment.
(c)The Executive may direct the Corporation to make the payments referred to in Section 7(a)(i) through (iii) in either form of lump sum or in equal instalments at the Executive’s current rate of pay and as per general payroll practice of the Corporation.
(d)Any Options and Tandem SARs which may be held by the Executive under the Option Plan shall be dealt with pursuant to the terms of the Option Plan.
(e)Any Performance Stock Units which may be held by the Executive under the PSU Plan shall be dealt with pursuant to the terms of the PSU Plan.
(f)Any Restricted Stock Units which may be held by the Executive under the RSU Plan shall be dealt with pursuant to the terms of the RSU Plan.
(g)The Executive shall, on or before the Termination Date:
(i)resign all offices held by him in the Corporation or any Affiliate;
(ii)deliver to the Corporation all Materials, including contact records, in his possession, including electronic copies and files;
(iii)deliver to the Corporation all credit and charge cards issued to him by or on behalf of the Corporation;
(iv)vacate any accommodation provided to him by the Corporation.
8.Voluntary Termination By the Executive
The Executive may terminate the Executive’s employment under this Agreement for any reason by providing not less than 120 calendar days’ notice in writing to the Company; provided, however, that the Company may waive or abridge any notice period specified in such notice in its sole and absolute discretion.
Upon the date of termination of the employment of the Executive, the Executive shall only be entitled to any Base Salary due and owing up to the date of termination, all expenses properly incurred up to the date of termination in the carrying out of his duties and any accrued but unused vacation pay due and outstanding and will not be entitled to any severance or other payments under this Agreement or otherwise.
9.Termination By Employer For Just Cause
The Corporation may terminate this agreement and the Executive’s employment for Just Cause with 30 days’ notice to the Executive and without payment to the Executive of any compensation or severance in lieu of notice past the 30 day notice period.
Upon termination of employment for Just Cause, the Executive shall only be entitled to any Base Salary due and owing up to the date of termination, all expenses properly incurred up to the date of termination in the carrying out of his duties and any accrued but unused vacation pay due and outstanding.
“Just Cause” shall mean the Executive’s:
(a)dishonesty in the performance of the Executive’s duties hereunder (including, but not limited to, theft or embezzlement of Company funds or assets);
(b)conviction of, or guilty plea or no contest plea, to a felony charge or any misdemeanor involving moral turpitude, or the entry of a consent decree with any governmental body;
(c)noncompliance in any material respect with any laws or regulations, foreign or domestic, affecting the operation of the Corporation’s business;
(d)violation of any express direction or any rule, regulation or policy established by the Board that is consistent with the terms of this Agreement, if such violation is likely to have a material adverse effect on the Corporation;
(e)material breach of this Agreement or material breach of the Executive’s fiduciary duties to the Corporation;
(f)gross incompetence, gross neglect, or gross misconduct in the performance of the Executive’s duties;
(g)repeated and consistent failure to be present at work during normal business hours except during vacation periods, absences due to temporary illness or time spent
away from the office due to travel in connection with the performance of the Executive’s duties; or
(h)abuse of alcohol or drugs which interferes with the Executive’s performance of his duties.
With respect to those circumstances of Just Cause set forth in the preceding clauses (c) through (h) that are reasonably susceptible to cure, Just Cause shall only exist where the Corporation has provided the Executive with written notice of the alleged problem and the Executive has failed to cure such condition to the satisfaction of the Corporation within ten (10) business days.
10.Termination By Employer Without Just Cause
If the Executive’s employment is terminated by the Corporation as a result of a Constructive Dismissal or for any reason other than Just Cause and other than in accordance with Section 12, the Corporation will provide to the Executive within fifteen business days of the Termination Date:
(a)all Base Salary earned, but not yet paid up to the Termination Date, less required withholdings;
(b)the Corporation shall pay a lump sum amount that equals $1,000 for each month in the Payout Period, to the Executive for the failure to continue all benefits;
(c)the Corporation shall maintain for the benefit of the Executive its current directors’ and officers’ insurance policy or an equivalent policy, subject in either case to terms and conditions no less advantageous to the Executive than those contained in the policy in effect on the date hereof, covering claims made at any time prior to or within two years after the Executive ceases to be employed by the Corporation; and
(d)subject to Section 6, reimbursement of out-of-pocket expenses incurred but not yet paid up to the Termination Date;
provided that the Executive shall deliver to the Corporation a duly executed full and final release in favour of the Corporation, in a form reasonably satisfactory to the Corporation, acting reasonably and limited to employment obligations and specifically excluding indemnity obligations and written resignations of all officer and director positions held on the Corporation or its subsidiaries.
11.Permanent Disability Of The Executive
“Permanent Disability” means the mental or physical state of the Executive is such, that:
(a)the Executive has to a substantial degree been unable, due to illness, disease, affliction, mental or physical disability or similar cause, to fulfill his obligations as an employee or officer of the Corporation either for any consecutive two (2) month period or for any period of three (3) months (whether or not consecutive) in any consecutive twelve (12) month period; or
(b)a court of competent jurisdiction has declared the Executive to be mentally incompetent of incapable of managing his affairs;
provided that, in either case, the Permanent Disability shall be acknowledged and accepted by the Corporation’s long-term disability insurer, if any.
Termination Upon Permanent Disability of Executive:
If the Executive shall suffer a Permanent Disability, the employment of the Executive may be terminated by the Corporation upon giving of notice of at least thirty (30) days; provided that such termination does not adversely affect the Executive’s entitlement to long-term disability benefits under the Corporation’s benefit plan, if applicable. Notwithstanding anything contained in this Agreement or elsewhere, in the event of termination pursuant to the provisions of this Section 11, the Corporation shall pay to the Executive (or his trustee) a sum equal to his annual Base Salary, together with payment of accrued but unpaid salary and vacation pay to the Termination Date, and the Executive shall continue to be entitled to such insurance and other benefits which may be provided pursuant to any long-term disability plan or the benefits plan of the Corporation in effect at the time, provided the Executive (or his trustee) provides the Corporation with a duly executed full and final release in favour of the Corporation, in a form reasonably satisfactory to substantiate a written resignation of all officer and director positions held in the Corporation and its subsidiaries.
12.Termination – Death of Executive
This agreement and the Executive’s employment shall be deemed to have terminated upon the death of the Executive. The Corporation shall pay the Executive’s estate or Executive’s designated beneficiary, within fifteen (15) business days (unless otherwise specified below) or receipt of notice of the Executive’s death, the following payments:
(a)All Base Salary earned but not yet paid up to the date of the Executive’s death, less required holdings;
(b)All vacation pay associated with vacation time carried over from any previous period(s) and appropriately approved, and all accrued but unused vacation pay, less required holdings;
(c)Subject to Section 6, reimbursement of out-of-pocket expenses incurred but not yet reimbursed up to date of the date of the Executive’s death;
(d)Any bonus of other incentive which has been declared and earned but not yet paid, plus an amount to represent the Executive’s bonus or other incentive for the period up to the Executive’s death, with such amount estimated in good faith by the Executive’s supervisor and paid at the time which would normally have been paid by the Corporation; and
(e)In the event of the death of the Executive on or prior to the expiry of any of the Executive’s unexercised Stock Options, the legal personal representative of the Executive may exercise such remaining Stock Options and Restricted Stock Unit grants, subject to the vesting schedule for such remaining Stock Options and Restricted Stock Unit grants, at any time up to and including (but not after) the earlier of: (a) a date one year following the date of the death of the Executive, and (b) the scheduled expiry time.
13.Change of Control
In the event of a Change of Control, together with a Good Reason, the Executive may elect to terminate this Agreement within the later of six (6) months from the deemed date of the Change of Control or thirty (30) days of the deemed date of the event of Good Reason (the “Termination Date”) and the Corporation will provide to the Executive within fifteen (15) business days of the Termination Date:
(a)all Base Salary earned, but not yet paid up to the Termination Date, less required withholdings;
(b)all accrued but unused vacation pay, less required withholdings;
(c)the Corporation shall maintain for the benefit of the Executive its current directors’ and officers’ insurance policy or an equivalent policy, subject in either case to terms and conditions no less advantageous to the Executive than those contained in the policy in effect on the date hereof, covering claims made at any time prior to or within two years after the Executive ceases to be employed by the Corporation; and
(d)subject to Section 6, reimbursement of out-of-pocket expenses incurred but not yet paid up to the Termination Date;
provided that the Executive shall deliver to the Corporation a duly executed full and final release in favour of the Corporation, in a form reasonably satisfactory to the Corporation, acting reasonably and limited to employment obligations and specifically excluding indemnity obligations, and written resignation of all officer and director positions held in the Corporation and its subsidiaries.
14.Non-Solicitation
The Executive shall not, during the period of his employment and for twelve (12) months thereafter, directly or indirectly, induce or solicit or attempt to induce or solicit any employee of the Corporation or assist or encourage any employee of the Corporation to accept employment or engagement elsewhere, unless such former employee has been out of the employ of the Corporation for at least four months or was terminated by the Corporation excluding any unsolicited response to a general advertisement..
15.Non-Disclosure and Confidentiality
The Executive shall not, either during the period of his employment or at any time thereafter, directly or indirectly, use or disclose to any Person any Confidential Information provided, however, that nothing in this section shall preclude the Executive from disclosing or using Confidential Information if:
(a)the Confidential Information is disclosed in the course of the Executive’s employment as an employee or director of the Corporation or any predecessor, successor or assigns;
(b)the Confidential Information is available to the public or in the public domain at the time of such disclosure or use, without breach of this Agreement; or
(c)disclosure of the Confidential Information is required to be made by any law, regulation, governmental body or authority or by court order.
The Executive acknowledges and agrees that the obligations under this section are to remain in effect in perpetuity.
16.Fiduciary
The Executive acknowledges that he is fiduciary. The obligations contained in Sections 14, 15 and 17 do not restrict any implied confidentiality, proprietary rights or fiduciary obligations or any duty of loyalty and good faith that the Executive may now or hereafter owe to the Corporation.
17.Corporate Indemnity
The Executive will be indemnified by the Corporation in accordance with the provisions of the Corporation’s Bylaws and the indemnity agreement in place for each executive, executed by the parties on the Effective Date, for actions brought against him for the performance of the Executive’s duties and such indemnity agreement shall indemnify the Executive to the fullest extent permitted by law. The Corporation will maintain Directors and Officer Liability Insurance and Errors and Omissions Insurance with a minimum coverage not less than $3,000,000 per occurrence, such insurance to include payment of all associated legal costs.
18.Notices
Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by hand delivery or courier delivery or email as hereinafter provided. Any such notice or other communication, if sent by facsimile, shall be deemed to have been received on the Business Day following the sending, or if delivered by hand shall be deemed to have been received at the time it is delivered to the Executive in person, or to the Corporation at the address noted below either to the individual designated below or to an individual at such address having apparent authority to accept deliveries on behalf of the addressee. Notice of change of address shall also be governed by this section. Notices and other communications shall be addressed as follows:
(a)if to the Executive:
Mr. Marcus Laun
[redacted]
email: marcuslaun@gmail.com
(b)if to the Corporation:
Sky Quarry Inc.
136 E S Temple, Suite 1400
Salt Lake City, UT 84111
Email: tschneider@skyquarry.com
19.Headings
The inclusion of headings in this Agreement is for convenience of reference only and shall not affect the construction or interpretation hereof.
20.Invalidity of Provisions
Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity or unenforceability of any such provision by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof.
21.Entire Agreement, Waiver
This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and shall supersede and replace any and all prior agreements, undertakings, representations or negotiations pertaining to the subject matter of this Agreement . There are no warranties, representations or agreements between the parties in connection with such subject matter except as specifically set forth or referred to in this Agreement. Except as expressly provided in this Agreement, no amendment or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any provision of this Agreement shall constitute a waiver of any other provision nor shall any waiver of any provision of this Agreement constitute a continuing waiver unless otherwise expressly provided.
22.Currency
Except as expressly provided in this Agreement, all amounts in this Agreement are stated and shall be paid in United States Dollars. At the election of the Executive such payments may be converted and paid in Canadian Dollars. In such case, conversion shall be calculated using the daily exchange rate set by the Bank of Canada for the date such payment is due.
23.Governing Law and Venue
This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as applicable to contracts executed and performed entirely within and by residents of such state.
Each of the parties submits to the exclusive jurisdiction of any state or federal court sitting in California in any action or proceeding arising out of or relating to this Agreement and further agrees that all claims in respect of the action or proceeding may be heard and determined in any such court and agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner so provided by law.
The parties irrevocably submit to the exclusive jurisdiction of these courts and waive the defense of inconvenient forum to the maintenance of any action or proceeding in these venues.
24.Disputes and Attorney’s Fees
The Corporation shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment, in seeking in good faith to obtain or enforce any benefit or right provided in this Agreement. Such payments shall be made within five (5) business days after delivery of the Executive’s written request for payment accompanied with such evidence of fees and expenses incurred as the Corporation may reasonably require.
In the event any action or proceeding, at law or in equity, is filed to enforce or interpret this Agreement, the prevailing party in such action or proceeding will be entitled to recover reasonable attorneys' fees and costs in addition to any other award of the court or tribunal, as the case may be.
25.Counterparts
This Agreement may be signed in counterparts and by facsimile transmission and each of such counterparts shall constitute an original document and such counterparts, taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date first written above.
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EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of the 1st day of July, 2020 (the “Effective Date”) by and between:
MR. DARRYL DELWO, businessman and resident of Calgary, Alberta
(the “Executive”)
and
SKY QUARRY INC., a company incorporated under the laws of the State of Delaware, USA
(the “Corporation”).
WHEREAS The Corporation and the Executive wish to enter into this Agreement to confirm in writing the rights and obligations of each of them in respect of the Executive’s employment with the Corporation, including the terms regarding the Executive’s termination of employment.
AND WHEREAS the Corporation and the Executive agree that their future relationship will be governed by the terms and conditions of this Executive Employment Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES THAT IN CONSIDERATION of the mutual covenants and agreements contained in this Agreement and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Corporation and the Executive agree as follows:
In this Agreement, the following terms shall have the following meanings.
(a)“Agreement” means this agreement as it may be amended or supplemented from time to time, and the expressions “hereof”, “herein”, “hereto”, “hereunder”, “hereby” and similar expressions refer to this agreement and unless otherwise indicated, references to Sections are to sections in this agreement.
(b)“Board” means the board of directors of the Corporation.
(c)“Base Salary” shall mean the Executive’s current annual base salary provided in Section 5, as increased from time to time.
(d)“Business Day” means any day, other than Saturday, Sunday or any statutory holiday in the State of Delaware.
(e)“Committee” means the Compensation Committee of the Board, or such other committee with similar responsibilities as may be appointed from time to time.
(f)“Change of Control” means any one or more of:
(i)the election by the shareholders of the Corporation of less than a majority of the persons named by management of the Corporation as nominated or intended to be nominated by management in an information circular prepared by management in connection with an annual or special meeting of shareholders of the Corporation;
(ii)the sale of net assets of the Corporation having a value greater than 50% of the fair market value of the net assets all or substantially all the assets of the Corporation determined on a consolidated basis prior to such sale whether such sale or acquisition occurs by way of reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, merger, transfer, sale or otherwise;
(iii)any change in the holding, direct or indirect, of shares of the Corporation by a person not affiliated with the Corporation as a result of which such person, or a group of persons, or persons acting in concert, or persons associated or affiliated with any such person or group, are in a position to exercise effective control of the Corporation whether such change in the holding of such shares occurs by way of takeover bid, reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, merger, transfer, sale or otherwise; and for the purposes of this Agreement, a person or group of persons holding shares or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 50% or more of the votes attaching to all shares of the Corporation which, directly or following conversion of the convertible securities forming part of the holdings of the person or group of persons noted above, may be cast to elect directors of the Corporation shall be deemed, to be in a position to exercise effective control of the Corporation;
(iv)the sale, exchange or other disposition of a majority of the issued and outstanding common shares of the Corporation in a single transaction or series of related transactions;
(v)any reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, merger, transfer, sale or other transaction involving the Corporation where all of the shareholders of the Corporation immediately prior to such reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, merger, transfer, sale or other transaction hold greater than 50% of the shares of the Corporation or of the continuing corporation following completion of such reconstruction, reorganization, recapitalization, consolidation, amalgamation, arrangement, transfer, sale or other transaction;
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(vi)merger, amalgamation or arrangement of the Corporation in a transaction or series of transactions in which the Corporation’s shareholders receive less than 51% of the shares of the new or continuing company issued and outstanding upon completion of such transaction or series of transactions;
(vii)the dissolution of the Corporation’s business or the liquidation of its assets; or
(viii)any event or transaction which the Board, in its discretion, deems to be a Change of Control.
(g)“Confidential Information” means all confidential or proprietary information, intellectual property (including trade secrets) and confidential facts relating to the business and affairs of the Corporation and its Affiliates.
(h)“Constructive Dismissal” means any material reduction in the responsibilities, salary or benefits of the Executive without the Executive’s consent.
(i)“Good Reason” means any one or more of the following:
(i)without the express written consent of the Executive, any material adverse change to the Executive’s duties or position, reporting relationships, responsibilities, title or office held by the Executive in the Corporation, provided that the Executive has given the Corporation written notice that such change constitutes Good Reason and the Corporation has not remedied the change within 30 days of receipt by the Corporation of such notice; or
(ii)a material reduction by the Corporation of the Executive’s salary, benefits or any other form of remuneration or any change in the basis upon which the Executive’s salary, benefits or any other form of remuneration payable by the Corporation is determined or any failure by the Corporation to increase the Executive’s salary, benefits or any other forms of remuneration payable by the Corporation in a manner consistent (both as to frequency and percentage increase) with practices in effect from time to time with respect to the senior executives of the Corporation, whichever is more favourable to the Executive; or
(iii)any failure by the Corporation to continue in effect any benefit, bonus, profit sharing, incentive, remuneration or compensation plan, stock ownership or purchase plan, pension plan or retirement plan in which the Executive is participating or entitled to participate from time to time, or the Corporation taking any action or failing to take any action that would adversely affect the Executive’s participation in or reduce his rights or benefits under or pursuant to any such plan, or the Corporation failing to increase or improve such rights or benefits on a basis consistent with practices with respect to the senior executives of the Corporation, whichever is more favourable to the Executive; or
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(iv)any breach by the Corporation of any material provision of this Agreement; or
(v)the failure by the Corporation to obtain, in a form satisfactory to the Executive, an effective assumption of the Corporation’s obligations hereunder by any successor to the Corporation, including a successor to a material portion of its business; or
(vi)the good faith determination by the Executive that the Corporation has requested he misrepresent information to external parties, vendors, shareholders or any other party; or
(j)“Option” means an option to purchase common shares of the Corporation, granted pursuant to the Option Plan.
(k)“Option Plan” means an Employee and Director Stock Option Plan of the Corporation, as adopted by the Corporation, subject to approval by the Corporation’s shareholders, as amended from time to time.
(l)“Payout Period”, means for the purposes of Section 10 and 13, a period to twelve (12) months.
(m)“Person” means any individual, partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative, regulatory body or agency, government or governmental agency, authority or entity however designated or constituted.
(n)“Salary” has the meaning set out in Section 5(a).
(o)“Severance Period” means six (6) months for the first year of employment. Subsequent to the first year it means twelve (12) months plus three (3) months for each full or partial year of the Executive’s employment with the Corporation, thereafter commencing on the Effective date and to maximum of twenty-four (24) months.
(p)“Tandem SARs” means stock appreciation rights which may be issued together with Options under the Option Plan.
(q)“Termination Date” means that date at which the Executive is severed from the Corporation in accordance with the articles of this Agreement, and which constitutes the Executive’s final day of active work on the Corporation behalf.
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2.Employment of the Executive
The Corporation shall employ the Executive, and the Executive shall serve the Corporation, in the position of Vice President, Finance of the Corporation, without a probation period. In such position, the Executive shall perform or fulfill such duties and responsibilities as are usually associated with such position and such other duties and responsibilities as the Chief Executive Officer and/or Board may designate. The Executive shall report to the Chief Executive Officer.
The Executive shall faithfully, honestly and diligently serve the Corporation and shall use his best efforts to promote the interests of the Corporation. It shall not be a violation of this Section 3 for the Executive to engage in a voluntary activity, other public service or private and public Director and or Board designations that does not interfere or are in conflict with the Executive’s duties under this agreement.
The Corporation shall employ the Executive and the Executive shall serve the Corporation as an employee, without probation, in accordance with this Agreement for the indefinite period continuing from the date hereof and ending on the effective date the employment of the Executive under this Agreement is terminated.
(a)Basic Remuneration. The Corporation shall pay the Executive a gross annual salary (the “Base Salary”) (before applicable statutory deductions and other withholdings) of $90,000. Salary shall be payable in arrears in equal semi-monthly installments. The Executive’s Base Salary shall be reviewed annually by the Board, or any committee thereof administering the Corporation’s executive compensation.
(b)Benefits. The Corporation shall provide to the Executive benefits pursuant to all benefit plans as are provided from time to time by the Corporation for its senior management in accordance with and subject to the terms and conditions of such plans from time to time. These benefits may be amended from time to time, provided, that the aggregate value of the Executive’s benefits shall not be materially reduced.
(c)Vacation. The Executive shall be entitled to vacation with pay of 25 days per year, subject to increase from time to time, in accordance with the Corporation’s policies applicable to senior management. Vacation shall be taken by the Executive at such time as may be acceptable to the Corporation having regard to its operation. Unused vacation may not be carried over for more than 12 months after the completion of each calendar year and any unused vacation will be paid out in cash.
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(d)Bonus Plan. The Executive shall be eligible to receive an annual performance-based bonus pursuant to any incentive compensation program in effect from time to time for executives or employees of the Corporation in an amount and based upon criteria to be determined and authorized by the Board in its sole and absolute discretion. In the event that a Bonus is awarded, it will be paid within 45 days following the final accounting of the Corporation’s financial statements for the preceding financial year.
(e)Other Benefits. The Executive shall be eligible to participate in any share option plan, share purchase plan, retirement plan, pension plan, group health benefits plan, or other benefits or incentives, whether embodied in a formal plan or not, offered by the Corporation to its senior management, in the manner and to the extent, if any, authorized by the Board or any committee thereof administering such plans, benefits or incentives.
(f)Retirement Plan. The Executive shall be eligible to participate in any retirement plan, pension plan, benefits or incentives, whether or not embodied in a formal plan, offered by the Corporation to its senior management, in the manner and to the extent, if any, authorized by the Board, or any committee thereof administering t retirement plan, pension plan, benefits or incentives.
(g)Payment of compensation and status as a taxable employee. It is hereby also acknowledged and agreed that the Executive will be classified as a taxable employee of the Corporation for all purposes, such that all compensation which is provided by the Corporation to the Executive under this Agreement, or otherwise, will be calculated and payable on a net basis for which all required statutory taxes will first be deducted by the Corporation and remitted on behalf of the Executive to all applicable taxation authorities in each instance.
The Corporation shall pay or reimburse the Executive for all travel and out-of-pocket expenses reasonably incurred or paid by the Executive in the performance of his duties upon presentation of expense statements and receipts or other supporting documentation as the Corporation may reasonably require, in accordance with the Corporation’s expense policies.
7.Rights of Executive on Termination
On Termination of the Executive’s employment without Just Cause, or resignation by the Executive for Good Reason or upon a Change of Control, the following provisions shall apply:
(a)The Executive shall be entitled to receive from the Corporation, in full satisfaction of any and all entitlement that the Executive may have to notice of termination or payment in lieu of such notice, severance pay and any other payments to which the Executive may otherwise be entitled pursuant to applicable law:
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(i)all unpaid earned Base Salary up to the Termination Date (less deductions and withholdings);
(ii)all accrued and unused vacation to the Termination Date (less deductions and withholdings);
(iii)continuation of Salary (less deductions and withholdings) for the Severance Period;
(iv)the Corporation shall maintain for the benefit of the Executive its current directors’ and officers’ insurance policy or an equivalent policy, subject in either case to terms and conditions no less advantageous to the Executive than those contained in the policy in effect on the date hereof, covering claims made at any time prior to or within two years after the Executive ceases to be employed by the Corporation; and
(v)continued eligibility to participate in all benefits (excluding short and long term disability and life insurance which shall cease on the Termination Date), subject to the terms of the applicable plan, until the earlier of: (a) the end of the Severance Period; and (b) the date the Executive obtains comparable benefits from a subsequent employer.
(b)The payments and benefits referred to in Section 00 (excluding the benefits referred to in Section 00 are not subject to the Executive’s duty to mitigate and will not be reduced by any amounts received by the Executive from subsequent employment.
(c)The Executive may direct the Corporation to make the payments referred to in Section 00(i) through (iii) in either form of lump sum or in equal instalments at the Executive’s current rate of pay and as per general payroll practice of the Corporation.
(d)Any Options and Tandem SARs which may be held by the Executive under the Option Plan shall be dealt with pursuant to the terms of the Option Plan.
(e)Any Performance Stock Units which may be held by the Executive under the PSU Plan shall be dealt with pursuant to the terms of the PSU Plan.
(f)Any Restricted Stock Units which may be held by the Executive under the RSU Plan shall be dealt with pursuant to the terms of the RSU Plan.
(g)The Executive shall, on or before the Termination Date:
(i)resign all offices held by him in the Corporation or any Affiliate;
(ii)deliver to the Corporation all Materials, including contact records, in his possession, including electronic copies and files;
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(iii)deliver to the Corporation all credit and charge cards issued to him by or on behalf of the Corporation;
(iv)vacate any accommodation provided to him by the Corporation.
8.Voluntary Termination By the Executive
The Executive may terminate the Executive’s employment under this Agreement for any reason by providing not less than 120 calendar days’ notice in writing to the Company; provided, however, that the Company may waive or abridge any notice period specified in such notice in its sole and absolute discretion.
Upon the date of termination of the employment of the Executive, the Executive shall only be entitled to any Base Salary due and owing up to the date of termination, all expenses properly incurred up to the date of termination in the carrying out of his duties and any accrued but unused vacation pay due and outstanding and will not be entitled to any severance or other payments under this Agreement or otherwise.
9.Termination By Employer For Just Cause
The Corporation may terminate this agreement and the Executive’s employment for Just Cause with 30 days’ notice to the Executive and without payment to the Executive of any compensation or severance in lieu of notice past the 30 day notice period.
Upon termination of employment for Just Cause, the Executive shall only be entitled to any Base Salary due and owing up to the date of termination, all expenses properly incurred up to the date of termination in the carrying out of his duties and any accrued but unused vacation pay due and outstanding.
“Just Cause” shall mean the Executive’s:
(a)dishonesty in the performance of the Executive’s duties hereunder (including, but not limited to, theft or embezzlement of Company funds or assets);
(b)conviction of, or guilty plea or no contest plea, to a felony charge or any misdemeanor involving moral turpitude, or the entry of a consent decree with any governmental body;
(c)noncompliance in any material respect with any laws or regulations, foreign or domestic, affecting the operation of the Corporation’s business;
(d)violation of any express direction or any rule, regulation or policy established by the Board that is consistent with the terms of this Agreement, if such violation is likely to have a material adverse effect on the Corporation;
(e)material breach of this Agreement or material breach of the Executive’s fiduciary duties to the Corporation;
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(f)gross incompetence, gross neglect, or gross misconduct in the performance of the Executive’s duties;
(g)repeated and consistent failure to be present at work during normal business hours except during vacation periods, absences due to temporary illness or time spent away from the office due to travel in connection with the performance of the Executive’s duties; or
(h)abuse of alcohol or drugs which interferes with the Executive’s performance of his duties.
With respect to those circumstances of Just Cause set forth in the preceding clauses (c) through (h) that are reasonably susceptible to cure, Just Cause shall only exist where the Corporation has provided the Executive with written notice of the alleged problem and the Executive has failed to cure such condition to the satisfaction of the Corporation within ten (10) business days.
10.Termination By Employer Without Just Cause
If the Executive’s employment is terminated by the Corporation as a result of a Constructive Dismissal or for any reason other than Just Cause and other than in accordance with Section 0, the Corporation will provide to the Executive within fifteen business days of the Termination Date:
(a)all Base Salary earned, but not yet paid up to the Termination Date, less required withholdings;
(b)the Corporation shall pay a lump sum amount that equals $1,000 for each month in the Payout Period, to the Executive for the failure to continue all benefits;
(c)the Corporation shall maintain for the benefit of the Executive its current directors’ and officers’ insurance policy or an equivalent policy, subject in either case to terms and conditions no less advantageous to the Executive than those contained in the policy in effect on the date hereof, covering claims made at any time prior to or within two years after the Executive ceases to be employed by the Corporation; and
(d)subject to Section 0, reimbursement of out-of-pocket expenses incurred but not yet paid up to the Termination Date;
provided that the Executive shall deliver to the Corporation a duly executed full and final release in favour of the Corporation, in a form reasonably satisfactory to the Corporation, acting reasonably and limited to employment obligations and specifically excluding indemnity obligations and written resignations of all officer and director positions held on the Corporation or its subsidiaries.
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11.Permanent Disability Of The Executive
“Permanent Disability” means the mental or physical state of the Executive is such, that:
(a)the Executive has to a substantial degree been unable, due to illness, disease, affliction, mental or physical disability or similar cause, to fulfill his obligations as an employee or officer of the Corporation either for any consecutive two (2) month period or for any period of three (3) months (whether or not consecutive) in any consecutive twelve (12) month period; or
(b)a court of competent jurisdiction has declared the Executive to be mentally incompetent of incapable of managing his affairs;
provided that, in either case, the Permanent Disability shall be acknowledged and accepted by the Corporation’s long-term disability insurer, if any.
Termination Upon Permanent Disability of Executive:
If the Executive shall suffer a Permanent Disability, the employment of the Executive may be terminated by the Corporation upon giving of notice of at least thirty (30) days; provided that such termination does not adversely affect the Executive’s entitlement to long-term disability benefits under the Corporation’s benefit plan, if applicable. Notwithstanding anything contained in this Agreement or elsewhere, in the event of termination pursuant to the provisions of this Section 0, the Corporation shall pay to the Executive (or his trustee) a sum equal to his annual Base Salary, together with payment of accrued but unpaid salary and vacation pay to the Termination Date, and the Executive shall continue to be entitled to such insurance and other benefits which may be provided pursuant to any long-term disability plan or the benefits plan of the Corporation in effect at the time, provided the Executive (or his trustee) provides the Corporation with a duly executed full and final release in favour of the Corporation, in a form reasonably satisfactory to substantiate a written resignation of all officer and director positions held in the Corporation and its subsidiaries.
12.Termination – Death of Executive
This agreement and the Executive’s employment shall be deemed to have terminated upon the death of the Executive. The Corporation shall pay the Executive’s estate or Executive’s designated beneficiary, within fifteen (15) business days (unless otherwise specified below) or receipt of notice of the Executive’s death, the following payments:
(a)All Base Salary earned but not yet paid up to the date of the Executive’s death, less required holdings;
(b)All vacation pay associated with vacation time carried over from any previous period(s) and appropriately approved, and all accrued but unused vacation pay, less required holdings;
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(c)Subject to Section 0, reimbursement of out-of-pocket expenses incurred but not yet reimbursed up to date of the date of the Executive’s death;
(d)Any bonus of other incentive which has been declared and earned but not yet paid, plus an amount to represent the Executive’s bonus or other incentive for the period up to the Executive’s death, with such amount estimated in good faith by the Executive’s supervisor and paid at the time which would normally have been paid by the Corporation; and
(e)In the event of the death of the Executive on or prior to the expiry of any of the Executive’s unexercised Stock Options, the legal personal representative of the Executive may exercise such remaining Stock Options and Restricted Stock Unit grants, subject to the vesting schedule for such remaining Stock Options and Restricted Stock Unit grants, at any time up to and including (but not after) the earlier of: (a) a date one year following the date of the death of the Executive, and (b) the scheduled expiry time.
In the event of a Change of Control, together with a Good Reason, the Executive may elect to terminate this Agreement within the later of six (6) months from the deemed date of the Change of Control or thirty (30) days of the deemed date of the event of Good Reason (the “Termination Date”) and the Corporation will provide to the Executive within fifteen (15) business days of the Termination Date:
(a)all Base Salary earned, but not yet paid up to the Termination Date, less required withholdings;
(b)all accrued but unused vacation pay, less required withholdings;
(c)the Corporation shall maintain for the benefit of the Executive its current directors’ and officers’ insurance policy or an equivalent policy, subject in either case to terms and conditions no less advantageous to the Executive than those contained in the policy in effect on the date hereof, covering claims made at any time prior to or within two years after the Executive ceases to be employed by the Corporation; and
(d)subject to Section 0, reimbursement of out-of-pocket expenses incurred but not yet paid up to the Termination Date;
provided that the Executive shall deliver to the Corporation a duly executed full and final release in favour of the Corporation, in a form reasonably satisfactory to the Corporation, acting reasonably and limited to employment obligations and specifically excluding indemnity obligations, and written resignation of all officer and director positions held in the Corporation and its subsidiaries.
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14.Non-Solicitation
The Executive shall not, during the period of his employment and for twelve (12) months thereafter, directly or indirectly, induce or solicit or attempt to induce or solicit any employee of the Corporation or assist or encourage any employee of the Corporation to accept employment or engagement elsewhere, unless such former employee has been out of the employ of the Corporation for at least four months or was terminated by the Corporation excluding any unsolicited response to a general advertisement..
15.Non-Disclosure and Confidentiality
The Executive shall not, either during the period of his employment or at any time thereafter, directly or indirectly, use or disclose to any Person any Confidential Information provided, however, that nothing in this section shall preclude the Executive from disclosing or using Confidential Information if:
(a)the Confidential Information is disclosed in the course of the Executive’s employment as an employee or director of the Corporation or any predecessor, successor or assigns;
(b)the Confidential Information is available to the public or in the public domain at the time of such disclosure or use, without breach of this Agreement; or
(c)disclosure of the Confidential Information is required to be made by any law, regulation, governmental body or authority or by court order.
The Executive acknowledges and agrees that the obligations under this section are to remain in effect in perpetuity.
16.Fiduciary
The Executive acknowledges that he is fiduciary. The obligations contained in Sections 0, 0, and 0 do not restrict any implied confidentiality, proprietary rights or fiduciary obligations or any duty of loyalty and good faith that the Executive may now or hereafter owe to the Corporation.
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17.Corporate Indemnity
The Executive will be indemnified by the Corporation in accordance with the provisions of the Corporation’s Bylaws and the indemnity agreement in place for each executive, executed by the parties on the Effective Date, for actions brought against him for the performance of the Executive’s duties and such indemnity agreement shall indemnify the Executive to the fullest extent permitted by law. The Corporation will maintain Directors and Officer Liability Insurance and Errors and Omissions Insurance with a minimum coverage not less than $3,000,000 per occurrence, such insurance to include payment of all associated legal costs.
18.Notices
Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by hand delivery or courier delivery or email as hereinafter provided. Any such notice or other communication, if sent by facsimile, shall be deemed to have been received on the Business Day following the sending, or if delivered by hand shall be deemed to have been received at the time it is delivered to the Executive in person, or to the Corporation at the address noted below either to the individual designated below or to an individual at such address having apparent authority to accept deliveries on behalf of the addressee. Notice of change of address shall also be governed by this section. Notices and other communications shall be addressed as follows:
(a)if to the Executive:
Mr. Darryl Delwo
[redacted]
email: ddelwo@yahoo.ca
(b)if to the Corporation:
136 E S Temple, Suite 1400
Salt Lake City, UT 84111
Email: tschneider@skyquarry.com
19.Headings
The inclusion of headings in this Agreement is for convenience of reference only and shall not affect the construction or interpretation hereof.
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20.Invalidity of Provisions
Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity or unenforceability of any such provision by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof.
21.Entire Agreement, Waiver
This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and shall supersede and replace any and all prior agreements, undertakings, representations or negotiations pertaining to the subject matter of this Agreement . There are no warranties, representations or agreements between the parties in connection with such subject matter except as specifically set forth or referred to in this Agreement. Except as expressly provided in this Agreement, no amendment or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any provision of this Agreement shall constitute a waiver of any other provision nor shall any waiver of any provision of this Agreement constitute a continuing waiver unless otherwise expressly provided.
22.Currency
Except as expressly provided in this Agreement, all amounts in this Agreement are stated and shall be paid in United States Dollars. At the election of the Executive such payments may be converted and paid in Canadian Dollars. In such case, conversion shall be calculated using the daily exchange rate set by the Bank of Canada for the date such payment is due.
23.Governing Law and Venue
This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as applicable to contracts executed and performed entirely within and by residents of such state.
Each of the parties submits to the exclusive jurisdiction of any state or federal court sitting in California in any action or proceeding arising out of or relating to this Agreement and further agrees that all claims in respect of the action or proceeding may be heard and determined in any such court and agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner so provided by law.
The parties irrevocably submit to the exclusive jurisdiction of these courts and waive the defense of inconvenient forum to the maintenance of any action or proceeding in these venues.
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24.Disputes and Attorney’s Fees
The Corporation shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment, in seeking in good faith to obtain or enforce any benefit or right provided in this Agreement. Such payments shall be made within five (5) business days after delivery of the Executive’s written request for payment accompanied with such evidence of fees and expenses incurred as the Corporation may reasonably require.
In the event any action or proceeding, at law or in equity, is filed to enforce or interpret this Agreement, the prevailing party in such action or proceeding will be entitled to recover reasonable attorneys' fees and costs in addition to any other award of the court or tribunal, as the case may be.
25.Counterparts
This Agreement may be signed in counterparts and by facsimile transmission and each of such counterparts shall constitute an original document and such counterparts, taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date first written above.
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Exhibit 6.2.1
See attached pdf
Exhibit 6.2.2
See attached pdf
May 5, 2021
Chief Executive Officer
SKY QUARRY, INC.
dsealock@skyquarry.com .
424-394-1090
Re: Engagement Agreement
Dear David:
This engagement letter agreement (this “Agreement”) sets forth the terms under which Digital Offering LLC, a FINRA and SEC registered broker-dealer (“we” or “Digital Offering”), is being engaged to perform administrative and technology related functions in connection with this offering, but not for underwriting or placement agent services for Sky Quarry, Inc. (“you” or the “Company” and, together with Digital Offering, the “Parties”) in connection with a proposed best efforts Regulation A offering by the Company of its securities (the “Securities”) which Securities may be convertible preferred stock, common stock, convertible debt or other securities and may be in the form of units that include warrants in each case as determined by the Company after consultation with Digital Offering.
The terms of our engagement are as follows:
1.THE OFFERING.
(a)We will seek to perform administrative and technology related functions which will allow you to raise capital through a Regulation A, Tier II offering (the “Offering”) of the Securities to accredited and non-accredited investors (the “Investors”) in an exempt transaction under Regulation A of the Securities Act of 1933, as amended (the “Securities Act”). We expect that the Offering will result in gross proceeds to the Company of up to $18.75 million. The actual terms and amount of the Offering will depend on market conditions, and will be subject to negotiation between the Company, Digital Offering and the prospective investors.
(b)The Company expressly acknowledges that: (i) the Offering will be undertaken on a “best efforts” basis, (ii) Digital Offering will not be required to purchase any Securities from the Company, and (iii) the execution of this Agreement does not constitute a commitment by Digital Offering to consummate any transaction contemplated hereunder and does not ensure a successful Offering or the ability of Digital Offering to secure any financing on behalf of the Company.
(c)During the Term (as defined below), the Company and its affiliates agree not to solicit, negotiate with or enter into any agreement with any other investment banking firm, placement agent, financial advisor, intermediary or any other person or entity in connection with the Offering. The Company represents and warrants that the execution, delivery and performance of this Agreement does not violate the terms of any agreement or understanding to which you or your affiliates are a party or to which you or your affiliates are bound with any other person or entity.
2.FEES AND EXPENSES.
(a)As compensation to Digital Offering for its services hereunder, the Company agrees to pay Digital Offering, concurrently with each closing of the Offering, a cash agent fee (the “Agent Fee”) equal to 1% of the gross proceeds of the Offering. In addition, on the date of each closing of the Offering, the Company will issue to Digital Offering a five-year agent warrant (the “Agent Warrant”) for the purchase of a number of common shares that is equal to the quotient of (i) one percent (1%) of the of the dollar amount of Securities sold at such closing divided by the price per share paid by investors for Securities sold at such closing. The Agent Warrant will have an exercise price equal to the price per share paid by investors in the Offering. The Agent Warrant will contain customary terms and conditions, including without limitation, provisions for cashless exercise and the Agent Warrant will be registered under the offering statement for the Offering. Digital Offering understands and agrees that there are significant restrictions pursuant to Financial Industry Regulatory Authority, or FINRA Rule 5110 against transferring the Agent Warrant and the underlying Securities during the one hundred eighty (180) days after the qualification date of the offering statement for the Offering and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Agent Warrant, or any portion thereof, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities for a period of one hundred eighty (180) days following the qualification date of the offering statement for the Offering to anyone other than (i) an underwriter or selected dealer in connection with the Offering or (ii) a bona fide officer or partner of Digital Offering or of any underwriter or selected dealer; and only if any such transferee agrees to the foregoing lock-up restrictions.
(b)The Company will pay a $10,000 retainer to Digital Offering within five days of executing this agreement. This retainer will be used to cover expenses incurred by Digital Offering in connection with the Offering.
(c)In addition, the Company shall pay for fees and expenses incurred by it in connection with the Offering, including without limitation, (i) all filing fees and communication expenses relating to the qualification of the Securities to be sold in the Offering with the Securities and Exchange Commission (the “Commission”) and the filing of the offering materials with the Financial Industry Regulatory Authority (“FINRA”) under FINRA Rule 5110, (ii) the costs of all mailing and printing of the Offering documents, the Offering Statement (as defined below), the Offering Circular (as defined below) and all amendments, supplements and exhibits thereto and as many preliminary and final Offering Circulars as Digital Offering may reasonably deem necessary, (iii) the costs of preparing, printing and delivering electronic certificates representing such Securities; (iv) the costs and expenses of the transfer agent for such Securities; (v) the costs and expenses of the Company’s accountants and the fees and expenses of the Company’s legal counsel and other agents and representatives.
(d)Upon the execution of the engagement letter, Digital Offering shall obtain background checks on the Company’s officers, directors and significant stockholders and obtain a due diligence report from a third-party due diligence service provider. The expenses for the background check and due diligence report are expected to be approximately $5,000 in the aggregate. Digital Offering shall apply the retainer against these expenses. Digital Offering’s engagement with these service providers will permit Digital Offering to rely on these reports.
The Company will be required to make the Offering available online for investors through an Offering platform. The Offering will need to handle online deal marketing, investor outreach and technology platform that makes the process of investing simple. The Offering Platform will handle all KYC, CIP, AML, OFAC for investors participating in the Offering. The Offering Platform, will provide for electronic subscriptions handle payments from investors through an escrow agent. The Offering Platform provided, escrow agent and transfer agent used must be approved by Digital Offering and the Company will be responsible for any and all expenses.
(e)All fees and any other amounts payable hereunder are payable in U.S. dollars, free and clear of any United States or foreign withholding taxes or deductions, and shall be payable to an account designated by Digital Offering.
3.TERM OF ENGAGEMENT; RELATIONSHIP OF PARTIES.
(a)The term of Digital Offering’s engagement hereunder (the “Term”) shall commence on the mutual execution of this Agreement and end on the earlier to occur of: (i) the closing of the Offering and (ii) ten (10) business days after either party gives the other written notice of termination hereunder. For the avoidance of doubt, either Digital Offering or the Company may terminate this Agreement at any time on 10 days’ prior written notice. Upon termination, we will be entitled to collect all fees, if any, earned through the date of termination, and the Company will pay or reimburse Digital Offering for its out-of-pocket expenses, subject to Section 2(b) hereof. The Company agrees that: (a) any termination or completion of Digital Offering’s engagement hereunder shall not affect the Company’s obligation to indemnify Digital Offering, the Soliciting Dealers and the affiliates of Digital Offering and the Soliciting Dealers as provided for herein, (b) any termination of Digital Offering’s engagement hereunder shall not affect the Company’s obligation to pay fees as provided for in Section 3(b) hereof; and (c) any termination of Digital Offering’s engagement hereunder shall not affect the Company’s obligation to pay fees and reimburse the expenses accruing prior to such termination as provided for herein.
(b)Nothing contained in this Agreement shall be construed to place Digital Offering and the Company in the relationship of partners or joint ventures. Neither Digital Offering nor the Company shall represent itself as the agent or legal representative of the other for any purpose whatsoever nor shall either have the power to obligate or bind the other in any manner whatsoever. The Company’s engagement of Digital Offering is not intended to confer rights upon any person not a party hereto (including shareholders, directors, officers, employees or creditors of the Company) as against Digital Offering or its affiliates, or their respective directors, officers, employees or agents, successors or assigns. Digital Offering, in performing its services hereunder, shall at all times be an independent contractor. No promises or representations have been made, except as expressly set forth in this Agreement, and the parties have not relied on any promises or representations except as expressly set forth in this Agreement. Nothing contained herein should be construed as creating any fiduciary duties between the Company and Digital Offering.
4.OFFERING MATERIALS; REPRESENTATIONS AND WARRANTIES.
(a)If the proposed offering is a Regulation A offering, the Company shall, as soon as practicable following the date hereof, prepare and file with the Commission and the appropriate state securities authorities, an Offering Statement on Form 1-A (the “Offering Statement”) under
the Securities Act, and an Offering Circular included therein (the “Offering Circular”) covering the Securities to be sold in the Offering. The Offering Statement (including the Offering Circular therein), and all amendments and supplements thereto, will be in form satisfactory to Digital Offering and counsel to Digital Offering and will contain such interim and other financial statements and schedules as may be required by the Securities Act and rules and regulations of the Commission thereunder. Digital Offering and its counsel shall be given the opportunity to make such review and investigation in connection with the Offering Statement and the Company as they deem desirable. Digital Offering and the Company shall mutually agree on the use of proceeds of the Offering, which shall be described in detail within the Offering Circular, it being further understood and agreed that, except as may expressly approved by Digital Offering, no proceeds from the Offering will be used to pay outstanding loans owed by the Company to any Company officers, directors or stockholders or to redeem any securities of the Company.
(b)You hereby represent, warrant and agree with Digital Offering that upon qualification of the Offering Statement, the Offering Circular will comply with the Securities Act, Regulation A promulgated thereunder and any other rules and regulations (as applicable) of the Commission (the “Rules and Regulations”), and the Offering Circular and any and all authorized printed sales literature or other sales materials prepared and authorized by the Company for use with potential investors in connection with the Offering (“Authorized Sales Materials”), including without limitation, all testing the waters material under Rule 255, when used in conjunction with the Offering Circular, will not contain any untrue statements of material facts or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; provided, however, that the foregoing provisions of this Section 5(c) will not extend to such statements contained in or omitted from the Offering Circular or Authorized Sales Materials as are primarily within the knowledge of Digital Offering and are based upon information furnished by Digital Offering in writing to the Company specifically for inclusion therein.
(c)You hereby authorize Digital Offering to transmit to the prospective Investors the Offering Circular and Authorized Sales Materials. The Company will advise Digital Offering immediately of the occurrence of any event or any other change known to the Company which results in the Offering Statement, including the Offering Circular, or the Authorized Sales Materials containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein or previously made, in light of the circumstances under which they were made, not misleading.
(d)The Company further agrees that Digital Offering may rely upon, and shall be a third-party beneficiary of, the representations and warranties and applicable covenants and agreements made to the investors in connection with the Offering.
5.CONDITIONS TO THE INITIAL CLOSING OF THE OFFERING. The Offering shall be conditioned upon, among other things, the following:
(a)Satisfactory completion by Digital Offering of its due diligence investigation and analysis of: (i) the Company’s business, prospects, industry, financial condition and its arrangements with its officers, directors, employees, affiliates, customers and suppliers, (ii) the audited historical financial statements of the Company as required by the SEC (including any relevant stub period reviews), and (iii) the Company’s projected financial results for the fiscal year ending December 31, 2021 and 2022;
(b)Approval of the Offering by Digital Offering’s respective investment committees;
(c)FINRA shall not have finally determined that the compensation payable to Digital Offering hereunder is unreasonable under FINRA Rule 5110;
(d)The execution by the Company and Digital Offering of an Underwriting Agreement containing all applicable terms and conditions provided for in this engagement letter;
(e)Neither the Company nor any of its affiliates has, either prior to the initial filing or the qualification date of the Offering Statement, made any offer or sale of any securities which are required to be “integrated” pursuant to the Securities Act or the regulations thereunder with the offer and sale of the Securities pursuant to the Offering Statement;
(f)The Company maintaining a PCAOB registered firm of independent certified public accountants acceptable to Digital Offering and the Company, including, without limitation, the Company’s existing auditor (which Digital Offering agrees is acceptable), which will have responsibility for the preparation of the financial statements and the financial exhibits to be included in the Offering Statement, it being agreed that the Company will continue to engage a PCAOB registered accounting firm of comparable quality (as may be determined by the Company’s audit committee or board of directors) for a period of at least three years after the Closing so long as the Company is required to file reports with the SEC during such period;
(g)The Company maintaining a transfer agent that is FAST eligible for the Company’s Securities reasonably acceptable to Digital Offering and continuing to retain such transfer agent for a period of two (2) years after the Closing;
6.INDEMNIFICATION, CONTRIBUTION, AND CONFIDENTIALITY. The Company agrees to indemnify Digital Offering and its controlling persons, representatives, and agents in accordance with the indemnification provisions set forth in Appendix I hereto, and the parties agree to the confidentiality provisions of Appendix II hereto, all of which are incorporated herein by reference. These provisions will apply regardless of whether the Offering is consummated.
7.GOVERNING LAW; VENUE. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts executed and to be wholly performed therein without giving effect to its conflicts of laws principles or rules. The Company and Digital Offering agree that any dispute concerning this Agreement shall be resolved exclusively through binding arbitration before FINRA pursuant to its arbitration rules. Arbitration will be venued in Los Angeles County or Orange County, California USA (the “Agreed Forum”).
Each of the Company and Digital Offering agree that the Agreed Forum is not an “inconvenient forum” for proceedings hereunder, and each hereby agree to the personal jurisdiction of the Agreed Forum and that service of process by mail to the address for such party as set forth in this letter (or such other address as a party hereto shall notify the other in writing) constitute full and valid service for such proceedings.
8.LIMITATION ON LIABILITY. Notwithstanding any provision of this Agreement to the contrary, the Company agrees that neither Digital Offering nor its affiliates, and the respective officers, directors, employees, agents, and representatives of Digital Offering, its affiliates and each other person, if any, controlling Digital Offering or any of its affiliates, shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company for or in connection with the engagement and transaction described herein in an amount excess of the actual fees paid to Digital Offering hereunder.
9.ANNOUNCEMENT OF OFFERING. If the Offering is consummated, Digital Offering may, at its own expense, place a customary announcement in such newspapers and periodicals as Digital Offering may desire announcing the closing of the Offering, the name of the Company, the securities issued and the gross proceeds of the Offering. The parties agree that any such announcement will be subject to approval by the Company prior to dissemination by Digital Offering and that such approval will not be unreasonably withheld.
10.ADVICE TO THE BOARD. The Company acknowledges that any advice given by us to you is solely for benefit and use of the Board of Directors of the Company and may not be used, reproduced, disseminated, quoted or referred to, without our prior written consent.
11.OTHER ENGAGEMENTS. Nothing in this engagement letter shall be construed to limit the ability of Digital Offering or its respective affiliates to pursue, investigate, analyze, invest in, or engage in investment banking, financial advisory, or any other business relationship with entities other than the Company, notwithstanding that such entities may be engaged in a business which is similar to or competitive with the business of the Company, and notwithstanding that such entities may have actual or potential operations, products, services, plans, ideas, customers or supplies similar or identical to the Company’s, or may have been identified by the Company as potential merger or acquisition targets or potential candidates for some other business combination, cooperation or relationship. The Company acknowledges and agrees that it does not claim any proprietary interest in the identity of any other entity in its industry or otherwise, and that the identity of any such entity is not confidential information under Appendix II of this engagement letter.
12.ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement between the parties and supersedes and cancels any and all prior or contemporaneous arrangements, understandings and agreements, written or oral, between them relating to the subject matter hereof.
13.SUCCESSORS AND ASSIGNS. The benefits of this Agreement shall inure to the parities hereto, their respective successors and assigns and to the indemnified parties hereunder and their respective successors and assigns, and the obligations and liabilities assumed in this Agreement shall be binding upon the parties hereto and their respective successors and assigns. Notwithstanding anything contained herein to the contrary, neither Digital Offering nor the Company shall assign to an unaffiliated third party any of its obligations hereunder.
14.COUNTERPARTS. For the convenience of the parties, this Agreement may be executed in any number of counterparts, each of which shall be, and shall be deemed to be, an original instrument, but all of which taken together shall constitute one and the same Agreement. Such counterparts may be delivered by one party to the other by facsimile, portable document format (“PDF”) or other electronic transmission, and such counterparts shall be valid for all purposes.
We look forward to working with you toward the successful conclusion of this engagement and developing a long-term relationship with the Company.
Very truly yours,
DIGITAL OFFERING LLC
By:
Name: GORDON MCBEAN
Title: CEO
Agreed to and accepted as of
the date first above written
SKY QUARRY, INC.
By:
Name: DAVID SEALOCK
Title: CEO
APPENDIX I
INDEMNIFICATION AND CONTRIBUTION
Capitalized terms used in this Appendix shall have the meanings ascribed to such terms in the Agreement to which this Appendix is attached.
The Company agrees to indemnify and hold harmless Digital Offering and its respective affiliates (as defined in Rule 405 under the Securities Act of 1933, as amended) and their respective directors, officers, employees, agents, including any and all Soliciting Dealers, and controlling persons (Digital Offering and each such person being an “Indemnified Party”) from and against all losses, claims, damages and liabilities (or actions, including shareholder actions, in respect thereof), joint or several, to which such Indemnified Party may become subject under any applicable federal or state law, or otherwise, which are related to or result from the performance by Digital Offering of the services contemplated by or the engagement of Digital Offering pursuant to, this Agreement and will promptly reimburse any Indemnified Party on demand for all reasonable expenses (including reasonable counsel fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense arising from any threatened or pending claim, whether or not such Indemnified Party is a party and whether or not such claim, action or proceeding is initiated or brought by the Company. The Company will not be liable to any Indemnified Party under the foregoing indemnification and reimbursement provisions, (i) for any settlement by an Indemnified Party effected without the Company’s prior written consent (not to be unreasonably withheld); or (ii) to the extent that any loss, claim, damage or liability is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted primarily from Digital Offering’s willful misconduct or gross negligence. The Company also agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company or its security holders or creditors related to or arising out of the engagement of Digital Offering pursuant to, or the performance by Digital Offering of the services contemplated by, this Agreement except to the extent that any loss, claim, damage or liability is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted primarily from Digital Offering’s willful misconduct or gross negligence.
Promptly after receipt by an Indemnified Party of notice of any intention or threat to commence an action, suit or proceeding or notice of the commencement of any action, suit or proceeding, such Indemnified Party will, if a claim in respect thereof is to be made against the Indemnified Party pursuant hereto, promptly notify the Company in writing of the same. In case any such action is brought against any Indemnified Party and such Indemnified Party notifies the Company of the commencement thereof, the Company may elect to assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Party, and an Indemnified Party may employ counsel to participate in the defense of any such action provided, that the employment of such counsel shall be at the Indemnified Party’s own expense, unless (i) the employment of such counsel has been authorized in writing by the Company, (ii) the Indemnified Party has reasonably concluded (based upon advice of counsel to the Indemnified Party) that there may be legal defenses available to it or other Indemnified Parties that are different from or in addition to those available to the Company, or that a conflict or potential conflict exists (based upon advice of counsel to the Indemnified Party) between the Indemnified Party and the Company that makes it impossible or inadvisable for counsel to the Indemnifying Party to conduct the defense of both the Company and
the Indemnified Party (in which case the Company will not have the right to direct the defense of such action on behalf of the Indemnified Party), or (iii) the Company has not in fact employed counsel reasonably satisfactory to the Indemnified Party to assume the defense of such action within a reasonable time after receiving notice of the action, suit or proceeding, in each of which cases the reasonable fees, disbursements and other charges of such counsel will be at the expense of the Company; provided, further, that in no event shall the Company be required to pay fees and expenses for more than one firm of attorneys representing Indemnified Parties unless the defense of one Indemnified Party is unique from that of another Indemnified Party subject to the same claim or action. Any failure or delay by an Indemnified Party to give the notice referred to in this paragraph shall not affect such Indemnified Party’s right to be indemnified hereunder, except to the extent that such failure or delay causes actual harm to the Company, or prejudices its ability to defend such action, suit or proceeding on behalf of such Indemnified Party.
If the indemnification provided for in this Agreement is for any reason held unenforceable by an Indemnified Party, the Company agrees to contribute to the losses, claims, damages and liabilities for which such indemnification is held unenforceable (i) in such proportion as is appropriate to reflect the relative benefits to the Company, on the one hand, and Digital Offering on the other hand, of the Offering as contemplated whether or not the Offering is consummated or, (ii) if (but only if) the allocation provided for in clause (i) is for any reason unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company, on the one hand and Digital Offering, on the other hand, as well as any other relevant equitable considerations. The Company agrees that for the purposes of this paragraph the relative benefits to the Company and Digital Offering of the Offering as contemplated shall be deemed to be in the same proportion that the total value received or contemplated to be received by the Company or its shareholders, as the case may be, as a result of or in connection with the Offering bear to the fees paid or to be paid to Digital Offering under this Agreement. Notwithstanding the foregoing, the Company expressly agrees that Digital Offering shall not be required to contribute any amount in excess of the amount by which fees paid to Digital Offering hereunder (excluding reimbursable expenses), exceeds the amount of any damages which Digital Offering has otherwise been required to pay.
The Company agrees that without the prior written consent of Digital Offering, which shall not be unreasonably withheld, it will not settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification could be sought under the indemnification provisions of this Agreement (in which Digital Offering or any other Indemnified Party is an actual or potential party to such claim, action or proceeding), unless such settlement, compromise or consent includes an unconditional release of each Indemnified Party from all liability arising out of such claim, action or proceeding.
In the event that an Indemnified Party is requested or required to appear as a witness in any action brought by or on behalf of or against the Company in which such Indemnified Party is not named as a defendant, the Company agrees to promptly reimburse Digital Offering on a monthly basis for all expenses incurred by it in connection with such Indemnified Party’s appearing and preparing to appear as such a witness, including, without limitation, the reasonable fees and disbursements of its legal counsel.
If multiple claims are brought with respect to at least one of which indemnification is permitted under applicable law and provided for under this Agreement, the Company agrees that any judgment or arbitration award shall be conclusively deemed to be based on claims as to which indemnification is permitted and provided for, except to the extent the judgment or arbitrate award expressly states that it, or any portion thereof, is based solely on a claim as to which indemnification is not available.
APPENDIX II
INFORMATION TO BE SUPPLIED; CONFIDENTIALITY
Capitalized terms used in this Appendix shall have the meanings ascribed to such terms in the Agreement to which this Appendix is attached.
In connection with the activities of Digital Offering on behalf of the Company as set forth in the engagement agreement to which this Appendix is attached (the “Agreement”), the Company will furnish Digital Offering with all financial and other information regarding the Company that Digital Offering reasonably believes appropriate to its engagement (all such information so furnished by the Company, whether furnished before or after the date of this Agreement, being referred to, collectively with the Placement Materials, as the “Confidential Information”). The Company will provide Digital Offering with access to the officers, directors, employees, independent accountants, legal counsel, and other advisors and consultants of the Company. The Company recognizes and agrees that Digital Offering (i) will use and rely primarily on the Confidential Information and information available from generally recognized public sources in performing the services contemplated by this Agreement without independently verifying the Confidential Information or such other information, (ii) does not assume responsibility for the accuracy or completeness of the Confidential Information or such other information, and (iii) will not make an appraisal of any assets or liabilities owned or controlled by the Company or its market competitors.
Digital Offering will maintain the confidentiality of the Confidential Information during the Term of this Agreement and following the termination or expiration of the Term and, unless and until such information shall have been made publicly available by the Company or by others without breach of a confidentiality agreement, shall disclose the Information only to its officers, employees, legal counsel, and authorized representatives, as authorized by the Company or as required by law or by order of a governmental authority or court of competent jurisdiction. In the event that Digital Offering is legally required to make disclosure of any of the Confidential Information, Digital Offering will: (i) give prompt notice to the Company prior to such disclosure, to the extent that Digital Offering can practically do so, (ii) reasonably assist the Company at the Company’s cost in seeking a protective order or other relief from the disclosure of the Confidential Information and (iii) if compelled to disclose Confidential Information, limit such disclosure to only those matters which it is compelled to disclose.
The term “Confidential Information” does not include information which (i) is or becomes generally available to the public other than as a result of an unauthorized disclosure thereof by Digital Offering or any Investor; (ii) was available on a non-confidential basis prior to its disclosure; or (iii) becomes available on a non-confidential basis from a third party source who is not known to be under a confidentiality obligation.
Notwithstanding the foregoing, Digital Offering, as a FINRA Member Firm, shall be permitted to retain one copy of any Confidential Information provided hereunder to the extent required by its compliance procedures and may disclose such Confidential Information to representatives of FINRA or the SEC, to the extent required by applicable rules and regulations of such regulatory bodies, without prior notice to the Company.
Nothing in this Agreement shall be construed to limit the ability of Digital Offering or its respective affiliates to pursue, investigate, analyze, invest in, or engage in investment banking, financial advisory or any other business relationship with entities other than the Company, notwithstanding that such entities may be engaged in a business which is similar to or competitive with the business of the Company, and notwithstanding that such entities may have actual or potential operations, products, services, plans, ideas, customers or supplies similar or identical to the Company’s, or may have been identified by the Company as potential merger or acquisition targets or potential candidates for some other business combination, cooperation or relationship. The Company expressly acknowledges and agrees that it does not claim any proprietary interest in the identity of any other entity in its industry or otherwise, and that the identity of any such entity is not Confidential Information for purposes hereof.
WARRANT TO PURCHASE COMMON STOCK
SKYQUARRY, INC.
This is to certify that, FOR VALUE RECEIVED, Digital Offering, LLC, or registered assigns ("Holder") is entitled to purchase, subject to the provisions of this Warrant, from SkyQuarry, Inc. (the "Company"), ________ shares of the common stock of the Company ("Common Stock") at a purchase price of $1.25 per share. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for a share of Common Stock may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, as may be adjusted from time to time, are hereinafter sometimes referred to as "Warrant Stock"; and the exercise price of a share of Common Stock in effect at any time, and as may be adjusted from time to time, is hereinafter sometimes referred to as the "Exercise Price."
(a) Exercise of Warrant. This Warrant may be exercised in whole or in part at any time or from time to time on or after _____________ but not later than _____ P.M., Salt Lake City time, on __________________, or, if ___________________ is a day on which banking institutions are authorized by law to close, then on the next succeeding day which shall not be such a day, by presentation and surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of Shares of Warrant Stock specified in such form, together with all Federal and state taxes applicable upon such exercise. If this Warrant should be exercised in part only, the Company, upon surrender of this Warrant for cancellation, shall execute and shall deliver a new Warrant evidencing the right of the Holder to purchase the balance of the Shares of Warrant Stock purchaseable hereunder. Upon receipt by the Company of this Warrant at the office or the agency of the Company, in proper form for exercise, the Holder shall be deemed to be the Holder of record of the Shares of Warrant Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Shares of Warrant Stock shall not then be actually delivered to the Holder.
This Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the Closing Price of the Company’s Common Stock on the principal Trading Market on the date immediately prior to the time of the Holder’s delivery of the Purchase Form;
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.
(b) Reservation of Shares of Warrant Stock. The Company hereby agrees that, at all times, there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance or delivery upon exercise of this Warrant.
(c) Fractional Shares. No fractional Shares of Warrant Stock or scrip representing fractional Shares of Warrant Stock shall be issued upon the exercise of this Warrant. With respect to any fraction of a Share of Warrant Stock called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share determined as follows:
1.If the Company's Common Stock is publicaly traded, the average daily closing prices for 30 consecutive trading days immediately preceding the date of exercise of this Warrant. The closing price for each day shall be the last sale price regular-way or, in case no such sale takes place on such date, the average of the closing bid and asked prices regular-way, on the principal national securities exchange in which the Company's Common Stock is listed or admitted to trading, or if it is not listed or admitted to trading on any national securities exchange, the last sale price of such Common Stock on the consolidated transaction reporting system of the National Association of Securities Dealers ("NASD"), if such last sale information is reported on such system, or if not so reported, the average of the closing bid and asked prices of such Common Stock on the National Association of Securities Dealers Automatic Quotation system ("NASDAQ"), or any comparable system, or if the Common Stock is not listed on NASDAQ, or a comparable system, the average of the closing bid and asked prices as furnished by two members of the NASD selected from time to time by the Company for that purpose.
2.If the Company's Common Stock is not publicly traded, the current value shall be an amount, not less than the book value, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company, such determination to be final and binding on the Holder.
(d)Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the Holder thereof to purchase in the aggregate the same number of Shares of Warrant Stock purchasable hereunder. This Warrant may not be sold, hypothecated, assigned, or transferred prior to the date this Warrant is first exercisable. Any assignment shall be made subject to the provisions of Section (k) by surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and with funds sufficient to pay any transfer tax; whereupon, the Company, without charge, shall execute and shall deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled.
This Warrant may be divided or may be combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and the denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants issued in substitution for or replacement of this Warrant or into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction, or mutilation of this Warrant, and (in the case of loss, theft, or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and will deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone.
(e)Rights of the Holder. The Holder, by virtue hereof, shall not be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein.
(f)Anti-Dilution Provisions.
If the Company shall subdivide or combine its outstanding shares of Common Stock, the Exercise Price shall be proportionately decreased in the case of such subdivision (on the date that such subdivision shall become effective) or proportionately increased in the case of such combination (on the date that such combination shall become effective).
Anything in this Section to the contrary notwithstanding, the Company shall not be required to give effect to any adjustment in the Exercise Price unless and until the net effect of one or more adjustments, determined as above provided, shall have required a change of the Exercise Price by at least one cent, but when the cumulative net effect of more than one adjustment so determined shall be to change the actual Exercise Price by at least one cent, such change in the Exercise Price shall thereupon be given effect.
Upon any adjustment of the Exercise Price, the Holder of this Warrant shall thereafter (until another such adjustment) be entitled to purchase, at the new Exercise Price, the number of Shares of Warrant Stock, calculated to the nearest full shares, obtained by multiplying the number of shares of Stock initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the new Exercise Price.
(g)Officer's Certificate. Whenever the Exercise Price shall be adjusted as required by the provisions of Section (f) hereof, the Company shall forthwith file with its Secretary or an Assistant Secretary at its principal office, and with its stock transfer agent, if any, an Officer's Certificate showing the adjusted Exercise Price, determined as herein provided, and setting forth in reasonable detail the facts requiring such adjustment. Each such Officer's Certificate shall be made available at all reasonable times for inspection by the Holder; and the Company, after each such adjustment, shall forthwith deliver a copy of such certificate to the Holder. Such certificate shall be conclusive as to the correctness of such adjustment.
(h)Notices to Warrant Holders. So long as this Warrant shall be outstanding and unexercised (i) if the Company shall pay any dividend or shall make any distribution upon the Common Stock or (ii) if the Company shall offer to the holders for subscription or purchase by them any shares of stock of any class or any other rights or (iii) if any capital reorganization of the Company; reclassification of the capital stock of the Company; consolidation or merger of the Company with or into another corporation; sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation; or voluntary or involuntary dissolution, liquidation, or winding up of the Company shall be effected, then, in any such case, the Company shall cause to be delivered to the Holder, at least ten (l0) days prior to the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution, or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation, or winding up is to take place and the date, if any, is to be fixed, as of which the holders of record shall be entitled to exchange their Shares for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation, or winding up.
(i)Reclassification, Reorganization or Merger. In case of any reclassification, or capital reorganization (other than a change in par value, or from par value to no par value, or from no par value to par value) or as a result of an issuance of Common Stock by way of dividend or other distribution or of a subdivision or combination, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary, in which merger the Company is the continuing corporation and which does not result in any reclassification, or capital reorganization) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the Company shall cause effective provision to be made so that the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of Stock and other securities and property receivable, as the case may be, had this warrant been exercised immediately prior to such reclassification, capital reorganization, consolidation, merger, sale, or conveyance. Any such provisions shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (i) shall similarly apply to successive reclassifications; capital reorganizations; and to successive consolidations, mergers, sales, or conveyances.
In the event that in any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares shall be issued in exchange, conversion, substitution or payment, in whole or in part, for a security of the Company other than Stock, any such issue shall be treated as an issue of Stock covered by the provisions of subsection (f) hereof with the amount of the consideration received upon the issue thereof being determined by the Board of Directors of the Company, such determination to be final and binding on the Holder.
(j)Qualification Under the Regulation A.
The Warrant Stock will be included in the Company's Form l-A under the Securities Act of l933, as amended.
(k)Transfer to Comply with the Securities Act of l933.
(l)This Warrant or the Warrant Stock or any other security issued or issuable upon exercise of this Warrant may not be sold, transferred, or otherwise disposed of except to a person who, in the opinion of counsel for the Company, is a person to whom this Warrant or such Warrant Stock may legally be transferred pursuant to Section (d) hereof without registration and without the delivery of a current Prospectus under the Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section (k) with respect to any resale or other disposition of such securities.
(2)The Company may cause the following legend or one similar thereto to be set forth on each certificate representing Warrant Stock or any other security issued or issuable upon exercise of this Warrant not theretofore distributed to the public or sold to underwriters for distribution to the public pursuant to Section (j) hereof, unless counsel for the Company is of the opinion as to any such certificate that such legend is unnecessary:
The shares represented by this Certificate have not been registered under the Securities Act of l933 (the "Act") and are "restricted securities" as that term is defined in Rule 144 under the Act. The shares may not be offered for sale, sold, or otherwise transferred except pursuant to an effective registration statement under the Act or pursuant to an exemption from registration under the Act, the availability of which is to be established to the satisfaction of the Company.
(l) Common Stock Defined. Whenever reference is made to the issue or sale of Common Stock, the term shall mean the Common Stock of the Company, and any other class of stock ranking on a parity with such Stock. However, subject to the provisions of Section (i) hereof, shares issuable upon exercise hereof shall include only shares of the class designated as the Common Stock of the Company as of the date hereof.
(m)Applicable Law. This Warrant shall be governed by and construed in accordance with the laws of Delaware.
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SKYQUARRY, INC. |
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Chief Executive Officer |
Dated: , 2021
PURCHASE FORM
Dated , 2021.
The undersigned hereby irrevocable elects to exercise the within Warrant to the extent of purchasing Shares of Warrant Stock and hereby makes payment of $ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
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ASSIGNMENT FORM
FOR VALUE RECEIVED,
hereby sell, assigns, and transfers unto:
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the right to purchase the Common Stock represented by this Warrant to the extent of shares as to which such right is exercisable and does hereby irrevocably constitute and appoint attorney, to transfer the same on the books of the Company with full power of substitution in the premises.
Signature
Dated: , 1921.
Exhibit 6.4
See attached pdf
Exhibit 6.5
See attached pdf
Exhibit 6.6.1
See attached pdf
Exhibit 6.6.2
See attached pdf
Exhibit 6.6.3
See attached pdf
JPM AGREEMENT
This JPM Agreement (this “Agreement”), dated as of June 21, 2021, is entered into by and between Sky Quarry Inc., a Delaware corporation (the “Company”), and JPMorgan Chase Bank, N.A. (“JPM”).
WHEREAS, JPM owns shares of the Company’s capital stock;
WHEREAS, JPM, the Company and the other stockholders of the Company were previously parties to that certain Stockholders Agreement dated as of September 24, 2020 (as amended, the “Stockholders Agreement”); and
WHEREAS, JPM and the Company deem it in their best interests and in the best interests of the Company to set forth in this Agreement their respective rights and obligations in connection with JPM’s investment in the Company.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, including, but not limited to, the termination of the Stockholders Agreement, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1.Defined Terms. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in this Section 1.
“Affiliate” means with respect to any Person, any other Person who, directly or indirectly (including through one or more intermediaries), controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control,” when used with respect to any specified Person, shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or partnership or other ownership interests, by contract or otherwise; and the terms “controlling” and “controlled” shall have correlative meanings.
“Agreement” has the meaning set forth in the preamble.
“Applicable Law” means all applicable provisions of (a) constitutions, treaties, statutes, laws (including the common law), rules, regulations, decrees, ordinances, codes, proclamations, declarations or orders of any Governmental Authority, (b) any consents or approvals of any Governmental Authority and (c) any orders, decisions, advisory or interpretative opinions, injunctions, judgments, awards, decrees of, or agreements with, any Governmental Authority.
“Board” means the Board of Directors of the Company.
“Business” means the business of environmentally clean technology for the extraction of hydrocarbons from mined hydrocarbon bearing ores, sands or shale, and recycling hydrocarbons from applicable solid waste sources, such as recycled asphalt shingles or contaminated soils, utilizing proprietary licensed green recovery technology with end production of environmentally clean oil and petroleum products.
“Business Day” means a day other than a Saturday, Sunday or other day on which commercial banks in the City of New York, New York are authorized or required to close.
“Bylaws” means the bylaws of the Company, as amended, modified, supplemented or restated from time to time in accordance with the terms of this Agreement.
“Certificate of Incorporation” means the certificate of incorporation of the Company, as filed on June 4, 2019 with the Secretary of State of the State of Delaware and as amended, modified, supplemented or restated from time to time in accordance with the terms of this Agreement.
“Claimant” has the meaning set forth in Section 11(k)(ii).
“Common Stock” means the common stock, par value $0.0001 per share, of the Company and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or similar reorganization.
“Company” has the meaning set forth in the preamble.
“Competitor” means any Person that directly or indirectly competes with the Company in the Business (or any portion thereof) and/or whose business is or includes the Business (or any portion thereof).
“Dispute” has the meaning set forth in Section 11(k)(i).
“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect at the time.
“Fiscal Year” means for financial accounting purposes, January 1 to December 31.
“GAAP” means United States generally accepted accounting principles in effect from time to time.
“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.
“Initial Public Offering” means any offering of Common Stock pursuant to a registration statement filed in accordance with the Securities Act.
“Issuance Triggering Event” has the meaning set forth in Section 4(a).
“Lien” means any lien, claim, charge, mortgage, pledge, security interest, option, preferential arrangement, right of first offer, encumbrance or other restriction or limitation of any nature whatsoever.
“Note” has the meaning set forth in Section 4(a).
“Organizational Documents” means the Bylaws and the Certificate of Incorporation.
“Percentage Interest” for JPM means, a percentage calculated by dividing the number of shares of Common Stock held by JPM by the aggregate number of shares of Common Stock then issued and outstanding (excluding any Restricted Stock issued pursuant to the Stock Plan).
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“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.
“Related Party Agreement” means any agreement, arrangement or understanding between the Company and any Stockholder or any Affiliate of a Stockholder or any director, officer or employee of the Company (other than employment agreements entered into between the Company and an employee of the Company in the ordinary course of business), as such agreement may be amended, modified, supplemented or restated in accordance with the terms of this Agreement.
“Representative” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.
“Request” has the meaning set forth in Section 11(k)(ii).
“Respondent” has the meaning set forth in Section 11(k)(ii).
“Restricted Stock” has the meaning given to such term in the Stock Plan.
“Securities Act” means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect at the time.
“Stock Options” has the meaning given to such term in the Stock Plan.
“Stock Plan” means that the Company’s Stock Plan adopted as of March 27, 2020.
“Stock Plan Percentage” means a percentage calculated by dividing (a) the number of issued and outstanding shares of Common Stock issued under the Stock Plan (which for purposes of such calculation, shall include, without duplication: (i) Restricted Stock, (ii) shares of Common Stock issued in connection with the exercise of a Stock Option, and (iii) shares of Common Stock assuming the full exercise of all issued but unexercised Stock Options) by (b) the aggregate number of shares of Common Stock then issued and outstanding (including all issued and outstanding shares of Restricted Stock and shares of Common Stock assuming the full exercise of all issued but unexercised Stock Options).
“Stockholder” means each Person who holds Common Stock of the Company.
“Subsidiary” means with respect to any Person, any other Person of which a majority of the outstanding shares or other equity interests having the power to vote for directors or comparable managers are owned, directly or indirectly, by the first Person.
“Tax Gross-Up” has the meaning set forth in Section 4(c).
2.Consent Right. Notwithstanding the foregoing and in addition to any vote or consent of the Board or the stockholders of the Company required by Applicable Law, the approval of JPM shall be required with respect to the following actions by the Company, directly or indirectly:
(a)(i) make any material change to the nature of the Business conducted by the Company or (ii) enter into any business other than the Business;
(b)grant any Stock Option or issue any Restricted Stock to any Person under the Stock Plan if, immediately following such grant, the Stock Plan Percentage would exceed 10%;
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(c)enter into or amend any material term of (i) any employment agreement or arrangement with any senior key employee, (ii) the compensation (including salary, bonus, deferred compensation or otherwise) or benefits of any senior key employee, (iii) any stock option, employee stock purchase or similar equity-based plans, (iv) any benefit, severance or other similar plan, or (v) any annual bonus plan or any management equity plan, which consent shall not be unreasonably withheld or delayed;
(d)incur any indebtedness, pledge or grant Liens on any assets or guarantee, assume, endorse or otherwise become responsible for the obligations of any other Person in a single transaction or series of related transactions, or in excess of $500,000 in the aggregate at any time outstanding;
(e)enter into, amend in any material respect, waive or terminate any Related Party Agreement other than the entry into a Related Party Agreement that is on an arm's length basis and on terms no less favorable to the Company than those that could be obtained from an unaffiliated third party;
(f)enter into or effect any transaction or series of related transactions involving the purchase, lease, license, exchange or other acquisition (including by merger, consolidation, acquisition of stock or acquisition of assets) by the Company of any assets and/or equity interests of any Person;
(g)enter into or effect any transaction or series of related transactions involving the sale, lease, license, exchange or other disposition (including by merger, consolidation, sale of stock or sale of assets) by the Company of any assets;
(h)make any loan, advance or capital contribution to any Person in excess of $500,000;
(i)settle any lawsuit, action, dispute or other proceeding or otherwise assume any liability with a value in excess of $500,000 or agree to the provision of any equitable relief by the Company; or
(j)make any investments in any other Person in excess of $500,000.
3.Observer Rights. As long as JPM or an Affiliate is a stockholder of the Company, the Company shall invite a representative of JPM to attend all meetings of the Board in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that such representative shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade secrets or a conflict of interest, or if JPM or its representative is a Competitor of the Company.
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(a)If the Company (i) issues additional shares of Common Stock to the holder (including any assignee) of that certain Convertible Promissory Note issued by the Company to Mark Bishop on April 23, 2020 in the original principal amount of $50,000 (the “Note”) in connection with the conversion of such Note (an issuance pursuant to the foregoing, an “Issuance Triggering Event”), the Company shall issue to JPM, in exchange for no additional consideration, that number of additional shares of Common Stock such that following such issuance, the Percentage Interest of JPM will be equal to the Percentage Interest of JPM immediately prior to such Issuance Triggering Event. JPM shall be entitled to apportion the issuance right hereby granted to it among itself and its Affiliates in such proportions as it deems appropriate and any reference to “JPM” under this Section 0 shall apply to JPM and/or its Affiliates, as applicable.
(b)The Company shall give written notice to JPM within five business days following a Issuance Triggering Event, which notice shall set forth (i) the material terms and conditions of the Issuance Triggering Event and (ii) the number of shares of Common Stock to be issued to JPM pursuant to Section 4(a), which such shares shall be issued or recorded in the Company’s records within 10 business days of the Issuance Triggering Event.
(c)If any additional shares of Common Stock issued to JPM pursuant to Section 4(a) are subject to U.S. federal, state, local or foreign tax as reasonably determined by JPM, the Company shall pay to JPM such additional cash amounts as reasonably determined by JPM to be necessary (after taking into account all U.S. federal, state, local, and foreign taxes payable by JPM in connection with, related to, or arising out of the receipt of such additional cash amounts) to place JPM in the same after-tax position that JPM would have been in had no such U.S. federal, state, local or foreign tax been paid or incurred with respect to such additional shares of Common Stock issued to JPM or such additional cash amounts payable to JPM (the “Tax Gross-Up”). The Company shall pay such Tax Gross-Up within 10 business days of the Issuance Triggering Event.
5.Financial Statements. In addition to, and without limiting any rights that JPM may have with respect to inspection of the books and records of the Company under Applicable Laws, the Company shall furnish to JPM, the following information:
(a)As soon as available, and in any event within 120 days after the end of each Fiscal Year, the audited balance sheet of the Company as at the end of each such Fiscal Year and the audited statements of income, cash flows and changes in stockholders’ equity for such year, accompanied by the certification of independent certified public accountants of recognized national standing selected by the Board, to the effect that, except as set forth therein, such financial statements have been prepared in accordance with GAAP, applied on a basis consistent with prior years and fairly present in all material respects the financial condition of the Company as of the dates thereof and the results of its operations and changes in its cash flows and stockholders’ equity for the periods covered thereby.
(b)As soon as available, and in any event within 60 days after the end of each fiscal quarter, the balance sheet of the Company at the end of such quarter and the statements of income, cash flows and changes in stockholders’ equity for such quarter, all in reasonable detail and all prepared in accordance with GAAP, consistently applied, and certified by the Chief Financial Officer of the Company.
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(c)To the extent the Company is required by Applicable Law or pursuant to the terms of any outstanding indebtedness of the Company to prepare such reports, any annual reports, quarterly reports and other periodic reports (without exhibits) actually prepared by the Company as soon as available.
(a)Upon at least ten business days’ written notice and for so long as JPM owns at least 10% of the Company’s outstanding Common Stock, the Company shall, and shall cause its officers, directors and employees to, (i) afford JPM and its Representatives, during normal business hours and upon reasonable notice, reasonable access at all reasonable times to its officers, employees, auditors, properties, offices, plants and other facilities and to all books and records, and (ii) afford JPM the opportunity to consult with its officers from time to time regarding the Company’s affairs, finances and accounts as JPM may reasonably request upon reasonable notice, which notice shall include JPM’s purpose for such request.
(b)The right set forth in Section 6(a) above shall not and is not intended to limit any rights which JPM may have with respect to the books and records of the Company, or to inspect its properties or discuss its affairs, finances and accounts under the laws of the jurisdiction in which the Company is incorporated.
7.JPM Representations and Warranties. JPM represents and warrants to the Company that:
(a)JPM is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation.
(b)JPM has all requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby have been duly authorized by all requisite action of JPM. JPM has duly executed and delivered this Agreement.
(c)This Agreement constitutes the legal, valid and binding obligation of JPM, enforceable against JPM in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). The execution, delivery and performance of this Agreement by JPM and the consummation of the transactions contemplated hereby by JPM, require no action by or in respect of, or filing with, any Governmental Authority or any other Person.
8.Company Representations and Warranties. The Company represents and warrants to JPM that:
(a)The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware.
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(b)The Company has all requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby have been duly authorized by all requisite action of the Company. The Company has duly executed and delivered this Agreement.
(c)This Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). The execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby by the Company, require no action by or in respect of, or filing with, any Governmental Authority or any other Person, including, without limitation, any Stockholder.
9.Termination. This Agreement shall terminate upon the earliest of:
(a)the consummation of an Initial Public Offering;
(b)the consummation of a merger or other business combination involving the Company whereby the Common Stock becomes a security that is listed or admitted to trading on the NASDAQ Stock Market, the New York Stock Exchange or another national securities exchange;
(c)the date on which JPM and its Affiliates no longer hold any Common Stock; and
(d)the dissolution, liquidation, or winding up of the Company; or
(e)the written agreement of the Company and JPM.
(a)The termination of this Agreement shall terminate all further rights and obligations of the Company and JPM under this Agreement except that such termination shall not effect:
(i)the existence of the Company;
(ii)the obligation of any party to pay any amounts arising on or prior to the date of termination as a result of a breach of this Agreement or otherwise, or as a result of or in connection with such termination of this Agreement;
(iii)the rights which JPM may have by operation of law as a stockholder of the Company; or
(iv)the rights contained herein which, but their terms are intended to survive termination of this Agreement.
(b)This Section 10 and Section 11 shall survive the termination of this Agreement.
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11.Miscellaneous.
(a)Expenses. Except as otherwise expressly provided herein, all costs and expenses, including fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.
(b)Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt), (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested), or (c) on the date sent by email of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 11(b)):
If to the Company: |
Sky Quarry Inc. 136 E S Temple, Suite 1400 Salt Lake City, UT 84111 Email: david@skyquarry.com Attention: David Sealock
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with a copy to (which shall not constitute notice): |
Kordestani Legal Partners Inc. 4540 Campus Drive Suite 100 Newport Beach, CA 92660 Email: hpk@kordestanilaw.com Attention: Harrison Kordestani
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If to JPM: |
JPMorgan Chase Bank, N.A. 4 New York Plaza, 21st Floor New York, New York 10004 Email: Joseph.Saad@jpmorgan.com Attention: Joseph Saad
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with a copy to (which shall not constitute notice): |
JPMorgan Chase Bank, N.A. 4 New York Plaza, 21st Floor New York, New York 10004 Email: kevin.coco@jpmorgan.com Attention: Kevin Coco
and with a copy to:
Thompson Coburn LLP St. Louis, MO 63101 Email: mkloeppel@thompsoncoburn.com Attention: Michele Kloeppel
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(c)Interpretation. For purposes of this Agreement, (a) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole. The definitions given for any defined terms in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. Unless the context otherwise requires, references herein: (x) to Articles and Sections mean the Articles and Sections of this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.
(d)Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
(e)Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
(f)Entire Agreement. This Agreement, and the Organizational Documents constitute the sole and entire agreement of the parties with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter, including, but not limited to, any stockholder agreement entered into by and among the Company and any Stockholder. In the event of any inconsistency or conflict between this Agreement and any Organizational Document, JPM and the Company shall, to the extent permitted by Applicable Law, amend such Organizational Document to comply with the terms of this Agreement.
(g)Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. JPM and its successors and permitted assigns shall be permitted to assign any of its rights under this Agreement to an Affiliate without the consent of the Company.
(h)No Third-party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their permitted successors and assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
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(i)Amendment and Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
(j)Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than those of the State of Delaware.
(i)Subject to Section 11(l), any dispute, controversy or claim arising out of, relating to, or in connection with, this Agreement or any breach, termination or validity thereof (a “Dispute”) shall be finally settled by arbitration. The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect at the time of the arbitration, except as they may be modified herein or by mutual agreement of the parties. The seat of the arbitration shall be New York City, New York.
(ii)The arbitration shall be conducted by three arbitrators. The party initiating arbitration (the “Claimant”) shall appoint its arbitrator in its request for arbitration (a “Request”). The other party (the “Respondent”) shall appoint its arbitrator within 30 days of receipt of the Request and shall notify the Claimant of such appointment in writing. If the Respondent fails to appoint an arbitrator within such 30 day period, the arbitrator named in the Request shall decide the Dispute as the sole arbitrator. Otherwise, the two arbitrators appointed by the parties shall appoint a third arbitrator within 30 days after the Respondent has notified the Claimant of the appointment of the Respondent's arbitrator. When the arbitrators appointed by the parties have appointed a third arbitrator and the third arbitrator has accepted the appointment, the two arbitrators shall promptly notify the parties of such appointment. If the two arbitrators appointed by the parties fail or are unable to appoint a third arbitrator or to notify the parties of such appointment, then the third arbitrator shall be appointed by the President of the American Arbitration Association which shall promptly notify the parties of the appointment of the third arbitrator. The third arbitrator shall act as chairman of the panel.
(iii)The arbitration award shall be in writing and shall be final and binding on the parties. The award may include an award of costs, including reasonable attorney's fees and disbursements. Judgement upon award may be entered by any court having jurisdiction thereof or having jurisdiction over the parties or their assets.
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(l)Equitable Remedies. Each party hereto acknowledges that the other parties hereto would be irreparably damaged in the event of a breach or threatened breach by such party of any of its obligations under this Agreement and hereby agrees that in the event of a breach or a threatened breach by such party of any such obligations, each of the other parties hereto shall, in addition to any and all other rights and remedies that may be available to them in respect of such breach, be entitled to an injunction from a court of competent jurisdiction (without any requirement to post bond) granting such parties specific performance by such party of its obligations under this Agreement. In the event that any party files a suit to enforce the covenants contained in this Agreement (or obtain any other remedy in respect of any breach thereof), the prevailing party in the suit shall be entitled to receive in addition to all other damages to which it may be entitled, the costs incurred by such party in conduction the suit, including reasonable attorney's fees and expenses.
(m)Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, email or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
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JPMORGAN CHASE BANK, N.A. |
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[Signature Page to JPM Agreement]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTING FIRM
May 13, 2021
Board of Directors
Sky Quarry Inc.
We hereby consent to the inclusion in the Offering Circular or other documents filed under Regulation A tier 2 on Form 1-A of our reports dated March 31, 2021, with respect to the consolidated balance sheets of Sky Quarry Inc. (and subsidiaries) as of December 31, 2020 and 2019 and the related consolidated statements of loss and comprehensive loss, changes in shareholders’ equity and cash flows for the calendar year period ended 2020 and the inception period from June 4, 2019 through December 31, 2019, and the related notes to the financial statements.
/s/ IndigoSpire CPA Group
IndigoSpire CPA Group, LLC
Aurora, Colorado
May 13, 2021
CONSENT OF INDEPENDENT PUBLIC ACCOUNTING FIRM
May 13, 2021
Board of Directors
Sky Quarry Inc.
We hereby consent to the inclusion in the Offering Circular or other documents filed under Regulation A tier 2 on Form 1-A of our reports dated March 31, 2021, with respect to the combined statements of financial position of 2020 Resources (Canada) Ltd. and 2020 Resources LLC as of December 31, 2019 and 2018 and the related combined statements of loss and comprehensive loss, changes in equity and cash flows for the calendar year periods thus ended, and the related notes to the financial statements.
/s/ IndigoSpire CPA Group
IndigoSpire CPA Group, LLC
Aurora, Colorado
May 13, 2021
CONSENT OF ATTORNEYS
Reference is made to the Offering Statement of SkyQuarry, Inc., whereby the Company proposes to sell shares of its common stock and warrants. Reference is also made to Exhibit 5 included as part of this Offering Statement relating to the validity of the securities proposed to be sold.
We hereby consent to the use of our opinion concerning the validity of the securities proposed to be issued and sold.
Very truly yours,
HART & HART, LLC
/s/ William T. Hart
Denver, Colorado
July 6, 2021
HART & HART, LLC
ATTORNEYS AT LAW
1624 Washington Street
Denver, CO 80203
________harttrinen@aol.com
(303) 839-0061Fax: (303) 839-5414
July 6, 2021
SkyQuarry, Inc
136 East South Temple, Suite 1400
Salt Lake City, UT 84111
This letter will constitute our opinion upon the legality of the sale by SkyQuarry, Inc., a Delaware corporation, (the “Company”), of:
● up to 15,000,000 shares of common stock;
● warrants to purchase up to 15,000,000 shares of common stock;
● up to 15,000,000 shares of common stock issuable upon the exercise of the warrants;
● warrants issued to Digital Offering, LLC which allow for the purchase of up to 150,000 shares of common stock; and
● up to 150,000 shares of common stock issuable upon the exercise of the warrants issued to Digital Offering, LLC,
all as referred to in the Company's Offering Statement and Offering Circular filed with the Securities and Exchange Commission pursuant to Regulation A.
We have examined the Certificate of Incorporation, the Bylaws and the minutes of the Board of Directors of the Company, the applicable laws of the State of Delaware, and a copy of the Company's Offering Statement and Offering Circular. Based upon the foregoing, in our opinion:
● the shares of common stock mentioned above, when sold in the manner described in the Company's Offering Statement and Offering Circular, will be legally issued and these shares will represent fully paid and non-assessable shares of the Company's common stock;
● the warrants, when sold in the manner described in the Company's Offering Statement and Offering Circular, will be legally issued, fully paid and non-assessable and will be the binding obligations of the Company in accordance with the terms thereof; and
● the shares of common stock issuable upon the exercise of the warrants, when sold in the manner described in the Company's Offering Statement and Offering Circular, will be legally issued and will represent fully paid and non-assessable shares of the Company's common stock.
Very truly yours,
HART & HART, LLC
/s/ William T. Hart
William T. Hart
Exhibit 16
See attached pdf