Form 1-A Issuer Information UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 1-A
REGULATION A OFFERING STATEMENT
UNDER THE SECURITIES ACT OF 1933
OMB APPROVAL

FORM 1-A

OMB Number: 3235-0286


Estimated average burden hours per response: 608.0

1-A: Filer Information

Issuer CIK
0001563568
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?

Submission Contact Information

Name
Phone
E-Mail Address

1-A: Item 1. Issuer Information

Issuer Infomation

Exact name of issuer as specified in the issuer's charter
Adomani, Inc.
Jurisdiction of Incorporation / Organization
DELAWARE
Year of Incorporation
2012
CIK
0001563568
Primary Standard Industrial Classification Code
MOTOR VEHICLE PARTS & ACCESSORIES
I.R.S. Employer Identification Number
00-0000000
Total number of full-time employees
4
Total number of part-time employees
0

Contact Infomation

Address of Principal Executive Offices

Address 1
620 NEWPORT CENTER DRIVE
Address 2
SUITE 1100
City
NEWPORT BEACH
State/Country
CALIFORNIA
Mailing Zip/ Postal Code
92660
Phone
949-200-4613

Provide the following information for the person the Securities and Exchange Commission's staff should call in connection with any pre-qualification review of the offering statement.

Name
Michael K. Menerey
Address 1
Address 2
City
State/Country
Mailing Zip/ Postal Code
Phone

Provide up to two e-mail addresses to which the Securities and Exchange Commission's staff may send any comment letters relating to the offering statement. After qualification of the offering statement, such e-mail addresses are not required to remain active.

Financial Statements

Industry Group (select one) Banking Insurance Other

Use the financial statements for the most recent period contained in this offering statement to provide the following information about the issuer. The following table does not include all of the line items from the financial statements. Long Term Debt would include notes payable, bonds, mortgages, and similar obligations. To determine "Total Revenues" for all companies selecting "Other" for their industry group, refer to Article 5-03(b)(1) of Regulation S-X. For companies selecting "Insurance", refer to Article 7-04 of Regulation S-X for calculation of "Total Revenues" and paragraphs 5 and 7 of Article 7-04 for "Costs and Expenses Applicable to Revenues".

Balance Sheet Information

Cash and Cash Equivalents
$ 1737000.00
Investment Securities
$ 235000.00
Total Investments
$
Accounts and Notes Receivable
$ 631000.00
Loans
$
Property, Plant and Equipment (PP&E):
$ 368000.00
Property and Equipment
$
Total Assets
$ 29710000.00
Accounts Payable and Accrued Liabilities
$ 181000.00
Policy Liabilities and Accruals
$
Deposits
$
Long Term Debt
$ 837000.00
Total Liabilities
$ 47920000.00
Total Stockholders' Equity
$ -1821000.00
Total Liabilities and Equity
$ 29710000.00

Statement of Comprehensive Income Information

Total Revenues
$ 68000.00
Total Interest Income
$
Costs and Expenses Applicable to Revenues
$ 50000.00
Total Interest Expenses
$
Depreciation and Amortization
$ 0.00
Net Income
$ -9154000.00
Earnings Per Share - Basic
$ -0.13
Earnings Per Share - Diluted
$ -0.13
Name of Auditor (if any)
Malone Bailey LLP

Outstanding Securities

Common Equity

Name of Class (if any) Common Equity
Founders' Stock
Common Equity Units Outstanding
39155000
Common Equity CUSIP (if any):
000000000
Common Equity Units Name of Trading Center or Quotation Medium (if any)
N/A

Common Equity

Name of Class (if any) Common Equity
Class A Common Stock
Common Equity Units Outstanding
15772000
Common Equity CUSIP (if any):
000000000
Common Equity Units Name of Trading Center or Quotation Medium (if any)
N/A

Common Equity

Name of Class (if any) Common Equity
Class B Common Stock
Common Equity Units Outstanding
3615350
Common Equity CUSIP (if any):
000000000
Common Equity Units Name of Trading Center or Quotation Medium (if any)
N/A

Preferred Equity

Preferred Equity Name of Class (if any)
Preferred Stock
Preferred Equity Units Outstanding
0
Preferred Equity CUSIP (if any)
000000000
Preferred Equity Name of Trading Center or Quotation Medium (if any)
N/A

Debt Securities

Debt Securities Name of Class (if any)
Convertible Promissory Notes
Debt Securities Units Outstanding
6817986
Debt Securities CUSIP (if any):
000000000
Debt Securities Name of Trading Center or Quotation Medium (if any)
N/A

1-A: Item 2. Issuer Eligibility

Issuer Eligibility

Check this box to certify that all of the following statements are true for the issuer(s)

1-A: Item 3. Application of Rule 262

Application Rule 262

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.

1-A: Item 4. Summary Information Regarding the Offering and Other Current or Proposed Offerings

Summary Infomation

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)
Equity (common or preferred stock)
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
6000000
Number of securities of that class outstanding
58542350

The information called for by this item below may be omitted if undetermined at the time of filing or submission, except that if a price range has been included in the offering statement, the midpoint of that range must be used to respond. Please refer to Rule 251(a) for the definition of "aggregate offering price" or "aggregate sales" as used in this item. Please leave the field blank if undetermined at this time and include a zero if a particular item is not applicable to the offering.

Price per security
$
The portion of the aggregate offering price attributable to securities being offered on behalf of the issuer
$ 4.50
The portion of the aggregate offering price attributable to securities being offered on behalf of selling securityholders
$ 25000000.00
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)
$ 25000004.50

Anticipated fees in connection with this offering and names of service providers

Underwriters - Name of Service Provider
Boustead Securities LLC
Underwriters - Fees
$ 1850000.00
Sales Commissions - Name of Service Provider
Sales Commissions - Fee
$
Finders' Fees - Name of Service Provider
Finders' Fees - Fees
$
Audit - Name of Service Provider
MaloneBailey, LLP Rivers & Moorehead PLLC
Audit - Fees
$ 66675.00
Legal - Name of Service Provider
DLA Piper LLP (US)
Legal - Fees
$ 250000.00
Promoters - Name of Service Provider
Promoters - Fees
$
Blue Sky Compliance - Name of Service Provider
Blue Sky Compliance - Fees
$
CRD Number of any broker or dealer listed:
141391
Estimated net proceeds to the issuer
$ 21279825.00
Clarification of responses (if necessary)
The issuer also anticipates costs and fees relating to FINRA, NASDAQ application, transfer agent, escrow fees and roadshow.

1-A: Item 5. Jurisdictions in Which Securities are to be Offered

Jurisdictions in Which Securities are to be Offered

Using the list below, select 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
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON
WEST VIRGINIA
WISCONSIN
WYOMING

Using the list below, select the jurisdictions in which the securities are to be offered by underwriters, dealers or sales persons or check the appropriate box

None
Same as the jurisdictions in which the issuer intends to offer the securities
Selected States and Jurisdictions

ALABAMA
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
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
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WEST VIRGINIA
WISCONSIN
WYOMING
WASHINGTON
PUERTO RICO

1-A: Item 6. Unregistered Securities Issued or Sold Within One Year

Unregistered Securities Issued or Sold Within One Year

None

Unregistered Securities Issued

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
ADOMANI, Inc.
(b)(1) Title of securities issued
Founders' Stock
(2) Total Amount of such securities issued
10217150
(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.
9010000
(c)(1) Aggregate consideration for which the securities were issued and basis for computing the amount thereof.
The Founders' stock was issued for an aggregate amount of $20,434.30 which represents $0.002 per share.
(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)).
The Founders' stock was issued for an aggregate amount of $18,020.00 which represents $0.002 per share.

Unregistered Securities Issued

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
ADOMANI, Inc.
(b)(1) Title of securities issued
Class A Shares
(2) Total Amount of such securities issued
20000
(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.
The Class A stock was issued for an aggregate amount of $2,000.00 which represents $0.10 per share.
(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)).

Unregistered Securities Issued

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
ADOMANI, Inc.
(b)(1) Title of securities issued
Class B Shares
(2) Total Amount of such securities issued
2889100
(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.
86500
(c)(1) Aggregate consideration for which the securities were issued and basis for computing the amount thereof.
The Class B stock was issued for an aggregate amount of $2,889,100 which represents $1.00 per share.
(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)).
The Class B stock was issued for an aggregate amount of $86,500 which represents $1.00 per share.

Unregistered Securities Issued

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
ADOMANI, Inc.
(b)(1) Title of securities issued
Convertible Promissiory Note - Principal & Interest - Not Yet Converted
(2) Total Amount of such securities issued
120213
(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.
25452
(c)(1) Aggregate consideration for which the securities were issued and basis for computing the amount thereof.
n/a
(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)).
n/a

Unregistered Securities Issued

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
ADOMANI, Inc.
(b)(1) Title of securities issued
Warrant to Purchase Shares of Common Stock
(2) Total Amount of such securities issued
1250000
(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.
None. The warrant is exercisable for 1,250,000 shares at an exercise price of $4.00 per share.
(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)).

Unregistered Securities Act

(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
Exempt from registration under Rule 506(c) of the Securities Act.
Table of Contents

An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission, which we refer to as 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 any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our 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 December 21, 2016

 

 

LOGO

ADOMANI, INC.

$10,000,000 Minimum Offering Amount (                     Shares of Common Stock)

$25,000,000 Maximum Offering Amount (                     Shares of Common Stock)

ADOMANI, Inc., a Delaware corporation, is offering a minimum of                      shares of Common Stock and a maximum of                      shares (the “Offered Shares”) of our Common Stock, par value $0.00001 (“Common Stock”) on a “best efforts” basis and our selling stockholders are offering up to 600,000 shares of Common Stock. We will not receive any of the proceeds from the sale of shares by the selling stockholders. Until November 2016, we have operated our business as ADOMANI, Inc., a Florida corporation, which was converted into a Delaware corporation. We expect that the initial public offering price will be between $4.00 and $5.00 per share. This offering will terminate on                     , subject to extension for up to thirty (30) days with the mutual agreement of us and our Underwriters, as defined below; provided that, if we have received and accepted subscriptions for the minimum number of Offered Shares on or before                     , or the end of the thirty (30) day extension, if exercised, then we will close on the minimum offering amount (the “Initial Closing”) and this offering will continue until the earliest of (i) the date which is ninety (90) days after the Initial Closing, or (ii) with the mutual agreement of us and our Underwriters, a date which is less than ninety (90) days after the Initial Closing in order to coordinate with the commencement of exchange trading of our Common Stock, or (iii) the date on which the maximum offering amount is sold (such earliest date, the “Termination Date”). If, on the Initial Closing date, we have sold less than the maximum number of Offered Shares, then we may hold one or more additional closings for additional sales (each an “Additional Closing”), up to the maximum number of Offered Shares, and until the Termination Date. The Company and the Underwriters will consider various factors in determining the timing of any Additional Closings, including the amount of proceeds received at the Initial Closing, any Additional Closings that have already been held, the level of additional valid subscriptions received after the Initial Closing, the eligibility of additional investors under applicable laws and coordination with the commencement of exchange trading of our Common Stock.

Until we achieve the minimum offering amount, the proceeds for the offering will be kept in an escrow account. Upon achievement of the minimum offering amount and the closing on such amount, the proceeds from the minimum offering amount will be distributed to the Company and the associated Offered Shares will be issued to the investors in such Offered Shares. Upon each Additional Closing, if any, the proceeds subject to that Additional Closing will be distributed to the Company and the associated Offered Shares will be issued to the investors in such Offered Shares. If the offering does not close, the proceeds for the offering will be promptly returned to investors, without deduction and generally without interest. Signature Bank, New York will serve as the escrow agent and will retain up to $             of interest accrued from funds deposited in the escrow account as partial compensation for serving as escrow agent.

The minimum purchase requirement per investor is $500; however, we can waive the minimum purchase requirement on a case-by-case basis in our sole discretion. We expect to commence the sale of the Offered Shares as of the date on which the Offering Statement the (“Offering Statement”) of which this Offering Circular is a part, is qualified by the United States Securities and Exchange Commission (the “SEC”).

Prior to this offering, there has been no public market for our Common Stock. We have applied to list our Common Stock on the NASDAQ Capital Market (“NASDAQ”) under the symbol “ADOM.” Our Common Stock will not commence trading on NASDAQ until a number of conditions are met, including that we have raised the minimum amount of offering proceeds necessary for us to meet the initial listing requirements of NASDAQ. Even if we meet the minimum requirements for listing on NASDAQ, we may wait before terminating the offering and commencing the trading of our Common Stock on NASDAQ in order to raise additional proceeds. We will not consummate and close this offering without a listing approval letter from NASDAQ.

We have engaged Boustead Securities, LLC, formerly known as Monarch Bay Securities, LLC, and Network 1 Financial Securities, Inc. as the underwriters (the “Underwriter”) to offer the Offered Shares to prospective investors in the United States on a best efforts basis, and our Underwriters will have the right to engage such other broker-dealers or agents as it determines to assist in such offering.

A maximum of $25,000,000 of Offered Shares will be offered worldwide. No sales of Offered Shares will be made anywhere in the world prior to the qualification of the Offering Statement by the SEC in the United States. All Offered Shares will be initially offered in all jurisdictions at the same U.S. dollar price that is set forth in this Offering Circular, except that: selected dealers who participate in the offering will receive a selling concession from the Underwriters, as further described in “Underwriting”; after the initial offering of the Offered Shares, the offering price and other selling terms may be subject to change.

See “Underwriting” and “Description of Securities” for a description of our capital stock.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”) and, as such, may elect to comply with certain reduced reporting requirements for this Offering Circular and future filings after this offering.

 

     Number of Shares      Price to Public    

Underwriting

discounts and

commissions (1)

     Proceeds to issuer (2)  

Shares Offered by Company

          

Per share:

     1       $        $                            $                                

Underwriters’ Warrant:

        Not applicable      $         $     

Shares of common stock underlying underwriters’ warrant:

      $        $         $     

Total Minimum:

      $ 10,000,000      $         $     

Total Maximum:

      $ 25,000,000      $         $     

Shares Offered by Selling Stockholders

          

Per share:

     1       $          Not applicable       $ 0   

Total Minimum:

      $ 2,400,000 (3)      Not applicable       $ 0   

Total Maximum:

      $ 3,000,000 (3)      Not applicable       $ 0   

 

(1) We refer you to “Underwriting” beginning on page 42 of this Offering Circular for additional information regarding total underwriter compensation.
(2) Does not include expenses of the offering, including costs of blue sky compliance, fees to be paid to legal counsel or filing fees. See “Underwriting.”
(3) Assuming the selling stockholders sell the maximum number of shares of our Common Stock offered by them. We refer you to “Selling Stockholders” on page 41 of this Offering Circular.

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 your 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. For general information on investing, we encourage you to refer to www.investor.gov.

These are speculative securities. Investing in our shares involves significant risks. You should purchase these securities only if you can afford a complete loss of your investment. See “Risk Factors” on page 11 to read about factors you should consider before buying shares of our Common Stock.

The SEC does not pass upon the merits of or give its approval to 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 SEC; however, the SEC has not made an independent determination that the securities offered are exempt from registration.

This Offering Circular contains all of the representations by us concerning this offering, and no person shall make different or broader statements than those contained herein. Investors are cautioned not to rely upon any information not expressly set forth in this Offering Circular.

This Offering Circular follows the disclosure format prescribed by Part I of Form S-1 pursuant to the general instructions of Part II(a)(1)(ii) of Form 1-A.

 

LOGO    LOGO
Lead Underwriter    Co-Underwriter

 

The date of this Offering Circular is                     , 2016


Table of Contents

TABLE OF CONTENTS

 

     Page  

Offering Circular Summary

     2   

The Offering

     9   

Risk Factors

     11   

Dilution

     39   

Selling Stockholders

     41   

Underwriting

     42   

Use of Proceeds

     45   

Description of Business

     46   

Description of Property

     64   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     65   

Directors, Executive Officers and Significant Employees

     79   

Executive Officer and Director Compensation

     83   

Security Ownership of Management and Certain Security holders

     89   

Certain Relationships and Related Party Transactions

     91   

Description of Securities

     93   

Dividend Policy

     98   

Shares Eligible for Future Sale

     99   

Material U.S. Federal Income Tax Considerations for Non-U.S. Holders

     100   

Legal Matters

     104   

Experts

     104   

Where You Can Find More Information

     104   

Financial Statements

     F-1   

Part III

     II-1   

Signatures

     II-2   

 

i


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under “Offering Circular Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Business” and elsewhere in this Offering Circular constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology.

You should not place undue reliance on forward-looking statements. The cautionary statements set forth in this Offering Circular, including in “Risk Factors” and elsewhere, identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:

 

    Our ability to generate demand for our zero-emission or hybrid drivetrains and conversion kits in order to generate revenue;

 

    Our dependence upon external sources for the financing of our operations, particularly given that our auditors’ report for our 2015 consolidated financial statements, which are included as part of this Offering Circular, contains a statement concerning our ability to continue as a going concern;

 

    Our ability to effectively execute our business plan;

 

    Our ability to scale our manufacturing, assembling, and converting processes effectively and quickly from low volume production to high volume production;

 

    Our ability to manage our expansion, growth and operating expenses and reduce and adequately control the costs and expenses associated with operating our business;

 

    Our ability to obtain, retain and grow our customers;

 

    Our ability to enter into, sustain and renew strategic relationships on favorable terms;

 

    Our ability to achieve and sustain profitability;

 

    Our ability to evaluate and measure our current business and future prospects;

 

    Our ability to compete and succeed in a highly competitive and evolving industry;

 

    Our ability to respond and adapt to changes in electric or hybrid drivetrain technology; and

 

    Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand.

Although the forward-looking statements in this Offering Circular are based on our beliefs, assumptions and expectations, taking into account all information currently available to us, we cannot guarantee future transactions, results, performance, achievements or outcomes. No assurance can be made to any investor by anyone that the expectations reflected in our forward-looking statements will be attained, or that deviations from them will not be material and adverse. We undertake no obligation, other than as may be required by law, to re-issue this Offering Circular or otherwise make public statements updating our forward-looking statements.

 

1


Table of Contents

OFFERING CIRCULAR SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this Offering Circular. This summary does not contain all of the information you should consider before investing in our Common Stock. You should read this entire Offering Circular carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this Offering Circular, before making an investment decision. Unless the context otherwise requires, the terms “ADOMANI,” “the Company,” “we,” “us” and “our” in this Offering Circular refer to ADOMANI, Inc., a Delaware corporation, and our predecessor, ADOMANI, Inc., a Florida corporation, and where appropriate, their respective consolidated subsidiaries.

Overview

ADOMANI is a provider of advanced zero-emission electric and hybrid vehicles and replacement drivetrains that is focused on reducing the total cost of vehicle ownership. We help fleet operators unlock the benefits of green technology and address the challenges of traditional fuel price cost instability and local, state and federal environmental regulatory compliance.

We design, manufacture and install advanced zero-emission electric and hybrid drivetrain systems for use in new school buses and medium to heavy-duty commercial fleet vehicles. We also design, manufacture and install unique and patented conversion kits to replace conventional drivetrain systems for diesel and gasoline powered vehicles with zero-emission electric or hybrid drivetrain systems. The hybrid drivetrain systems are available in both an assistive hybrid format and a full-traction format for use in private and commercial fleet vehicles of all sizes. We seek to expand our product offerings to include the sale of zero-emission systems in vehicles manufactured by outside original equipment manufacturer (“OEM”) partners, but to be marketed, sold, warrantied and serviced through our developing distribution and service network. We refer to these product offerings collectively as “our zero-emission systems” throughout the remainder of this Offering Circular.

Market Overview

Concerns regarding climate change and other environmental considerations have led to the implementation of laws and regulations that restrict, cap, or tax emissions in the automotive industry and throughout other industries. In particular, Environmental Protection Agency (“EPA”) Tier 4 emission standards, California Air Resources Board (“CARB”) regulations, and recently implemented policies in Europe, generally referred to as Stage I, II, III and IV regulations, are requiring a significant reduction in the level of emissions and particulate matter produced by diesel power systems. These regulations are taking effect and are expected to increase both the cost and size of emission-compliant diesel power products, primarily due to the need to incorporate additional combustion and after-treatment components.

A variety of market factors are contributing to the increased use of alternative fuels and growth of alternative fuel technology, including economics, energy independence, environmental concerns, and the widespread availability of alternative fuels. As the price of crude oil remains volatile and the threat of climate change and air pollution remain public concerns, the search for more cost effective and cleaner fuels has become more important. Electricity has emerged as one solution to these challenges. The price of alternative fuels such as electricity is substantially less than diesel or gasoline, and alternative fuels produce lower amounts of toxic greenhouse gases.

Market Drivers

A number of factors impact both the supply and demand for various types of electric vehicles and we believe that we are well positioned to benefit as a result of these driving forces.

 

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Prominent drivers of supply include:

 

    The cost and availability of energy storage technologies, specifically the cost and capacity of rechargeable lithium ion batteries;

 

    Grants, loans, tax breaks, and other financial support available for energy storage and electric vehicle research and development;

 

    Requirements that a specific percentage of automakers’ models be electric or other zero-emission vehicles; and

 

    Fuel economy standards that require automakers to meet certain fleet-wide benchmarks.

Prominent drivers of demand include:

 

    Mandates that government fleets purchase certain percentages of low emission, energy efficient, or alternative fuel vehicles;

 

    Mandates for transport agencies or school districts to purchase or convert to electric or other alternative fuel vehicles;

 

    Rebates, tax credits, and other incentives for purchasing or leasing electric or other alternative fuel vehicles;

 

    The availability of charging stations and other charging infrastructure, driven in turn by government funding, tax credits, rebates, and other incentives aimed at increasing the number of charging stations;

 

    The cost of electricity to recharge plug-in electric vehicles (“PEVs”), impacted by special rates introduced by utilities;

 

    Preferential treatment in registration, emissions testing, and access to highways, city centers, and high occupancy vehicle (“HOV”) lanes; and

 

    The cost of conventional diesel or gasoline and the resultant incremental costs of owning and operating an electric vehicle versus a conventionally fueled equivalent.

Challenges

In addition, fleet operators and their companies face a number of challenges, including:

 

    Difficulty complying with existing and new federal and state emission restrictions and compliance requirements;

 

    Finding cost savings while managing high fuel, maintenance and repair costs;

 

    Extending the lives of existing vehicles;

 

    Difficulty planning for the operation of their fleet when fuel supplies are interrupted, such as during a natural disaster; and

 

    Difficulty in improving the environment around these heavy-duty commercial fleets.

Our Solution

We design, manufacture and install advanced zero-emission electric and hybrid vehicles and replacement drivetrain systems that improve fuel economy and reduce emissions. ADOMANI helps vehicles run more efficiently and cost effectively. Specifically, we enable our customers to:

 

    Add Emission-Compliant ADOMANI Vehicles and Drivetrain Systems to Their Fleets. Our commercial fleet vehicles and drivetrain systems are designed to reduce or eliminate the use of traditional fuels that create greenhouse gases and particulate matter.

 

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    Reduce Total Cost of Ownership. We reduce fuel budgets by eliminating or reducing the reliance on traditional petroleum based fuels, instead using the more energy efficient and less variably priced grid-provided electricity.

 

    Prolong Lives of Existing Vehicles. Our vehicles and vehicles with our drive train systems have lower maintenance costs. These reduced maintenance costs may take the form of longer service intervals between brake system maintenance, reduction or elimination of internal combustion engine oil and oil filter changes, reduction or elimination of transmission oil and oil filter changes, reduction or elimination of air filter changes, reduction or elimination of emissions systems services, reduction or elimination of diesel emission fluid use, elimination of emissions tests on traditional fuel vehicles (if converted to a zero-emission electric drivetrain) and the elimination of certification tests of high pressure tanks on propane, liquefied natural gas, compressed natural gas powered vehicles (if converted to a zero-emission electric drivetrain).

 

    Plan for Natural Disasters When Fuel Supply May be Interrupted. Our zero-emissions systems can serve as on-site emergency back-up energy storage if grid power becomes intermittent or fails temporarily during natural or man-made disasters.

 

    Improve the Environment Around Vehicles. As a result of our zero-emission systems, drivers, operators, customers and the communities they serve have healthier environments in and around these vehicles.

Our Strengths

We believe the following attributes and capabilities provide us with long-term competitive advantages:

 

    Product Diversity. We have multiple product offerings including zero-emission electric and hybrid drivetrains, new purpose built zero-emission electric vehicles and stationary energy storage solutions, and as a result, the ability to scale-up, scale-down or refine a specific product line in response to market demands and the evolving local, state and federal incentive programs. Also, within each product area, we have multiple suppliers of key drivetrain components allowing price flexibility both for our final products and replacement parts required over the product lifespan. This allows us to meet the expectations and budget constraints of public or private commercial fleet operators.

 

    Regulatory Agency Familiarity. By taking an active role in many trade industry groups and related events, we have developed and continually strive to maintain strong relationships with key local, state and federal regulatory agencies involved in the growing zero-emission and hybrid vehicle industry. To meet their own aggressive emissions targets, these regulatory agencies have encouraged the growth of zero-emission electric vehicles and hybrid drivetrains, especially in connection with heavy-duty commercial fleets.

 

    Relationships With Purchasers. To help shorten the sales cycles for our products, we have identified and built relationships with key commercial operators that have purchasing authority or influence over their organizations. We are also able to leverage past sales and marketing relationships that were built by our experienced management team.

 

    Additional Sales Potential. We have additional sales potential with commercial fleet customers. These potential additional sales could include: automated charging infrastructure, intelligent stationary energy storage systems that enables higher levels of vehicle fast-charging, emergency back-up facility power for use during grid power outages, enabling technologies to access the developing grid-connected opportunities for the aggregate power available from groups of large battery packs, or enabling technologies that allow for the avoidance of electric utility demand charges.

 

    Unique Market Knowledge. We have specific and unique sales cycle knowledge for based on over 30 years’ experience.

 

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Our Strategy

We intend to capitalize on these opportunities by pursuing the following key growth strategies:

 

    Develop Sales Staff. We plan to hire and train our initial sales staff to complement our current group. Training will include familiarizing them with the many and varied funding options available, and how to access those opportunities, or help our customers access them. See “Description of Business – Governmental Programs and Incentives.”

 

    Build Dealership Networks. We intend to build third party dealership networks for the local sales and service of ADOMANI zero-emission replacement drivetrain vehicles and new purpose-built zero-emission electric and hybrid commercial vehicles either manufactured by or for us.

 

    Develop Third Party Relationships. We plan to complete existing negotiations with partners and seek additional partners for the manufacture of our zero-emission systems.

 

    Provide Demonstrations. We will seek out and respond to local, state and federal pilot demonstration opportunities in interest areas for which we have relevant current product offerings or, in areas of interest that are congruent with product(s) that are on our product development roadmap but still in early stage development.

 

    Obtain Approvals From Incentive Programs. We will seek to have our products approved for various local, state and federal vehicle designations and incentive programs, like the California Heavy Duty Voucher Incentive Project administered by the CARB meant to accelerate the purchase of cleaner, more efficient trucks and buses in California.

 

    Develop an Intellectual Property Portfolio, License Our Technology and Enter into Strategic Collaborations. We plan to build upon our existing intellectual property, knowledge base and patent portfolio while seeking opportunities to license, white-label, and collaborate with strategic partners that can provide unique and complementary products and technology.

 

    Grow Our Manufacturing, Installation and Service Capability. As facility space and technician time requirements at partners are exceeded, we intend to expand or relocate to larger ADOMANI-owned or leased facilities dedicated to the manufacture, installation and service of our zero-emission systems.

 

    Introduce New Products. As new markets develop, we plan to expand our zero-emission systems into ancillary product verticals, such as charging infrastructure also called Electric Vehicle Service Equipment, stationary energy storage, vehicle-to-grid hardware and capabilities.

 

    Develop Our International Business. We plan to develop our business internationally. Through our wholly-owned subsidiary, Adomani (Nantong) Automotive Technology Co. Ltd. (“ADOMANI China”) we intend to pursue opportunities in China.

Our Risks

An investment in our Common Stock involves a high degree of risk. You should carefully consider the risks summarized below. These risks are discussed more fully in the “Risk Factors” section immediately following this Offering Circular Summary. These risks include, but are not limited to, the following:

 

    we may not successfully execute our business plan to generate revenue in 2016 and create a sustainable growth trajectory;

 

    we have a history of losses and we may not achieve or sustain profitability in the future;

 

    our independent registered public accounting firm has expressed in its report on our audited consolidated financial statements a substantial doubt about our ability to continue as a going concern;

 

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    our limited operating history makes it difficult to evaluate our current business and future prospects, and may increase the risk of your investment;

 

    our future growth is dependent upon demand for conversion of existing diesel- and gasoline-powered buses, truck and other fleet vehicles to zero-emission electric or hybrid drivetrain systems and demand for new buses, trucks and other fleet vehicles with zero-emission drivetrains;

 

    we may not be able to compete successfully against current and future competitors;

 

    our sales cycle can be long and unpredictable and require considerable time and expense before executing a customer agreement, which may make it difficult to project when, if at all, we will obtain new customers and generate revenue from those customers;

 

    developments in alternative technologies or improvements in the internal combustion engine may materially adversely affect the demand for electric vehicles and our drivetrains;

 

    we may be unable to keep up with advances in zero-emission electric drivetrain or hybrid vehicle technology;

 

    the demand for commercial zero-emission electric and hybrid vehicles may decrease, as it depends, in part, on the continuation of current trends resulting from dependence on fossil fuels;

 

    we may not be able to reduce and adequately control the costs and expenses associated with operating our business;

 

    we may fail to manage our growth effectively and we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately;

 

    our zero-emission and hybrid drivetrains may fail to perform as expected;

 

    we are dependent on third parties to deliver raw materials, parts, components and services in adequate quality and quantity in a timely manner and at reasonable prices, quality levels and volumes;

 

    our business success depends, in part, on the success of our strategic relationship with third parties;

 

    we may not be able to scale our manufacturing, assembling, and converting processes effectively and quickly from low volume production to high volume production;

 

    we may become subject to product liability claims;

 

    we may be compelled to undertake product recalls;

 

    we may be unable to design, develop, market and sell our zero-emission electric and hybrid drivetrains or related products and services that address additional market opportunities;

 

    our growth depends in part on the availability and amounts of government subsidies and incentives and the application of regulations that encourage conversion to electric or hybrid vehicles;

 

    our service model may be costly for us to operate and may not address the service requirements of our prospective customers;

 

    our decentralized assembly, sales and service model will present numerous challenges. We may not be able to execute on our plan to establish sales, service and assembly facilities in the urban areas we have targeted and our facilities in any of those markets may underperform relative to our expectations;

 

    we are subject to substantial regulation, which is evolving, and unfavorable changes or any failure by us to comply with these regulations could substantially harm our business and operating results;

 

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    any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology;

 

    in many of our zero-emission electric or hybrid drivetrains we use battery packs composed of lithium-ion battery cells, which, if not appropriately managed and controlled, on rare occasions have been observed to catch fire or vent smoke and flames; and

 

    we may not be able to utilize a significant portion of our net operating loss or research and development tax credit carryforwards, which could adversely affect our profitability.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

 

    only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

    reduced disclosure about our executive compensation arrangements;

 

    no non-binding advisory votes on executive compensation or golden parachute arrangements; and

 

    exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this offering circular. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock. We have irrevocably elected to “opt out” of the exemption for the delayed adoption of certain accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Going Concern

Our consolidated financial statements appearing elsewhere in this Offering Circular have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of September 30, 2016, we had a working capital deficit of $1.6 million and a stockholders’ deficit of approximately $1.8 million. During the nine months ended September 30, 2016, we incurred a net loss attributable to common stockholders of approximately $9.2 million. We have not generated any material revenues and have incurred net losses since inception. Our recurring operating losses and our need for additional sources of capital to fund our ongoing operations raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the years ended December 31, 2015 and 2014 with respect to this uncertainty. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should we be unable to continue as a going concern. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Going Concern.”

 

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Company and Other Information

ADOMANI was incorporated in Florida on August 6, 2012, “ADOMANI California,” a wholly-owned subsidiary was incorporated in California on October 9, 2012. ADOMANI Inc. was reincorporated in Delaware in November 2016. ADOMANI China was formed on February 1, 2016 in China, where it is registered and licensed to do business in the green energy vehicle and carbon reduction research and development fields until January 31, 2046. Our principal executive offices and mailing address are: 620 Newport Center Drive, Suite 1100, Newport Beach, California 92660. Our telephone number is (949) 200-4613. Our corporate website address is: www.ADOMANIelectric.com with several additionally owned web domains with “ADOMANI” in the name that are redirected to our aforementioned corporate website. Information contained on, or that can be accessed through, our website does not constitute part of this Offering Circular and inclusions of our website address in this Offering Circular are inactive textual references only.

ADOMANI and the ADOMANI logo and our other trademarks, service marks and trade names appearing in this Offering Circular are the property of ADOMANI. Other trademarks and trade names referred to in this Offering Circular are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Offering Circular are referred to without the symbols ® and ™, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

This Offering Circular summary highlights information contained elsewhere and does not contain all of the information that you should consider in making your investment decision. Before investing in our Common Stock, you should carefully read this entire Offering Circular, including our financial statements and the related notes included elsewhere in this Offering Circular. You should also consider, among other things, the matters described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each case appearing elsewhere in this Offering Circular.

 

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THE OFFERING

 

Issuer:    Adomani, Inc.
Securities offered by the Company:    A minimum of                      and a maximum of                      shares of our Common Stock, par value $0.00001 (“Common Stock”) at an offering price of $             per share (the “Offered Shares”).
Securities offered by the selling stockholders    Up to              shares of Common Stock, at a fixed price of $             per share offered by selling stockholders in a resale offering. The selling stockholders will sell their shares of our Common Stock at the fixed price.
Number of shares of Common Stock outstanding before the offering:    58,542,350 shares(1)
Number of shares of Common Stock to be outstanding after the offering:   

 

                     shares, if the minimum amount of Offered Shares are sold, and                      shares, if the maximum amount of Offered Shares are sold.

Price per share:    $            
Minimum offering amount:                         shares at $             per share, or $10,000,000
Maximum offering amount:                         shares at $             per share, or $25,000,000
Proposed U.S. listing:    We have applied to list our Common Stock on the NASDAQ Capital Market (“NASDAQ”) under the symbol “ADOM.” Our Common Stock will not commence trading on NASDAQ until all of the following conditions are met: (i) the Initial Closing has occurred and we have raised the minimum amount of offering proceeds necessary for us to meet the initial listing requirements of NASDAQ; (ii) the offering is terminated; and (iii) we have filed a post-qualification amendment to the Offering Statement and a registration statement on Form 8-A (“Form 8-A”) under the Securities Exchange Act of 1934 (the “Exchange Act”), and such post-qualification amendment is qualified by the SEC and the Form 8-A has become effective. Pursuant to applicable rules under Regulation A, the Form 8-A will not become effective until the SEC qualifies the post-qualification amendment. We intend to file the post-qualification amendment and request its qualification immediately prior to the termination of the offering in order that the Form 8-A may become effective as soon as practicable. Even if we meet the minimum requirements for listing on NASDAQ, we may wait before terminating the offering and commencing the trading of our Common Stock on NASDAQ in order to raise additional proceeds. As a result, you may experience a delay between the closing of your purchase of shares of our Common Stock and the commencement of exchange trading of our Common Stock.
U.S. offering:   

We have engaged Boustead Securities, LLC, formerly known as Monarch Bay Securities, LLC, and Network 1 Financial Securities, Inc. as the underwriters (the “Underwriters”) to offer the Offered Shares to prospective investors in the United States, on a best efforts basis, and our Underwriters will have the right to engage such other broker-dealers or agents as it determines to assist in such offering.

 

A maximum of $25,000,000 of Offered Shares will be offered worldwide. No sales of Offered Shares will be made anywhere in the world prior to the qualification of the Offering Statement by the SEC in the United States. All Offered Shares will be initially offered

 

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   everywhere in the world at the same U.S. dollar price that is set forth in this Offering Circular, except that any shares sold to securities dealers may be sold at a discount from the initial public offering price, as further described in “Underwriting”; after the initial offering of the Offered Shares, the offering price and other selling terms may be subject to change.
Use of proceeds:    If we sell all of the shares being offered, we estimate that our net proceeds (after underwriting discount and commissions and our estimated other offering expenses) will be approximately $21,279,825. We intend to use the net proceeds to us from this offering for general corporate purposes, including working capital, sales and marketing activities and general and administrative matters. See the section titled “Use of Proceeds” for additional information.
Risk factors:    Investing in our Common Stock involves a high degree of risk. See “Risk Factors.”

 

(1) The number of shares of our Common Stock to be outstanding after this offering is based on 58,542,350 shares of our Common Stock outstanding as of September 30, 2016 and excludes:

 

    22,118,356 shares of Common Stock issuable upon the exercise of options outstanding as of November 30, 2016, at a weighted average exercise price of $0.10 per share;

 

    6,225,000 shares of Common Stock reserved for issuance under 2012 Stock Option and Stock Incentive Plan (the “2012 Stock Option Plan”), as amended; and

 

    1,250,000 shares of Common Stock issuable upon exercise of a warrant exercisable at a price of $4.00 per share through September 1, 2021.

Unless otherwise noted, the information in this Offering Circular reflects and assumes the following:

 

    the effectiveness of our amended and restated certificate of incorporation and our restated bylaws upon the completion of this offering;

 

    the issuance of 6,817,986 shares of Common Stock issuable upon conversion of an aggregate principal amount of $645,000 plus accrued interest at conversion prices ranging from $0.10 per share to $0.50 per share pursuant to certain of our promissory notes as of November 30, 2016;

 

    the issuance of 700,000 shares of Common Stock to the underwriters and a consulting firm under warrants included in their respective agreements that are due upon a successful offering;

 

    the issuance of 250,000 shares of Common Stock to another consulting firm who prepared the market analysis for the Company, due upon a successful offering; and

 

    no exercise of stock options after September 30, 2016.

The number of shares of our Common Stock to be issued upon the conversion of the outstanding principal and accrued interest on our convertible promissory notes upon the completion of this offering depend in part on the date on which this offering is completed.

 

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RISK FACTORS

Investing in our Common Stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this Offering Circular, including the consolidated financial statements and the related notes included elsewhere in this Offering Circular, before deciding whether to invest in shares of our Common Stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price of our stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business

We may not successfully execute our business plan to generate revenue in 2016 and create a sustainable growth trajectory.

We have not generated significant revenues to date. Our ability to generate revenue and grow our revenue will depend, in part, on our ability to execute on our business plan, expand our business model and develop new products in a timely manner. We may fail to do so. A variety of factors outside of our control could affect our ability to generate revenue and our revenue growth. Our success in implementing our strategy of producing zero-emission conversions and selling new zero-emission buses, trucks and other fleet vehicles could also slow our revenue growth.

We have a history of losses and we may not achieve or sustain profitability in the future.

We have incurred losses in each fiscal year since our incorporation in 2012. In addition, during the nine months ended September 30, 2016, we incurred a net loss of $9.2 million. As a result, we had a working capital deficit of $1.6 million, an accumulated deficit of $19.5 million and a stockholders’ deficit of $1.8 million as of September 30, 2016. Our products have been recently developed and there can be no assurance that they will be commercially successful and generate significant revenue. If we are to ever achieve profitability it will be dependent upon the successful development and successful commercial introduction and acceptance of zero-emission electric and hybrid drivetrains such as ours; the demand for new buses, trucks and other fleet vehicles with zero-emission or hybrid drivetrains; and the demand for conversion of existing buses, trucks and other fleet vehicles to zero-emission electric or hybrid drivetrains, any of which may not occur. We may not achieve profitability in the future as we anticipate that our operating expenses will increase significantly in the foreseeable future as we:

 

    continue to invest in research and development to enhance our zero-emission products and services;

 

    design, develop and manufacture our drivetrains and their components;

 

    increase our sales and marketing to acquire new customers; and

 

    increase our general and administrative functions to support our growing operations.

Because we will incur the costs and expenses from these efforts before we receive any significant incremental revenues with respect thereto, our losses in future periods will be significantly greater than the losses we would incur if we developed our business more slowly. In addition, these efforts may prove more expensive than we currently anticipate, or may not result in increases in our revenues, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. Even if we are successful in generating revenue and increasing our customer base, we may not become profitable in the future or may be unable to maintain any profitability achieved if we fail to increase our revenue and manage our operating expenses or if we incur unanticipated liabilities. And even if our revenue increases, we may not be able to sustain this rate of revenue growth. Revenue growth may slow or revenue may decline for a number of reasons, including lack of demand for our zero-emission systems, increasing competition, lengthening sales cycles, decelerating growth of, or declines in, our overall market, or our failure to capitalize on growth opportunities or to introduce new offerings. Any

 

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failure by us to achieve and maintain revenue or profitability could cause the price of our Common Stock to decline significantly.

Our independent registered public accounting firm has expressed in its report on our audited consolidated financial statements a substantial doubt about our ability to continue as a going concern.

We have not yet generated sufficient revenues from our operations to fund our activities, and we are therefore dependent upon external sources for the financing of our operations. As a result, our independent registered public accounting firm has expressed in its report on the consolidated financial statements included as part of this Offering Circular a substantial doubt regarding our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern. If we are unable to continue as a going concern, holders of our Common Stock might lose their entire investment.

Our limited operating history makes it difficult to evaluate our current business and future prospects.

Our short operating history and developing business model make it difficult to evaluate our current business and our future prospects. It is difficult to predict our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly developing and changing industries, including challenges in forecasting accuracy, determining appropriate investments of our limited resources, market acceptance of our products and services and future products and services, competition from new and established companies, including those with greater financial and technical resources, acquiring and retaining customers and increasing revenue from existing customers, enhancing our products and services and developing new products and services. You should consider our business and prospects in light of the risks and difficulties that we will encounter as we continue to develop our business model. We may not be able to address these risks and difficulties successfully, which would materially harm our business and operating results and cause the market price of our Common Stock to decline.

We may experience quarterly fluctuations in our operating results due to a number of factors which make our future results difficult to predict and could cause our operating results to fall below expectations.

Our quarterly operating results may fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not consider our past results, including our recent success in having funding approved in California through Assembly Bill AB 923 (“AB 923”) for conversions and new zero-emission electric or hybrid drivetrains in any projected growth rate or as indicative of our future performance.

We expect our period-to-period operating results to vary based on our operating costs which we anticipate will increase significantly in future periods as we, among other things, design, develop and manufacture our zero-emission drivetrains, open new design, manufacturing, sales and service facilities, hire additional technology staff, increase our travel and operational budgets, increase our facility costs, hire and train service personnel, increase our sales and marketing activities, and increase our general and administrative functions to support our growing operations. As a result of these factors, we believe that quarter-to-quarter comparisons of our operating results, especially in the short-term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover, our operating results may not meet expectations of equity research analysts or investors. If any of this occurs, the trading price of our stock could fall substantially, either suddenly or over time.

In addition to other risk factors listed in this section, factors that may affect our quarterly operating results include the following: our ability to hire, train and retain key personnel, develop new products that the market demands, receive government support funding to offset the increased product cost to the end user, keep our

 

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supply chain intact, source required materials to build our zero-emission systems and maintain them once they are delivered.

Based upon all of the factors described above, we have a limited ability to forecast our future revenue, costs and expenses, and as a result, our operating results may from time to time fall below our estimates.

Our future growth is dependent upon demand for conversion of existing diesel- and gasoline-powered buses, truck and other fleet vehicles to zero-emission electric or hybrid drivetrain systems and demand for new buses, trucks and other fleet vehicles with zero-emission drivetrains. The bus and commercial fleet market for zero-emission electric and hybrid vehicles may be smaller or develop more slowly than expected. The zero-emission drivetrain conversion market is relatively new and evolving. If this market is smaller or develops more slowly or differently than we expect, our business, growth prospects and financial condition would be adversely affected.

Our growth is highly dependent upon the market acceptance of, and we are subject to an elevated risk of any reduced demand for, zero-emission vehicles and conversion of existing buses, trucks and other fleet vehicles to zero-emission electric or hybrid vehicles and the demand for new buses, truck and other fleet vehicles with zero-emission drivetrains in particular. If this market does not develop as we expect or develops more slowly than we expect, our business, prospects, financial condition and operating results will be harmed and we may need to raise additional capital. This market is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors. Factors that may influence the market acceptance of zero-emission vehicles, and specifically conversion of existing buses and fleet vehicles to zero-emission electric or hybrid and the demand for new buses and fleet vehicles with zero-emission drivetrains, include:

 

    perceptions about zero-emission electric vehicle quality, safety design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of any electric vehicle;

 

    perceptions about the limitations in the technology resulting in a limited range over which zero-emission electric vehicles may be driven on a single battery charge (increases in distance requires additional batteries, which increases weight, and at some point too much weight diminishes the additional distance being sought before requiring a charge);

 

    perceptions about vehicle safety in general, in particular safety issues that may be attributed to the use of advanced technology;

 

    the availability of alternative fuel vehicles, including competitive vehicles and improvements in the fuel economy of the internal combustion engine may cause a slow-down in the demand to switch to zero-emission electric vehicles;

 

    the availability of service for zero-emission electric vehicles;

 

    the environmental consciousness of owners of diesel- and gasoline-powered buses, truck and other fleet vehicles;

 

    changes in the cost of oil and gasoline;

 

    government regulations and economic incentives, including a change in the administrations and legislations of federal and state governments, promoting fuel efficiency and alternate forms of energy;

 

    access to charging stations both public and private, standardization of electric vehicle charging systems and perceptions about convenience and cost to charge an electric vehicle;

 

    the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles;

 

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    perceptions about and the actual cost of alternative fuel; and

 

    macroeconomic factors.

Additionally, we have limited experience in introducing new products. Up to this time we have been a research and development company and we have only recently commenced production and deliveries of our products. To the extent that we are not able to build our products in accordance with customer expectations, our future sales could be harmed.

Additionally, we may become subject to regulations that may require us to alter the design of our vehicles, which could negatively impact consumer interest in our vehicles.

The influence of any of the factors described above may cause current or potential customers not to purchase our electric vehicles, which would materially adversely affect our business, operating results, financial condition and prospects.

We may not be able to compete successfully against current and future competitors.

The market for commercial zero-emission electric and hybrid vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors.

Most of our existing and potential competitors, including Ford, Navistar, Freightliner, PACCAR, Hino, Fuso, Volvo, BYD, Proterra, TransPower, Lion Bus or Motiv, have substantially greater financial resources, more extensive engineering, manufacturing, marketing and customer service and support capabilities, longer operating histories and greater name recognition than we do. They may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Virtually all of our competitors have more extensive customer bases and broader customer and industry relationships than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively. As a result, our competitors may be able to compete more aggressively and sustain that competition over a longer period of time than we can. Each of these competitors has the potential to capture market share in our target market, which could have an adverse effect on our position in our industry and on our business and operating results.

We expect competition in our industry to intensify in the future in light of anticipated increased demand for alternative fuel vehicles and to continued globalization and consolidation in the worldwide automotive industry. Factors affecting competition include product quality and features, innovation and development time, pricing, reliability, safety, fuel economy, customer service and financing terms. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in further downward price pressure and adversely affect our business, financial condition, operating results and prospects. Our ability to successfully compete in our industry will be fundamental to our future success in existing and new markets and to our market share. There can be no assurances that we will be able to compete successfully in our markets. If our competitors introduce new products or services that compete with or surpass the quality, price or performance of our products or services, we may be unable to satisfy existing customers or attract new customers at the prices and levels that would allow us to generate attractive rates of return on our investment. A disruptive technology advancement in the electric vehicle industry by a competitor such as in energy storage, traction motors or power electronics, could affect the sales of our products.

Demand in the zero-emission electric and hybrid vehicle industry is volatile, which may lead to lower vehicle unit sales and adversely affect our operating results. Volatility of demand in the zero-emission electric and hybrid vehicle industry may materially and adversely affect our business, prospects, operating results and financial condition. The markets in which we currently compete and plan to compete in the future have been subject to considerable volatility in demand in recent periods. As a low volume producer, we have fewer

 

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financial resources than more established providers have to withstand changes in the market and disruptions in demand. Volatility in demand may lead to lower vehicle unit sales and increased inventory, which may result in further downward price pressure and adversely affect our business, prospects, financial condition and operating results. These effects may have a more pronounced impact on our business given our relatively smaller scale and financial resources as compared to many incumbent providers.

Competition could result in price reductions and revenue shortfalls, loss of customers and loss of market share. If we cannot compete successfully against current and future competitors, our business, prospects, results of operations and financial condition could be negatively impacted.

Our sales cycle can be long and unpredictable and require considerable time and expense before executing a customer agreement, which may make it difficult to project when, if at all, we will obtain new customers and generate revenue from those customers.

The sales cycle for our business, from initial contact with a potential lead to contract execution and implementation, typically takes significant time and is difficult to predict. Our sales cycle in some cases has been up to six to nine months or more. Our sales efforts involve educating our customers about the use, capabilities and benefits of our products and services. Some of our customers undertake a significant evaluation process that frequently involves not only our products and services but also the offerings of our competitors. This process can be costly and time-consuming. As a result, it is difficult to predict when we will obtain new customers and begin generating revenue from these new customers. As part of our sales cycle, we may incur significant expenses before executing a definitive agreement with a prospective customer and before we are able to generate any revenue from such agreement. We have no assurance that the substantial time and money spent on our sales efforts will generate significant revenue. If conditions in the marketplace generally or with a specific prospective customer change negatively, it is possible that no definitive agreement will be executed, and we will be unable to recover any of these expenses. If we are not successful in targeting, supporting and streamlining our sales processes, our ability to grow our business, and our operating results and financial condition may be adversely affected. If our sales cycles lengthen, our future revenue could be lower than expected, which would have an adverse impact on our consolidated operating results and could cause our stock price to decline.

Developments in alternative technologies or improvements in the internal combustion engine may materially adversely affect the demand for electric vehicles and our drivetrains.

Significant developments in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect our business and prospects in ways we do not currently anticipate. For example, fuel which is abundant and relatively inexpensive in North America, such as compressed natural gas, may emerge as consumers’ preferred alternative to petroleum based propulsion. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and enhanced zero-emission electric or hybrid drivetrains which could result in the loss of competitiveness of our drivetrains, decreased revenue and a loss of market share to competitors.

If we are unable to keep up with advances in zero-emission electric drivetrain or hybrid vehicle technology, we may suffer an inability to obtain a competitive position in the market or suffer a decline in our competitive position.

There are companies in the zero-emission electric and hybrid vehicle industry that have developed or are developing vehicles and technologies that compete or will compete with our vehicles. We cannot assure that our competitors will not be able to duplicate our technology or provide products and services similar to ours more efficiently or at greater scale. We may be unable to keep up with changes in zero-emission electric or hybrid drivetrain technology and, as a result, may suffer a decline in our competitive position. Any failure to keep up with advances in zero-emission electric or hybrid drivetrain technology would result in a decline in our competitive position, which would materially and adversely affect our business, prospects, operating results and

 

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financial condition. Our research and development efforts may not be sufficient to adapt to changes in zero-emission electric or hybrid drivetrain technology. As technologies change, we plan to upgrade or adapt our drivetrains and introduce new drivetrains in order to continue to provide drivetrains with the latest technology, in particular battery cell technology. However, our drivetrains may not compete effectively with alternatives if we are not able to source and integrate the latest technology into our drivetrains. For example, we do not manufacture most of the high cost items required for our conversion kits, including battery cells, which makes us dependent upon other suppliers of battery cell technology for our battery packs. If for any reason we are unable to keep pace with changes in commercial electric and hybrid vehicle technology, particularly battery technology, our competitive position may be adversely affected.

The demand for commercial zero-emission electric and hybrid vehicles depends, in part, on the continuation of current trends resulting from dependence on fossil fuels. Extended periods of low diesel or other petroleum-based fuel prices could adversely affect demand for our vehicles, which could adversely affect our business, prospects, financial condition and operating results.

We believe that much of the present and projected demand for commercial zero-emission electric and hybrid vehicles results from concerns about volatility in the cost of petroleum-based fuel, the dependency of the United States on oil from unstable or hostile countries, government regulations and economic incentives promoting fuel efficiency and alternative forms of energy, as well as the belief that climate change results in part from the burning of fossil fuels. If the cost of petroleum-based fuel decreased significantly, or the long-term supply of oil in the United States improved, the government may eliminate or modify its regulations or economic incentives related to fuel efficiency and alternative forms of energy. If there is a change in the perception that the burning of fossil fuels does not negatively impact the environment, the demand for commercial zero-emission electric or hybrid vehicles could be reduced, and our business and revenue may be harmed. Diesel and other petroleum-based fuel prices have been extremely volatile, and we believe this continuing volatility will persist. Lower diesel or other petroleum-based fuel prices over extended periods of time may lower the current perception in government and the private sector that cheaper, more readily available energy alternatives should be developed and produced. If diesel or other petroleum-based fuel prices remain at deflated levels for extended periods of time, the demand for commercial electric or plug-in hybrid vehicles may decrease, which could have an adverse effect on our business, prospects, financial condition and operating results.

We may not be able to reduce and adequately control the costs and expenses associated with operating our business, including our material and production costs.

If we are unable to reduce and/or maintain a sufficiently low level of costs for designing, manufacturing, marketing, selling and distributing and servicing our zero-emission drivetrains relative to their selling prices, our operating results, gross margins, business and prospects could be materially and adversely impacted. We have made, and will be required to continue to make, significant investments for the design, manufacture and sales of our zero-emission drivetrains. Our marginal costs of producing our drivetrains to date have exceeded our revenue from selling them. This is not expected to change for the foreseeable future until we are able to generate adequate sales volume to offset the cost of our drivetrains. There can be no assurances that our costs of producing and delivering our future products will be less than the revenue we generate from sales at the time we introduce our future products or that we will ever achieve a positive gross margin on sales of our zero-emission drivetrains or future products.

We incur significant costs related to procuring the materials and components required to manufacture our drivetrains and convert electric and hybrid vehicles. As a result, without including the impact of government or other subsidies and incentives, our costs and therefore the purchase prices for our commercial zero-emission electric and hybrid vehicles and/or converting commercial vehicles currently are substantially higher than the purchase prices for gas or diesel-fueled vehicles with comparable features.

Additionally, in the future we may be required to incur substantial marketing costs and expenses to promote our zero-emission drivetrains, including through the use of traditional media such as television, radio and print,

 

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even though our marketing expenses to date have been relatively limited. If we are unable to keep our operating costs aligned with the level of revenues we generate, our operating results, business and prospects will be harmed. Many of the factors that impact our operating costs are beyond our control. For example, global demand from all manufacturers of zero-emission vehicles for the same resources could create shortages and drive the costs of our raw materials and certain components, such as lithium-ion battery cells, to a higher level and reduce profit or create or increase losses. Indeed, if the popularity of zero-emission electric and hybrid vehicles exceeds current expectations without significant expansion in battery cell production capacity and advancements in battery cell technology, shortages could occur which would result in increased materials costs to us, and could also negatively impact our ability to meet production requirements if the batteries were simply not available.

If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately.

Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. We have recently expanded our operations and further significant expansion will be required, especially in connection with kit manufacturing, service and warranty requirements. The requirements of being a public company will significantly increase our general and administrative costs. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Risks that we face in undertaking this expansion include:

 

    establishing sufficient sales, service and service facilities in a timely manner;

 

    forecasting production and revenue;

 

    training new personnel;

 

    controlling expenses and investments in anticipation of expanded operations;

 

    establishing or expanding design, manufacturing, sales and service facilities;

 

    implementing and enhancing administrative infrastructure, systems and processes;

 

    addressing new markets; and

 

    expanding operations and finding and hiring a significant number of additional personnel, including manufacturing personnel, design personnel, engineers and service technicians.

We intend to hire a significant number of additional personnel, including design and manufacturing personnel and service technicians for our zero-emission electric and hybrid vehicles. Because our vehicles are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in zero-emission electric and hybrid vehicles may not be available to hire, and we may need to expend significant time and expense training the employees we do hire. Competition for individuals with experience designing, manufacturing and servicing zero-emission electric and hybrid vehicles is intense, and we may not be able to attract, assimilate, train or retain additional highly qualified personnel in the future, which could seriously harm our business and prospects.

In this regard we will be required to continue to improve our operational, financial and management controls and our reporting procedures and we may not be able to do so effectively. Further, to accommodate our expected growth we must continually improve and maintain our technology, systems and network infrastructure. We therefore may be unable to manage our expenses effectively in the future, which would negatively impact our gross margin or operating expenses in any particular quarter. If we fail to manage our anticipated growth and change in a manner that preserves the quality of our zero-emission systems and services and our ability to deliver in a timely manner, it will negatively affect our brand and reputation and harm our ability to retain and attract customers.

 

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If our zero-emission electric and hybrid drivetrains fail to perform as expected, our ability to develop, market and sell our drivetrains could be harmed.

Our zero-emission drivetrains or vehicles that contain our drivetrains may not perform in a manner that is consistent with our customers’ expectations for a variety of reasons. If our drivetrains or vehicles that contain our drivetrains were to contain defects in design and manufacture that cause them not to perform as expected or that require repair, or any other failure of our vehicles to perform as expected could harm our reputation and result in delivery delays, product recalls, product liability claims, significant warranty and other expenses, which could have a material adverse impact on our ability to develop, market and sell our zero-emission drivetrains. For example, should we have a significant sale of either new vehicles or conversion kits and a defect (from supplier-purchased product or internally assembled components) were to be discovered after delivery that could not be corrected in a timely manner, we could suffer an adverse public relations event that harms the company in a way that it may not be able to recover from, or which turns out to be so costly as to cause a significant loss. Although we attempt to remedy any issues we observe in our drivetrains as effectively and as rapidly as possible, such efforts may not be timely, may hamper production or may not provide satisfaction to our customers. While we have performed extensive internal testing, we currently have a limited frame of reference by which to evaluate the long-term performance of our zero-emission drivetrains. There can be no assurance that we will be able to detect and fix any defects in our products prior to their sale to customers. Further, the performance of our zero-emission drivetrains may be negatively impacted by other factors, such as limitations inherent in existing battery technology and extreme weather conditions. Our zero-emission drivetrains have not yet been evaluated by the U.S. National Highway Traffic Safety Administration (“NHTSA”) for its 5-Star Safety Ratings, and while based on our internal testing we expect to obtain acceptable ratings, there is no assurance this will occur.

Any vehicle product defects or any other failure of our commercial zero-emission electric or hybrid drivetrains to perform as expected could harm our reputation and result in delivery delays, product recalls, product liability claims, significant warranty and other expenses, customer losses and lost revenue, any of which could have a material adverse impact on our business, financial condition, operating results and prospects.

We are dependent on third parties to deliver raw materials, parts, components and services in adequate quantity in a timely manner and at reasonable prices, quality levels, and volumes acceptable to us. Our business, prospects, financial condition and operating results could be adversely affected if we experience disruptions in our supply chain.

We manufacture and assemble zero-emission electric and hybrid drivetrains and conversion kits for drivetrains from components supplied by third parties. For example, batteries, traction motors, power electronics, connectors, cables, and metal fabrication for battery storage boxes As a result, we are particularly dependent on those third parties to deliver raw materials, parts, components and services in adequate quality and quantity in a timely manner and at reasonable prices. Some components of our drivetrain systems include materials such as copper, lithium, rare-earth and strategic metals that have historically experienced price volatility and supply interruptions. In addition, we do not currently maintain long-term agreements with our suppliers with guaranteed pricing because we cannot at this time guarantee them adequate volume, which exposes us to fluctuations in component, materials and equipment prices and availability.

Furthermore, currency fluctuations weakening the U.S. dollar against foreign currencies may adversely affect our purchasing power for such raw materials, parts and components and manufacturing equipment from foreign suppliers. Substantial increases in the prices for such raw materials, components and equipment would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased prices. There can be no assurance that we will be able to recoup these increased costs by increasing the prices of our products.

 

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In cases where we rely on a sole supplier for a component or system, if there is an interruption of supply or increased industry demand it may be difficult for us to substitute one supplier for another, increase the number of suppliers or change one component for another in a timely manner or at all. Additionally, many of our current suppliers are small companies that produce a limited number of specialized products. If any of these suppliers were to go out of business or be acquired by a competitor of ours or any other third party that decides to discontinue our supply relationship, we would need to find an alternative supplier, which we may not be able to do. If we are unable to maintain a consistent, high quality and cost-effective supply chain, our business, prospects, financial condition and operating results could be adversely affected.

This limited supply chain exposes us to multiple potential sources of delivery failure or component shortages for the production of our zero-emission electric or hybrid drivetrains. We may experience delays due to supply chain disruptions with respect to any of our zero-emission drivetrains and any other future products we may produce. In addition, our currently ongoing transition from low to high volume production tooling for our zero-emission drivetrains may take longer than expected which may adversely impact our short-term financial results.

Changes in business conditions, labor issues, wars, governmental changes, natural disasters and other factors beyond our control or which we do not presently anticipate, could also affect our suppliers’ ability to deliver components to us on a timely basis. Furthermore, if we experience significantly increased demand, or need to replace certain existing suppliers, there can be no assurance that additional supplies of component parts will be available when required on terms that are favorable to us, or that any supplier would allocate sufficient supplies to us in order to meet our requirements or fill our orders in a timely manner, or that we could engineer replacement components ourselves.

Changes in our supply chain may result in increased costs in the future. We have also experienced cost increases from certain of our suppliers in order to meet our quality targets and development timelines as well as due to design changes that we made, and we may experience similar cost increases in the future. Additionally, we are negotiating with existing suppliers for cost reductions, seeking new and less expensive suppliers for certain parts, and attempting to redesign certain parts to make them less expensive to produce. If we are unsuccessful in our efforts to control and reduce supplier costs, our operating results will suffer.

If we encounter unexpected difficulties with our current suppliers, and if we are unable to fill these needs from other suppliers, we could experience production delays, which could have a material adverse effect on our financial condition and operating results.

The inability of these suppliers to deliver, or their refusal to deliver, necessary raw materials, parts and components of our zero-emission drivetrains and services in a timely manner at prices, quality levels, and volumes acceptable to us would have a material adverse effect on our financial condition and operating results. Our business, prospects, financial condition and operating results could be adversely affected if we experience disruptions in our supply chain.

The facilities or operations of our third-party providers could be damaged or adversely affected as a result of disasters or unpredictable events.

Some of our third-party providers have production facilities in California, a state known for seismic activity. If major disasters such as earthquakes, fires, floods, hurricanes, wars, terrorist attacks, computer viruses, pandemics or other events occur, the production facilities of some of our third-party providers may be seriously damaged, or they may have to stop or delay production and shipment of our products. We may also experience downtime due to a third-party provider’s delay in production and shipment of our products due to, among other reasons, their inability to obtain supplies and materials. Either of these delays could have a material adverse impact on our business, operating results and financial condition.

 

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If our suppliers fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity.

We do not control our independent suppliers or their business practices. Accordingly, we cannot guarantee their compliance with ethical business practices, such as environmental responsibility, fair wage practices, appropriate sourcing of raw materials, and compliance with child labor laws, among others. A lack of demonstrated compliance could lead us to seek alternative suppliers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations.

Violation of labor or other laws by our suppliers or the divergence of an independent supplier’s labor or other practices from those generally accepted as ethical in the United States or other markets in which we do business could also attract negative publicity for us and our brand. This could diminish the value of our brand image and reduce demand for our zero-emission drivetrains or hybrid vehicle technology if, as a result of such violation, we were to attract negative publicity. If we, or other manufacturers in our industry, encounter similar problems in the future, it could harm our brand image, business, prospects, financial condition and operating results.

Our business success will depend in part on the success of our strategic relationships with third parties. We may not be able to identify adequate strategic relationship opportunities, or form strategic relationships, in the future.

Our business success will depend in part on our ability to continue to successfully manage and enter into productive strategic relationships with third parties. We depend on various third parties to provide critical parts for our process. We currently maintain strategic relationships with all of the key manufacturers of components we require for conversion kit builds. As an example, we source our batteries from Chinese suppliers. However, several large market leaders in the battery manufacturing arena have gone out of business in the past several years which requires us to continue to vet and seek new suppliers. Maintaining and expanding our strategic relationships with third parties is critical to our continued success. Further, our relationships with these third parties are typically non-exclusive and do not prohibit the other party from working with our competitors. These relationships may not result in additional customers or enable us to generate significant revenue. Identifying suitable business partners and negotiating and documenting relationships with them require significant time and resources. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to successfully sell our products and services, compete in the marketplace or to grow our revenue could be impaired and our operating results would suffer.

While we may be able to establish alternate supply relationships or engineer replacement components for our single source components, we may be unable to do so in the short term, or at all, at prices or costs that are favorable to us. In particular, while we believe that we will be able to secure alternate sources of supply for most of our single sourced components in a relatively short time frame, qualifying alternate suppliers or developing our own replacements for certain highly customized components of our drivetrains may be time consuming, costly and may force us to make additional modifications to a drivetrain’s design, or at a minimum require us to delay delivery of orders.

We currently have and are seeking to establish new relationships with third parties to provide alternative parts sources, such as batteries, controllers and battery management systems. For example, we continue to test additional battery manufacturers’ products in order to have back- up systems in place should our existing supplier have delivery or quality issues. In addition, this helps keep our prices in line with our competition and allows us to monitor various output and costs per unit in real time. However, there are no assurances that we will be able to identify or secure suitable business relationship opportunities in the future or that our competitors will not capitalize on such opportunities before we do. Our strategic relationships within China for batteries and domestically for motors and controllers will keep us competitive if maintained properly. We may not be able to offer benefits to companies that we would like to establish and maintain strategic relationships with. Moreover, identifying such opportunities could demand substantial management time and resources, and negotiating and financing relationships involves significant costs and uncertainties. If we are unable to successfully source and

 

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execute on strategic relationship opportunities in the future, our overall growth could be impaired, and our business, prospects and operating results could be materially adversely affected.

We must scale our zero-emission drivetrain manufacturing, assembling, and converting processes effectively and quickly from low volume production to high volume production.

We have no experience to date in high volume manufacturing, assembling, and converting to commercial electric and hybrid vehicles. Our existing production model utilizing third parties may not be well suited for the high volume production we hope to require to scale our business. We do not know whether we will be able to develop efficient, low-cost manufacturing, assembly and converting capability and processes, and reliable sources of component supply that will enable us to meet the quality, price, engineering, design and production standards, as well as the production volumes required, to successfully develop our business. Any failure to develop such manufacturing, assembly and converting processes and capabilities and reliable sources of component supply within our projected costs and timelines could have a material adverse effect on our business, prospects, operating results and financial condition.

Our ability to scale our zero-emission drivetrain manufacturing, assembling, and converting processes is in part dependent on our supply chain and on our ability to execute on our decentralized production strategy. Even if we are successful in developing our high volume manufacturing, assembly and converting capability and processes, and reliable sources of component supply, we do not know whether we will be able to do so in a manner that avoids significant delays and cost overruns, including as a result of factors beyond our control such as problems with suppliers and vendors, or in time to meet our commercialization schedules or to satisfy the requirements of customers. In addition, certain components we integrate may not be available on a consistent basis or in large quantities. Our business, prospects, financial condition and operating results could be adversely affected if we experience disruptions in our supply chain or if we cannot obtain materials of sufficient quality at reasonable prices.

The complexity in our business is expected to grow as we introduce new products and services. We have limited experience in simultaneously designing, testing, manufacturing, upgrading, adapting and selling our zero-emission drivetrains as well as limited experience allocating our available resources among the design and production of multiple zero-emission drivetrains. As we add complexity to our product line and introduce new products and services, we may experience unexpected delays.

If we are unable to scale our existing assembly processes and systems quickly while maintaining our current quality level, including as a result of supply chain constraints and inability to manage complexity in our business, we may be unable to meet our customers’ vehicle quality and quantity requirements or our forecasted production schedule or lower our cost of sales. As a result, we may not be able to meet our customers’ delivery schedules and could face the loss of customers, or be exposed to liability to customers to which we promised delivery, which could adversely affect our business, prospects, financial condition and operating results.

We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.

We may become subject to product liability claims, which could harm our business, prospects, operating results and financial condition if we are not able to successfully defend or insure against such claims. The zero-emission electric and hybrid vehicle industry experiences significant product liability claims and we face inherent risk of exposure to claims in the event our zero-emission drivetrains do not perform as expected or malfunction and personal injury or death results Our risks in this area are particularly pronounced given the limited field experience of our zero-emission systems, number of vehicles delivered to date and limited field experience of those vehicles. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our drivetrains and business and inhibit or prevent commercialization of other future vehicle candidates which would have a material adverse effect on our brand, business, prospects and operating results. We currently do not have product liability

 

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insurance coverage, as we have not sold many vehicles. We intend to add product liability insurance on a claims-made basis for all our zero-emission systems with appropriate annual limits when we commence production. However, we cannot assure that our insurance will be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage, or outside of our coverage, may have a material adverse effect on our reputation, business and financial condition. We may not be able to secure product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we do face liability for our products and are forced to make a claim under any policy we have.

In connection with the development and sale of our zero-emission drivetrains, we may need to comply with various safety regulations and requirements with which it may be expensive or difficult to comply. For example, we may be subject to compliance from CARB; and NHTSA, In addition, we may be subject to various other Federal and State-level requirements.

We may be compelled to undertake product recalls.

Any product recall in the future may result in adverse publicity, damage our brand and adversely affect our business, prospects, operating results and financial condition. We may at various times, voluntarily or involuntarily, initiate a recall if any of our zero-emission drivetrain components prove to be defective. Such recalls, voluntary or involuntary, involve significant expense and diversion of management attention and other resources, which would adversely affect our brand image in our target markets and could adversely affect our business, prospects, financial condition and results of operations.

Our warranty reserves may be insufficient to cover future warranty claims which could adversely affect our financial performance.

If our warranty reserves are inadequate to cover future warranty claims on our vehicles, our business, prospects, financial condition and operating results could be materially and adversely affected. We provide a two-year warranty on parts and workmanship and a five-year warranty on batteries with every zero-emission drivetrain. Most of our warranty offering, with the exception of workmanship, is covered by the component manufacturers’ warranty. In addition, customers have the opportunity to purchase an Extended Service Plan for the period after the end of the standard warranty to cover additional services for an additional 3-year period or 100,000 miles, whichever comes first. The warranty is similar to other providers’ warranty programs and is intended to cover all parts and labor to repair defects in material or workmanship in the drivetrain. We plan to establish a warranty reserve of 1.25% of the cost of each delivery. We plan to record and adjust warranty reserves based on changes in estimated costs and actual warranty costs. However, because we have not yet begun delivering our first zero-emission drivetrains, and we have extremely limited operating experience with our drivetrains, we therefore have little experience with warranty claims for these zero-emission drivetrains or with estimating warranty reserves. Once we begin initiating sales of our drivetrains, we will monitor our warranty reserves based on our actual warranty claim experience. We may be required to provide for increases in warranty reserves in the future. As of September 30, 2016, we had no warranty reserves because we have generated no sales generating any potential warranty claims. There can be no assurances that our future warranty reserves will be sufficient to cover all claims or that our limited experience with warranty claims will adequately address the needs of our customers to their satisfaction.

Our insurance strategy may not be adequate to protect us from all business risks.

We may be subject, in the ordinary course of business, to losses resulting from products liability, accidents, acts of God and other claims against us, for which we may have no insurance coverage. While we currently maintain general commercial liability, automobile, property, and directors’ and officers’ insurance policies, as a general matter, we do not maintain as much insurance coverage as many other companies do, and in some cases, we do not currently maintain any at all. Additionally, we cannot be certain that our insurance coverage will be sufficient to cover all future claims against us. A loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts, which could adversely affect our financial condition and operating results.

 

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If we are unable to design, develop, market and sell zero-emission electric and hybrid drivetrains and other product offerings that address additional market opportunities, our business, prospects and operating results will suffer.

We may not be able to successfully develop new zero-emission electric or hybrid drivetrains or vehicles containing them, or address new market segments or develop a broader customer base. To date, we have focused our business on the sale of zero-emission electric drivetrains and have targeted owners of buses and commercial fleets. We will need to address additional markets and expand our customer demographic in order to further grow our business. In particular, we intend to additionally target trucks (all classes inclusive of 1-8) and vans under 14,000 pounds GVWR, which is a much different market from that of our current zero-emission drivetrains. Successfully offering a drivetrain in this market requires delivering a drivetrain with different characteristics at a price that is competitive with other similar drivetrains. We have not completed the design, component sourcing or manufacturing process for these drivetrains, so it is difficult to forecast its eventual cost, manufacturability or quality. Therefore, there can be no assurance that we will be able to deliver a drivetrain that is ultimately competitive in this market. at a compelling price point and in volumes as we currently intend, if at all. Our failure to address additional market opportunities would harm our business, financial condition, operating results and prospects.

Our growth depends in part on the availability and amounts of government subsidies and incentives and the application of regulations that encourage conversion to electric or hybrid vehicles. These subsidies and incentives are limited and unpredictable and could expire or change to benefit competing technologies.

We believe that the availability of government subsidies and economic incentives is currently a critical factor considered by our customers when purchasing our zero-emission systems or converting their existing vehicles to zero-emission-electric or hybrids, and that our growth depends in large part on the availability and amounts of these subsidies and economic incentives. Any unavailability, reduction, elimination or adverse application of government subsidies and economic incentives because of budgetary challenges, policy changes, the reduced need for such subsidies and incentives due to the perceived success of electric or hybrid vehicles or other reasons may result in the diminished price competitiveness of the alternative fuel vehicle industry generally and our zero-emission electric and hybrid vehicles in particular, especially prior to our ability to significantly reduce our costs. For example, in the United States, we and our customers benefit from significant subsidies in connection with the purchase of our vehicles under the California Hybrid Truck and Bus Voucher Incentive Program, or HVIP, CARB, local air quality management districts, the EV Demonstration Project, and state-level Clean Cities programs. Under these programs, purchasers of qualifying vehicles and those who convert their existing vehicles are eligible to receive subsidies or incentives of up to $55,000, $71,000 and $110,000, respectively, per qualifying vehicle purchased or converted. Certain regulations and programs that encourage sales of zero-emission electric and hybrid vehicles could be eliminated or applied in a way that adversely impacts sales of our commercial zero-emission electric and hybrid vehicles, either currently or at any time in the future. For example, the U.S. Federal government and many state governments, as well as many national governments within the European Union, are facing fiscal crises and budgetary constraints, which could result in the elimination of programs, subsidies and incentives that encourage the purchase or conversion of zero-emission electric and hybrid vehicles. In addition, grants made by the Department of Energy (“DOE”) under the U.S. Recovery and Reinvestment Act of 2009 to clean technology companies, such as the EV Demonstration Project grant, may be subject to a high level of scrutiny in part due to recent financial difficulties experienced by recipients of DOE loan guarantees. In addition, currently some purchase subsidies are limited in total annual amounts and have been exhausted before all willing buyers have been able to consummate a purchase. We currently benefit from certain government and economic incentives supporting the development and adoption of zero-emission electric or hybrid vehicles. If government subsidies and economic incentives to produce and purchase zero-emission electric or hybrid vehicles were no longer available to us or our customers, or the amounts of such subsidies and incentives were reduced or eliminated, it could have a negative impact on demand for our vehicles and our business, prospects, financial condition and operating results would be adversely affected.

 

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In addition, we anticipate that in the future there may be new opportunities for us to apply for grants, loans and other incentives from federal, state, local and foreign governments on our own behalf and on behalf of our customers. Our ability to obtain funds or incentives from government sources is subject to the availability of funds under applicable government programs and approval of our applications to participate in such programs. The application process for these funds and other incentives is and will continue to be highly competitive.

Our service model may be costly for us to operate and may not address the service requirements of our prospective customers.

Our business plan is not to develop company owned and operated service and warranty centers but to leverage existing third party bus and truck facilities to process our vehicle conversions and new vehicles. This plan may not prove to be workable and we may be forced to establish our own facilities at some point, resulting in substantial capital expenditures and increased operating costs. Zero-emission electric and hybrid commercial vehicles incorporate new and evolving technologies and require specialized service. These special service arrangements are now and in the future may continue to be costly and we may not be able to recoup the costs of providing these services to our customers. In addition, a number of potential customers may choose not to purchase our commercial zero-emission electric or hybrid vehicles because of the lack of a more widespread service network. If we are unable to satisfactorily service our vehicles, our ability to generate customer loyalty, grow our business and sell additional vehicles could be impaired. There can be no assurance that these service arrangements or our limited experience servicing our vehicles will adequately address the service requirements of our customers to their satisfaction, or that we will have sufficient resources to meet these service requirements in a timely manner as the volume of vehicles we are able to deliver annually increases. If we do not adequately address our customers’ service needs, our brand and reputation may be adversely affected, which, in turn, could have an adverse effect on our business, prospects, financial condition and operating results.

Traditional providers do not provide maintenance and repair services directly. Customers must instead service their vehicles through franchised dealerships or through third party maintenance service providers. We have a teaming agreement with A-Z Bus Sales, Inc. (“A-Z Bus Sales”) for them to provide third party service for us and we are pursuing other agreements. However, it is unclear when or even whether such third party service providers will be able to acquire the expertise to service our zero-emission electric and hybrid commercial vehicles. As our vehicles are placed in more locations, we may encounter negative reactions from our customers who are frustrated that they cannot use local service stations to the same extent as they have with their conventional commercial vehicles and this frustration may result in negative publicity and reduced sales, thereby harming our business and prospects.

Our decentralized assembly, sales and service model will present numerous challenges. We may not be able to execute on our plan to establish sales, service and assembly facilities in the urban areas we have targeted and our facilities in any of those markets may underperform relative to our expectations.

Our strategy of establishing sales, service, and assembly facilities in selected urban areas in the United States is substantially different from the prevailing centralized manufacturing and franchised distribution and service model used currently by our zero-emission and conversion manufacturing competitors. For example, we will not be able to utilize long established sales channels developed through a traditional franchise system to increase our sales volume, which may harm our business, prospects, financial condition and operating results. Moreover, we will be competing with companies with well established distribution channels. If we determine that our decentralized model is inadequate, opening our own sales, service and assembly facility in any market generally will be capital intensive and require, among other things, establishing a local order volume that is sufficient to support the facility, finding a suitable and available location, negotiating a satisfactory lease agreement for the facility, obtaining permits and approvals from local and state authorities (which, in the case of facilities to be opened in foreign countries, may require obtaining approvals from national governments), building out the facility to our specifications and hiring and training employees to assemble, sell and service our zero-emission electric or hybrid vehicles and converting existing vehicles to zero-emission electric or hybrid vehicles. If we decide we must open our own facilities, we plan to seek state and local government incentives to

 

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defray the costs of opening facilities in the markets we have selected, but we may not be successful in this effort, or the incentives may not be as significant as we would like. As with any development project, the development and build-out of a facility will subject us to the risk of cost overruns and delays, which may be significant. Once our sales, service and assembly facilities are open for business, we will need to ensure that they maintain a high level of quality in order to satisfy customers and enhance the brand. Even if we are able to address all of the challenges discussed above, and there are no assurances we will be able to, we have little experience in sales, service or assembly and our sales, service and assembly facilities in one or more markets may not adequately address customer service needs or be profitable and we may lose sales and our entire investment in such facilities, damaging our reputation in the process. If we are unable to establish the local order volume we require in order to open new sales, service and assembly facilities or are unable to successfully assemble, sell, and service our zero-emission electric and hybrid commercial vehicles adequately for customers and profitably operate these new facilities in our target markets, our business, prospects, financial condition and operating results may be adversely affected. If we do not adequately address our customers’ service needs, our brand and reputation will be adversely affected, which in turn could have a material and adverse impact on our business, financial condition, operating results and prospects.

We are subject to substantial regulation, which is evolving, and unfavorable changes or any failure by us to comply with these regulations could substantially harm our business and operating results.

Our commercial zero-emission electric and hybrid drivetrains, the sale of motor vehicles in general and the electronic components used in our vehicles are subject to substantial regulation under international, Federal, state and local laws. We may incur in the future increased costs in complying with these regulations. Regulations related to the electric vehicle industry and alternative energy currently are evolving and we face risks associated with changes to these regulations or new regulations. These risks include the following:

 

    Changes to the regulations governing the assembly and transportation of lithium-ion batteries;

 

    Revisions in motor carrier safety laws in the United States to further enhance motor vehicle safety generally and to ensure that electric vehicles achieve levels of safety commensurate with other cars, trucks, and buses could increase the costs associated with the component parts and the manufacture, assembly, and conversion of our drivetrains; and

 

    Revisions in consumer protection laws to ensure that consumers are fully informed of the particular operational characteristics of vehicles could increase our costs associated with warning labels or other related customer information dissemination.

To the extent the laws governing our business and vehicles change, some or all of our zero-emission drivetrains may not comply with applicable international, federal, state or local laws, and certain of the competitive advantages of our drivetrains may be reduced or eliminated, which could have an adverse effect on our business. Furthermore, compliance with changing regulations could be burdensome, time consuming, and expensive. To the extent compliance with changes in regulations or new regulations is cost prohibitive, our business, prospects, financial condition and operating results will be adversely affected.

Vehicle dealer and distribution laws could adversely affect our ability to sell our commercial zero-emission electric or hybrid vehicles.

Sales of our zero-emission electric and hybrid vehicles are subject to international, state and local vehicle dealer and distribution laws. To the extent such laws prevent us from selling our drivetrains to customers located in a particular jurisdiction or require us to retain a local dealer or distributor or establish and maintain a physical presence in a jurisdiction in order to sell drivetrains in that jurisdiction, our business, prospects, financial condition and operating results could be adversely affected. We intend to contract with vehicle dealers to sell our manufactured drivetrains but we have no assurance at this time that we will successfully contract with vehicle dealers and distributors to sell our drivetrains.

 

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We are subject to various environmental laws and regulations that could impose substantial costs upon us and cause delays in opening our sales, service and assembly facilities.

We and our operations may, once we begin production of our drivetrains through third party agreements, be subject to national, state and/or local environmental laws and regulations, including laws relating to the use, handling, storage, transportation, disposal and human exposure to hazardous substances and wastes. Environmental and health and safety laws and regulations can be complex, and we expect that our business and operations may be affected by future amendments to such laws or other new environmental and health and safety laws which may require us to change our operations. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury and fines and penalties. Capital and operating expenses needed to comply with environmental laws and regulations can be significant, and violations may result in substantial fines and penalties, third party damages, suspension of production or a cessation of our operations.

Contamination at properties we might in the future own and operate, and properties to which hazardous substances have been and may be sent by us, may result in liability for us under environmental laws and regulations, including, but not limited to the Comprehensive Environmental Response, Compensation and Liability Act, which can impose liability for the full amount of remediation-related costs without regard to fault, for the investigation and cleanup of contaminated soil and ground water, for building contamination and impacts to human health and for damages to natural resources. The costs of complying with environmental laws and regulations and any claims concerning noncompliance, or liability with respect to contamination in the future, could have a material adverse effect on our financial condition or operating results. We may face unexpected delays in obtaining the necessary permits and approvals required by environmental laws in connection with any planned manufacturing facilities that could require significant time and financial resources and delay our ability to operate these facilities, which would adversely impact our business prospects and operating results.

Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology.

Our success and ability to compete depend in part upon our intellectual property. We primarily rely on intellectual property laws, including trade secret, copyright, trademark and patent laws in the United States and abroad, and use contracts, confidentiality procedures, non-disclosure agreements, employee disclosure and invention assignment agreements and other contractual rights to protect our intellectual property. However, the steps we take to protect our intellectual property rights may be inadequate or we may be unable to secure intellectual property protection for all of our products and services.

If we are unable to protect our intellectual property, our competitors could use our intellectual property to market products, services or products and services similar to ours and our ability to compete effectively would be impaired. Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual property. Any of our intellectual property rights may be challenged by others or invalidated through administrative processes or litigation. The enforcement of our intellectual property rights depends on our legal actions against these infringers being successful, but we cannot be sure these actions will be successful, even when our rights have been infringed. In addition, we might be required to spend significant resources to monitor and protect our intellectual property rights, and our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Litigation to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management, whether or not it is resolved in our favor, and could ultimately result in the impairment or loss of portions of our intellectual property. Any patents issued in the future may not provide us with competitive advantages or may be successfully challenged by third parties.

Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Effective protection of our intellectual property may not be available to us in every country in which our products and services are available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of

 

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intellectual property rights may be inadequate. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.

We could incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights.

Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that could prevent, limit or interfere with our ability to produce, use, develop or sell our zero-emission electric or hybrid vehicles or components, which could make it more difficult for us to operate our business. Companies in our industry are increasingly bringing and becoming subject to suits alleging infringement of proprietary rights, particularly patent rights, and our competitors may hold patents or have pending patent applications, which could be related to our business. These risks have been amplified by the increase in third parties, or non-practicing entities, whose sole primary business is to assert such claims. We have not received in the past, but may receive in the future, notices that claim we or our customers using our products and services have misappropriated or misused other parties’ intellectual property rights. In those cases, we intend to investigate the validity of these claims and, if we believe these claims have merit, to respond through licensing or other appropriate actions. If we are sued by a third party that claims that our technology infringes its rights, the litigation could be expensive and could divert our management resources. We do not currently have an extensive patent portfolio of our own, which may limit the defenses available to us in any such litigation.

In addition, in many instances, we have agreed to indemnify our customers against certain claims that our products and services infringe the intellectual property rights of third parties. The results of any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following:

 

    cease offering or using technologies or producing, using, developing or selling vehicles or conversions that incorporate the challenged intellectual property;;

 

    make substantial payments for legal fees, settlement payments or other costs or damages;

 

    obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or

 

    redesign technology or our vehicles to avoid infringement.

If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement claims against us or any obligation to indemnify our customers for such claims, such payments or costs could have a material adverse effect upon our business and financial results. Furthermore, our business could be adversely affected by any significant disputes between us and our customers as to the applicability or scope of our indemnification obligations to them.

In many of our zero-emission electric or hybrid drivetrains we use battery packs composed of lithium-ion battery cells, which, if not appropriately managed and controlled, on rare occasions have been observed to catch fire or vent smoke and flames. If any such events occur in our commercial electric vehicles, we could face liability for damage or injury, adverse publicity and a potential safety recall.

The battery packs in our manufactured or converted vehicles will use lithium-ion cells, which have been used for years in laptop computers, cell phones and electric vehicles. On rare occasions, if not appropriately managed and controlled, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. Highly publicized incidents of laptop computers, cell phones, and Tesla electric vehicles bursting into flames have focused consumer attention on the safety of these cells. More recently, a limited number of side-impact tests carried out by NHTSA on non-commercial passenger vehicles containing lithium-ion batteries and thermal management systems containing liquid coolant have resulted in post-collision fires under certain conditions. Any failure of a competitor’s electric vehicle may cause indirect adverse publicity for us and our electric vehicles. These events

 

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have raised questions about the suitability of lithium-ion cells for automotive applications. There can be no assurance that a field failure of our battery packs will not occur, particularly if one of our manufactured or converted vehicles is involved in a collision, which could damage the vehicle or lead to personal injury or death and may subject us to lawsuits, product recalls, or redesign efforts, all of which would be time consuming and expensive. Furthermore, there is some risk of electrocution if individuals who attempt to repair battery packs on our manufactured or converted vehicles do not follow applicable maintenance and repair protocols. Any such damage or injury would likely lead to adverse publicity and potentially a safety recall. Any such adverse publicity or negative public perceptions regarding the suitability of lithium-ion cells for automotive applications or any future incident involving lithium-ion cells such as a vehicle or other fire, even if such incident does not involve our vehicles, could seriously harm our business, prospects, financial condition and operating results.

Unfavorable conditions in the global economy, rising interest rates and capital market liquidity issues could limit our ability to grow our business and negatively affect our operating results.

Revenue growth and potential profitability of our business depends on the level of demand in the markets we serve. To the extent that weak economic conditions cause our customers and potential customers to freeze or reduce their capital expenditure or operational budgets, particularly those for zero-emission electric or hybrid vehicles, demand for our products and services may be negatively affected. Historically, economic downturns have resulted in overall reductions in these budgets and corresponding spending. If economic conditions deteriorate or do not materially improve, our customers and potential customers may elect to decrease their operational budgets or defer or reconsider product and service purchases, which would limit our ability to grow our business and negatively affect our operating results.

Our business depends on our founders and management team, retaining and attracting qualified management, key employees and technical personnel and expanding our sales and marketing capabilities.

Our success depends upon the continued service of Mr. Reynolds, our Chairman, CEO and President, Mr. Monfort, our Founder and Chief Technology Officer, and Kevin Kanning, our Chief Operating Officer, as well as other members of our senior management team. It also depends on our ability to continue to attract and retain additional highly qualified management, technical, engineering, operating and sales and marketing personnel. We do not currently maintain key person life insurance policies on any of our employees. While we have employment contracts with Mr. Reynolds and Mr. Monfort, we do not have fixed term employment agreements with any of our other management employees, all who could terminate their relationship with us at any time. Our business also requires skilled technical, engineering, product and sales personnel, who are in high demand and are difficult to recruit and retain. As we continue to innovate and develop our products and services and develop our business, we will require personnel with expertise in these areas. There is increasing competition, especially in California, for talented individuals such as design engineers, manufacturing engineers, and other skilled employees with specialized knowledge of electric vehicles, zero-emission electric and hybrid drivetrains and conversions. This competition affects both our ability to retain key employees and hire new ones. Key talent may leave us due to various factors, such as a very competitive labor market for talented individuals with automotive or transportation experience. Our success depends upon our ability to hire new employees in a timely manner and retain current employees. Additionally, we compete with both mature and prosperous companies that have far greater financial resources than we do and start-ups and emerging companies that promise short-term growth opportunities. The loss of Mr. Reynolds, Mr. Monfort, Mr. Kanning or any other member of our senior management team, or an inability to attract, retain and motivate additional highly skilled employees required for the planned development and expansion of our business, could delay or prevent the achievement of our business objectives and could materially harm our business.

 

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The forecasts of market growth included in this Offering Circular may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure you our business will grow at similar rates, if at all.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates, which may not prove to be accurate. Forecasts relating to the expected growth in zero-emission electric and hybrid vehicles, electric and hybrid drivetrains and conversions and other markets, including the forecasts or projections referenced in this Offering Circular, may prove to be inaccurate. Even if these markets experience the forecasted growth, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this Offering Circular should not be taken as indicative of our future growth.

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

We need sufficient capital to fund our ongoing operations and continue our development. We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, such as keeping pace with technological developments in order to remain competitive in our evolving industry, improve our operating infrastructure or acquire complementary businesses and technologies. As a result, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Common Stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when and if we require it, our ability to continue to support our business growth, and to respond to business challenges could be significantly impaired.

We may selectively pursue acquisitions of complementary businesses and technologies, which could divert capital and our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.

We may selectively pursue acquisitions of complementary businesses and technologies that we believe could complement or expand our applications, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.

In addition, we have limited experience with acquiring other businesses or technologies. If we acquire businesses or technologies, we may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:

 

    inability to integrate or benefit from acquired technologies or services in a profitable manner;

 

    unanticipated costs or liabilities associated with the acquisition;

 

    incurrence of acquisition-related costs;

 

    difficulty integrating the accounting systems, operations and personnel of the acquired business;

 

    difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;

 

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    difficulty converting the customers of the acquired business onto our applications and contract terms, including disparities in the revenue, licensing, support or professional services model of the acquired company;

 

    diversion of management’s attention from other business concerns;

 

    adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;

 

    the potential loss of key employees;

 

    use of resources that are needed in other parts of our business; and use of substantial portions of our available cash to consummate the acquisition.

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.

Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. We may also unknowingly inherit liabilities from acquired businesses or assets that arise after the acquisition and that are not adequately covered by indemnities. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial position may suffer.

We have not conducted an evaluation of the effectiveness of our internal control over financial reporting and will not be required to do so until 2017. If we are unable to implement and maintain effective internal control over financial reporting investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Common Stock may be negatively affected.

As a public company, we will be required to maintain internal control over financial reporting for the year ending December 31, 2017 and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) requires that we evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our annual report for the fiscal year ending December 31, 2017, provide a management report on the internal control over financial reporting, which must be attested to by our independent registered public accounting firm to the extent we decide not to avail ourselves of the exemption provided to an emerging growth company, as defined by The Jumpstart Our Businesses Act of 2012 (“JOBS Act”). As we have not conducted an evaluation of the effectiveness of our internal control over financial reporting, we may have undiscovered material weaknesses. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are in the process of designing and implementing the internal control over financial reporting required to comply with this obligation, which process may be time consuming, costly, and complicated. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, if we are unable to assert that our internal control over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, if and when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Common Stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.

 

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We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Common Stock less attractive to investors.

For as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our Common Stock less attractive because we will rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.

We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of June 30, (ii) the end of the fiscal year in which we have total annual gross revenue of $1 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) five years from the date of this Offering Circular.

We may not be able to utilize a significant portion of our net operating loss or research and development tax credit carryforwards, which could adversely affect our profitability.

As of December 31, 2015, we had Federal and State net operating loss carryforwards due to prior period losses, which if not utilized will begin to expire from 2032 through 2035 for Federal and State purposes, respectively. These net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our profitability.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), our ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if we experience an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws.

This offering or future issuances of our stock could cause an “ownership change.” It is possible that any future ownership change could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our profitability.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

 

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Risks Related to Our Initial Public Offering and Ownership of Our Common Stock

There has been no prior public market for our Common Stock, the stock price of our Common Stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our Common Stock prior to our initial public offering. The initial public offering price for our Common Stock was determined through negotiations between the Underwriters and us and may vary from the market price of our Common Stock following our initial public offering. If you purchase shares of our Common Stock in our initial public offering, you may not be able to resell those shares at or above the initial public offering price. An active or liquid market in our Common Stock may not develop upon closing of our initial public offering or, if it does develop, it may not be sustainable. The market price of our Common Stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

    overall performance of the equity markets;

 

    the development and sustainability of an active trading market for our Common Stock;

 

    our operating performance and the performance of other similar companies;

 

    changes in the estimates of our operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our Common Stock;

 

    press releases or other public announcements by us or others, including our filings with the SEC;

 

    changes in the market perception of all-electric and hybrid products and services generally or in the effectiveness of our products and services in particular;

 

    announcements of technological innovations, new applications, features, functionality or enhancements to products, services or products and services by us or by our competitors;

 

    announcements of acquisitions, strategic alliances or significant agreements by us or by our competitors;

 

    announcements of customer additions and customer cancellations or delays in customer purchases;

 

    announcements regarding litigation involving us;

 

    recruitment or departure of key personnel;

 

    changes in our capital structure, such as future issuances of debt or equity securities;

 

    our entry into new markets;

 

    regulatory developments in the United States or foreign countries;

 

    the economy as a whole, market conditions in our industry, and the industries of our customers;

 

    the expiration of market standoff or contractual lock-up agreements;

 

    the size of our market float; and

 

    any other factors discussed in this Offering Circular.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

 

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We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our operating results.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting and corporate governance requirements. These requirements include compliance with Section 404 and other provisions of the Sarbanes- Oxley Act (when applicable to us), as well as rules implemented by the SEC, and the Nasdaq Capital Market. In addition, our management team will also have to adapt to the requirements of being a public company. We expect complying with these rules and regulations will substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly.

The increased costs associated with operating as a public company will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, prospects, financial condition and operating results.

As a public company, we also expect that it may be more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.

We may not satisfy NASDAQ’s initial listing standards and, even if we do, we may experience a delay in the initial trading of our Common Stock on NASDAQ.

We have applied to list our Common Stock on the NASDAQ Capital Market (“NASDAQ”) under the symbol “ADOM.” Our Common Stock will not commence trading on NASDAQ until a number of conditions are met, including that we have raised the minimum amount of offering proceeds necessary for us to meet the initial listing requirements of NASDAQ, which we currently estimate to be approximately $10,000,000. There is no guarantee that we will be able to sell a sufficient number of shares to raise this amount of offering proceeds. Assuming we sell a sufficient number of shares to list on NASDAQ, we expect trading to commence following the Termination Date of this offering. However, we may we may wait before terminating the offering and commencing the trading of our Common Stock on NASDAQ in order to raise additional proceeds. In addition, in order to list, we will be required to, among other things, file with the SEC a post-qualification amendment to the Offering Statement, and then file an SEC Form 8-A in order to register our shares under the Exchange Act. The post-qualification amendment of the Offering Statement is subject to review by the SEC, and there is no guarantee that such amendment will be qualified quickly after filing. Any delay in the qualification of the post-qualification amendment may cause a delay in the initial trading of our Common Stock on NASDAQ. For all of the foregoing reasons, you may experience a delay between the closing of your purchase of our Common Stock and the commencement of exchange trading of our Common Stock.

Investors may have to wait up to one hundred twenty (120) days from the date of their investment before obtaining the shares of Common Stock purchased in this offering.

If and when we consummate an Initial Closing, the offering will continue until a date which is the earliest of: (i) ninety (90) days after the Initial Closing; or (ii) with the mutual agreement of us and our Underwriters, a date which is less than ninety (90) days after the Initial Closing in order to coordinate with the commencement of exchange trading of our Common Stock; or (iii) the date on which the maximum offering amount is sold. Additionally, in its discretion, the Company may elect to not hold another closing following the Initial Closing. Accordingly, any investors that invest in this offering after the Initial Closing may not receive shares of Common Stock until ninety (90) days after such investment is made, or not at all if there are no closings after the Initial Closing (in which case outstanding investment amounts will be returned, without deduction and generally without interest). While your investment will be held in an interest bearing escrow account, during this period you will not have access to your investment, nor will you have shares of Common Stock.

 

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Because the initial public offering price of our Common Stock will be substantially higher than the pro forma net tangible book value per share of our outstanding Common Stock following this offering, new investors will experience immediate and substantial dilution.

The initial public offering price is substantially higher than the pro forma net tangible book value per share of our Common Stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our Common Stock in this offering, based on the assumed initial public offering price of $4.50 per share, which is the midpoint of the price range set forth on the cover page of this Offering Circular, you will experience immediate dilution of $4.22 per share, the difference between the price per share you pay for our Common Stock and its pro forma net tangible book value per share as of September 30, 2016, after giving effect to the issuance of shares of our Common Stock in this offering. In addition, upon the completion of this offering, there will be options to purchase shares of our Common Stock outstanding, based on the number of such awards outstanding on. To the extent shares of Common Stock are issued with respect to such awards in the future, there will be further dilution to new investors.

NASDAQ may delist our Common Stock from trading on its exchange, which could limit stockholders’ ability to trade our Common Stock.

In the event we are able to list our Common Stock on the NASDAQ Capital Market, NASDAQ will require us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue the listing of our Common Stock. If we fail to meet these continued listing requirements, our Common Stock may be subject to delisting. If our Common Stock is delisted and we are not able to list our Common Stock on another national securities exchange, we expect our securities would be quoted on an over-the-counter market. If this were to occur, our stockholders could face significant material adverse consequences, including limited availability of market quotations for our Common Stock and reduced liquidity for the trading of our securities. In addition, we could experience a decreased ability to issue additional securities and obtain additional financing in the future.

Legal challenges brought by certain states against Regulation A could result in a court striking down Regulation A in whole or in part. Were this to occur, offers and sales made under Regulation A could be subject to rescission or other legal complications or uncertainties. In the case of rescission, investors who bought and have held our securities would have to take action to rescind their purchases from the Company, and investors who have bought and resold our shares could face rescission actions from the persons to whom they sold their shares.

On March 25, 2015, the SEC adopted a final rule that made numerous amendments and revisions to the previously existing Regulation A exemptions from registration under the Securities Act of 1933, as amended (the “Securities Act”). This offering is being conducted under that amended Regulation A. On May 22, 2015, certain U.S. state securities commissioners sued the SEC in federal court, seeking to have the final rules overturned. The state commissioners claimed that the SEC had overstepped its authority and wrongfully preempted state regulatory powers by adopting Regulation A. As of May 26, 2016, the state commissioners’ actions against the SEC are still pending.

If the state commissioners were to prevail, the federal court could strike down some or all of the provisions of Regulation A, as amended. If Regulation A were stricken down in whole or in part, depending on the sections stricken down, prior offers and sales of securities under Regulation A could be subject to legal challenges, complications and uncertainties. In particular, sales of shares made in this offering could be subject to challenge based on the court’s ruling. For example, it could be the case that sales of share made in this offering would be subject to rescission actions brought by the then-current holders of the shares. Investors who bought and have held our securities would have to take action to rescind their purchases from the Company; and investors who have bought and resold our shares could face rescission actions from the persons to whom they sold their shares.

 

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There is no assurance that Regulation A will survive, in whole or in part, the legal challenges that have been brought against it.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our Common Stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our Common Stock would be negatively affected. If one or more of the analysts who cover us downgrade our Common Stock or publish inaccurate or unfavorable research about our business, our Common Stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Common Stock could decrease, which might cause our Common Stock price and trading volume to decline.

We may fail to meet our publicly announced guidance or other expectations about our business, which would cause our stock price to decline.

We expect to provide guidance regarding our expected financial and business performance, such as projections regarding sales and production, as well as anticipated future revenues, gross margins, profitability and cash flows. Correctly identifying key factors affecting business conditions and predicting future events is inherently an uncertain process and our guidance may not ultimately be accurate. Our guidance is based on certain assumptions such as those relating to anticipated production and sales volumes and average sales prices, supplier and commodity costs, and planned cost reductions. If our guidance is not accurate or varies from actual results due to our inability to meet our assumptions or the impact on our financial performance that could occur as a result of various risks and uncertainties, the market value of our Common Stock could decline significantly.

We have broad discretion in the use of the net proceeds from our initial public offering and may not use them effectively.

We cannot specify with any certainty the particular uses of the net proceeds that we will receive from our initial public offering. We will have broad discretion in the application of the net proceeds, including working capital, possible acquisitions, and other general corporate purposes, and we may spend or invest these proceeds in a way with which our stockholders disagree. The failure by our management to apply these funds effectively could adversely affect our business and financial condition. Pending their use, we may invest the net proceeds from our initial public offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

Substantial future sales of shares by our stockholders could negatively affect our stock price after this offering.

Sales of a substantial number of shares of our Common Stock in the public market after this offering, particularly sales by our directors, executive officers, and significant stockholders, or the perception that these sales might occur or if there is a large number of shares of our Common Stock available for sale, could depress the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities. Based on the total number of shares of our Common Stock outstanding as of September 30, 2016, upon completion of this offering, we will have                      shares of Common Stock outstanding, assuming we sell the maximum number of shares and there is no exercise of our outstanding options.

All of the shares of Common Stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act. Substantially all of the remaining shares of Common Stock outstanding after this offering, based on shares outstanding as of September 30, 2016, will be restricted as a result of securities laws, lock-up

 

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agreements or other contractual restrictions that restrict transfers for at least one year after the date of this Offering Circular. These shares will become available to be sold one year and one day after the date of this Offering Circular.

Our Underwriters, in their sole discretion, may release all or some portion of the shares subject to lock-up agreements prior to expiration of the lock-up period. Shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements, after the aforementioned lock-up and leak-out periods.

Our equity incentive plans allow us to issue stock options. We may in the future create additional equity incentive plans, which may at that time require us to file a registration statement under the Securities Act as soon as practicable after the expiration of the lock-up period to cover the issuance of shares upon the exercise or vesting of awards granted or otherwise purchased under those plans. As a result, any shares issued or granted under the plans after the lock-up period has expired also may be freely tradable in the public market. If equity securities are issued under the plans, if implemented, and it is perceived that they will be sold in the public market, then the price of our Common Stock could decline substantially.

No holders of any shares of our Common Stock have rights to require us to file registration statements for the public resale of such shares.

The concentration of our Common Stock ownership with our executive officers, directors and affiliates will limit your ability to influence corporate matters.

Our executive officers, directors and owners of 5% or more of our outstanding Common Stock and their respective affiliates beneficially owned, in the aggregate 45.8% of our outstanding Common Stock as of September 30, 2016 and we anticipate that upon the completion of the offering, that same group will beneficially own at least 56.3% of our outstanding Common Stock. These stockholders will therefore have significant influence over management and affairs and over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. This concentrated control will limit your ability to influence corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial. This ownership could affect the value of your shares of Common Stock.

We do not intend to pay dividends for the foreseeable future.

We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their Common Stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.

Provisions in our certificate of incorporation and by-laws, as amended and restated prior to the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

 

    authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to defend against a takeover attempt;

 

    establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;

 

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    require that directors only be removed from office for cause and only upon a supermajority stockholder vote;

 

    provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders;

 

    prevent stockholders from calling special meetings; and

 

    prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders.

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder becomes an “interested” stockholder. For a description of our capital stock, see the sections titled “Underwriting” and “Description of Securities.”

There are legal restrictions on the resale of the common shares offered that are penny stocks. These restrictions may adversely affect your ability to resell your stock.

Our Common Stock may be subject to the penny stock rules under the Exchange Act. These rules regulate broker/dealer practices for transactions in “penny stocks.” Penny stocks are generally equity securities with a price of less than $5.00. The penny stock rules require broker/dealers to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson 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 completing the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction, the broker and/or dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The transaction costs associated with penny stocks are high, reducing the number of broker-dealers who may be willing to engage in the trading of our shares. These additional penny stock disclosure requirements are burdensome and may reduce all of the trading activity in the market for our Common Stock. If our Common Stock is subject to the penny stock rules, our stockholders may find it more difficult to sell their shares.

 

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CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2016:

 

    on an actual basis;

 

    on a pro forma basis, assuming the sale in this offering of the minimum amount of shares being offered, at an assumed offering price to the public of $5.00 per share, resulting in net proceeds to us of $7,331,575 (after deducting underwriting discount and commissions of $800,000 and our estimated other offering expenses of $1,868,425), and assuming the conversion of an aggregate principal amount of $645,000 plus accrued interest in debt to certain of our convertible promissory note holders and the issuance of 6,817,986 shares of our Common Stock to such convertible promissory note holders, in conjunction with the closing of this offering; and

 

    on a pro forma, as adjusted basis, assuming the sale in this offering of the maximum amount of shares being offered, at an assumed offering price to the public of $5.00 per share, resulting in net proceeds to us of $21,279,825 (after deducting underwriting discount and commissions of $1,850,000 and our estimated other offering expenses of $1,870,175), and assuming the conversion of an aggregate principal amount of $645,000 plus accrued interest in debt to certain of our convertible promissory note holders and the issuance of 6,817,986 shares of our Common Stock to such convertible promissory note holders, in conjunction with the closing of this offering.

You should read this table together with our audited consolidated financial statements as of and for the years ended December 31, 2015 and 2014, and the related notes thereto, and the unaudited consolidated financial statements as of and for the nine months ended September 30, 2016 and 2015, and the related notes thereto, included elsewhere in this Offering Circular. Our use of proceeds from this offering is discussed under “Use of Proceeds.”

 

     As of September 30, 2016  
     Actual      Pro Forma
Assuming
Minimum
Offering
Amount
(Unaudited)
     Pro Forma
Assuming
Maximum
Offering
Amount
(Unaudited)
 

Stockholders’ equity (deficit):

        

Preferred Stock, $0.00001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of September 30, 2016

   $           

Common stock, $0.00001 par value, 2,000,000,000 shares authorized, 58,542,350 shares issued and outstanding as of September 30, 2016

     585         673        703  

Additional paid-in capital

   $ 17,721,094         25,772,925         39,721,145   

Accumulated deficit

   $ (19,542,755      (19,542,755      (19,542,755
  

 

 

    

 

 

    

 

 

 

Total stockholders’ equity (deficit)

     (1,821,076      6,230,843         20,179,093   
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ 2,970,815       $ 10,302,390       $ 24,250,640  
  

 

 

    

 

 

    

 

 

 

The table above excludes the following securities (unless stated otherwise above):

 

    22,118,356 shares of our Common Stock issuable upon the exercise of stock options outstanding as of the date of this Offering Circular, at a weighted average exercise price of $0.10 per share;

 

    6,225,000 shares of our Common Stock available for future issuance under our 2012 Stock Option and Stock Incentive Plans; and

 

    1,250,000 shares of our Common Stock assuming the exercise of the outstanding warrant.

 

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DILUTION

If you invest in our Common Stock in this offering, your interest will be diluted to the extent of the difference between the public offering price per share of our Common Stock and the pro forma as adjusted net tangible book value per share of our Common Stock immediately after this offering.

Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of our Common Stock in this offering and the pro forma as adjusted net tangible book value per share of our Common Stock immediately after completion of this offering.

Our historical net tangible deficit as of September 30, 2016 was ($2,055,791), or ($0.04) per share of our Common Stock. Historical net tangible book value per share represents our total tangible assets less total liabilities divided by the number of shares of our Common Stock outstanding.

Our pro forma net tangible deficit as of September 30, 2016 was approximately ($1,335,447), or ($0.02) per share of Common Stock. Pro forma tangible deficit per share represents our total tangible assets less total liabilities divided by the number of shares of Common Stock outstanding as of September 30, 2016 after giving effect to the conversion of approximately an aggregate principal amount of $645,000 plus accrued interest at conversion prices ranging from $0.10 per share to $0.50 per share pursuant to certain of our promissory notes as of November 30, 2016. Pro forma as adjusted net tangible book value per share gives further effect to the issuance of 6,505,556 shares of our Common Stock at an assumed initial public offering price of $4.50 per share, the midpoint of the price range set forth on the cover page of this Offering Circular, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Our pro forma, as adjusted net tangible book value as of September 30, 2016 would have been $19,944,378, or $0.28 per share. This represents an immediate increase in pro forma net tangible book value of $0.30 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $4.22 per share to investors purchasing Common Stock in this offering.

The following table illustrates this per share dilution:

 

Assumed initial public offering price per share

      $ 4.50   

Historical net tangible book value per share as of September 30, 2016

   $ (0.04   

Increase attributable to the conversion of outstanding convertible promissory notes

     0.02      

Pro forma net tangible book value per share as of September 30, 2016

     (0.02   

Increase in net tangible book value per share

     0.30      

Pro forma, as adjusted net tangible book value per share after this offering

     0.28      

Dilution per share to investors in this offering

      $ 4.22   

The following table summarizes on an as adjusted basis as of September 30, 2016, after giving effect to the conversion of approximately an aggregate principal amount of $645,000 plus accrued interest at conversion prices ranging from $0.10 per share to $0.50 per share pursuant to certain of our promissory notes, as of November 30, 2016, the differences between existing stockholders and new investors purchasing shares of our Common Stock in this offering with respect to the number of shares of Common Stock purchased from us, the total consideration paid or to be paid to us (which includes net proceeds received from the issuance of our Common Stock, cash received from the exercise of stock options) and the average price per share paid or to be paid to us at the assumed initial public offering price of $4.50 per share, which is the midpoint of the price range set forth on the cover page of this Offering Circular, assuming the maximum amount of shares offered as set

 

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forth on the cover page of this Offering Circular are sold and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Shares Purchased     Total Consideration (1)     Average
Price per

Share
 
     Number      Percent     Amount      Percent    

Existing stockholders

     65,360,336         90.95   $ 5,991,204         21.97   $ 0.0917   

New investors

     6,505,556         9.05        21,279,825         78.03        4.50   

Total

     71,865,892         100   $ 27,271,029         100   $ 0.3795   

 

(1) A $1.00 increase (decrease) in the assumed initial public offering price of $4.50 per share, the midpoint of the price range set forth on the cover of this Offering Circular, would increase (decrease) the total consideration paid to us by new investors and total consideration paid to us by all stockholders by $5,166,667 ($5,166,667), assuming that the number of shares offered by us, as set forth on the cover page of this Offering Circular, remains the same and after deducting the estimated underwriting discounts commissions and related offering costs. An increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) the total consideration paid to us by new investors and total consideration paid to us by all stockholders by $4,185,000 ($4,185,000), assuming the assumed initial public offering price of $4.50 per share remains the same and after deducting the estimated underwriting discounts and commissions.

As of September 30, 2016, options to purchase 33,775,000 shares of Common Stock were outstanding at a weighted average exercise price of $0.10 per share. Assuming all of our outstanding options are exercised, new investors will own approximately 6.16% of our outstanding shares while contributing approximately 69.43% of the total amount paid to fund our company.

 

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SELLING STOCKHOLDERS

The shares being offered for resale by the selling stockholders consist of up to 600,000 shares of our Common Stock held by seven stockholders.

The following table sets forth the names of the selling stockholders, the number of shares of Common Stock beneficially owned by each selling stockholder as of September 30, 2016 and the number of shares of Common Stock being offered by such selling stockholders. The sales of shares of Common Stock by the selling stockholders will be exempt from registration under the Securities Act by virtue of Regulation S promulgated thereunder in that they will be offered and sold in an offshore transaction, without directed selling efforts in the United States, to non-U.S. persons. The selling stockholders are under no obligation to sell all or any portion of such shares nor are the selling stockholders obligated to sell any shares immediately upon qualification of this Offering Circular. We will not receive any proceeds from the sale of the selling stockholders’ shares of our Common Stock.

 

Name of selling stockholder

   Shares of
Common
Stock owned
prior to
offering
     Shares of
Common Stock to
be sold (1)
     Shares of
Common Stock
owned after
offering (2)(3)
     Percent of
Common Stock
owned after
offering (4)
 

UPC Capital Ventures II, L.L.C.

     1,200,000         352,000         850,000         1.189

Stephen Matthew Totty

     193,500         71,750         121,750         0.171

Gerald Clarence Wisnar Jr.

     5,000         2,500         2,500         0.004

Michael Neil Urgell

     1,500         750         750         0.001

James Speedy Bickel

     200,000         73,000         125,000         0.178

Redwood Group International Limited

     100,000         100,000         0         0.000

Total

     1,700,000         600,000         1,100,000         1.543

 

(1) Assumes the maximum offering price of $5.00 per share of Common Stock.
(2) Assumes the selling stockholders sell all shares offered by them.
(3) Excludes the number of shares of our Common Stock exercisable pursuant to warrants.
(4) Assumes the maximum number of shares sold in the offering.

 

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UNDERWRITING

We have entered into an underwriting agreement with the Underwriters, with respect to the shares of our Common Stock in this offering. Under the terms and subject to the conditions contained in the underwriting agreement, we have agreed to issue and sell to the public through the Underwriters, and the Underwriters has agreed to offer and sell, up to                      shares of our Common Stock, on a best efforts basis.

The underwriting agreement provides that the obligation of the Underwriters to arrange for the offer and sale of the shares of our Common Stock, on a best efforts basis, is subject to certain conditions precedent. The Underwriters are under no obligation to purchase any shares of our Common Stock for their own account. As a “best efforts” offering, there can be no assurance that the offering contemplated hereby will ultimately be consummated, or even if consummated that we will in fact obtain a listing on NASDAQ. The Underwriters may, but are not obligated to, retain other selected dealers that are qualified to offer and sell the shares and that are members of the Financial Industry Regulatory Authority, Inc. The Underwriters propose to offer the shares to investors at the public offering price, and will receive the underwriting commissions, set forth on the cover of this Offering Circular. The gross proceeds of this offering will be deposited in an escrow account established by us, until we have sold a minimum of                      shares of Common Stock and otherwise satisfy the listing conditions to trade our Common Stock on NASDAQ unless sooner withdrawn or canceled by us or the Underwriters, the offering will continue until (i) not less than                      shares of Common Stock have been sold, or (ii) close of business on             , unless extended by us and the Underwriters to not later than              (90 days after the date of this Offering Circular). Once we satisfy the minimum stock sale and NASDAQ listing conditions, the funds will be released to us.

We anticipate the shares of our Common Stock will be listed on NASDAQ under the symbol “ADOM.” In order to list, NASDAQ requires that, among other criteria, at least 1,000,000 publicly-held shares of our Common Stock be outstanding, the shares be held in the aggregate by at least 300 round lot holders, the market value of the publicly-held shares of our Common Stock be at least $15.0 million, our stockholders’ equity after giving effect to the sale of our shares in this offering be at least $4.0 million, the bid price per share of our Common Stock be $4.00 or more, and there be at least three registered and active market makers for our Common Stock. If the application is approved, trading of our shares on NASDAQ is expected to begin within five days after the date of initial issuance of the Common Stock.

The following table and the two succeeding paragraphs summarize the underwriting compensation and estimated expenses we will pay:

 

     Public Offering
Price
     Underwriting
Commissions
     Proceeds to Us,
Before Expenses
 

Per share

   $         $                    $                

Total minimum offering

   $ 10,000,000       $         $     

Total maximum offering

   $ 25,000,000       $         $     

We have agreed to reimburse the Underwriters for expenses incurred relating to the offering, including all actual fees and expenses incurred by the Underwriters in connection with, among other things, due diligence costs, the Underwriters’ “road show” expenses, which shall not exceed $            , and the fees and expenses of the Underwriters’ counsel. The fees and expenses of Underwriters’ counsel shall not exceed $            . We estimate that the total expenses of this offering, excluding underwriting commissions described above, will be approximately $            . We have also agreed to pay the Underwriters an advisory fee of $             upon the filing of an application for listing on NASDAQ.

As additional compensation to the Underwriters, upon consummation of this offering, we will issue to the Underwriters or their designees warrants to purchase an aggregate number of shares of our Common Stock

 

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equal to 7% of the number of shares of Common Stock issued in this offering, at an exercise price per share equal to 100% of the fair market value of the Common Stock as of the closing date (the “Underwriter Warrants”). The Underwriter Warrants and the underlying shares of Common Stock will not be exercised, sold, transferred, assigned, or hypothecated or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the Underwriter Warrants by any person for a period of 180 days from the effective date of the registration statement for this offering in accordance with FINRA Rule 5110. The Underwriter Warrants will expire on the fifth anniversary of the closing.

The Underwriters have informed us that they may provide an allowance not in excess of $             per share to other dealers out of the Underwriters’ commission of $            per share. No Underwriter or selling group members will receive any fees or warrants in connection with the purchase by any of our officers or directors or their respective affiliates of shares of Common Stock in this offering.

An offering circular in electronic format may be made available on the websites maintained by the Underwriters, or selling group members, if any, participating in the offering. The Underwriters may agree to allocate a number of shares to selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the Underwriters and selling group members that may make Internet distributions on the same basis as other allocations.

We have agreed that we will not: (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of our company or any securities convertible into or exercisable or exchangeable for shares of capital stock of our company; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of capital stock of our company or any securities convertible into or exercisable or exchangeable for shares of capital stock of our company; or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of our company, whether any such transaction described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of capital stock of our company or such other securities, in cash or otherwise, in each case without the prior consent of the Underwriters for a period of twelve months after the date of this Offering Circular, other than (A) the shares of our Common Stock to be sold hereunder, (B) the issuance by us of shares of our Common Stock upon the exercise of a stock option or warrant or the conversion of a security outstanding on the date of this offering, hereafter issued pursuant to our currently existing or hereafter adopted equity compensation plans or employment or consulting agreements or arrangements of which the Underwriters have been advised in writing or which have been filed with the Commission or (C) the issuance by us of stock options or shares of capital stock of our company under any currently existing or hereafter adopted equity compensation plan or employment/consulting agreements or arrangements of our company.

We, our executive officers and directors, and holders of substantially all of our Common Stock have entered into lock-up agreements with the Underwriters. Under the lock-up agreements, subject to certain exceptions, we and each of these persons may not, without the prior written approval of the Underwriter, offer, sell, contract to sell, pledge, or otherwise dispose of, directly or indirectly, or hedge our Common Stock or securities convertible into or exchangeable or exercisable for our Common Stock. These restrictions will be in effect for a period of approximately one year after the date of this Offering Circular.

The underwriting agreement provides that we will indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or contribute to payments the Underwriters may be required to make in respect thereof.

We have applied to have our Common Stock approved for listing on NASDAQ under the symbol “ADOM.” If the application is approved, trading of our Common Stock on NASDAQ is expected to begin within five days after the date of initial issuance of the Common Stock. We will not consummate and close this offering

 

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without a listing approval letter from NASDAQ. Our receipt of a listing approval letter is not the same as an actual listing on NASDAQ. The listing approval letter will serve only to confirm that, if we sell a number of shares in this best efforts offering sufficient to satisfy applicable listing criteria, our Common Stock will in fact be listed.

Prior to this offering, there has been no public market for our Common Stock. The initial public offering price has been determined by negotiations between us and the Underwriters. In determining the initial public offering price, we and the Underwriters have considered a number of factors including:

 

    the information set forth in this Offering Circular and otherwise available to the Underwriters;

 

    our prospects and the history and prospects for the industry in which we compete;

 

    an assessment of our management;

 

    our prospects for future earnings;

 

    the general condition of the securities markets at the time of this offering;

 

    the recent market prices of, and demand for, publicly traded Common Stock of generally comparable companies; and

 

    other factors deemed relevant by the Underwriters and us.

Neither we nor the Underwriters can assure investors that an active trading market will develop for shares of our Common Stock, or that the shares will trade in the public market at or above the initial public offering price.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of 5,555,556 shares of Common Stock in this offering will be approximately $21,279,825, based upon an assumed initial public offering price of $4.50 per share, the midpoint of the price range set forth on the cover page of this Offering Circular after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) the net proceeds to us by approximately $5.2 million, after deducting the underwriting discounts and commissions, assuming that the number of shares offered by us, as set forth on the cover page of this Offering Circular, remains the same.

The principal purposes of this offering are to increase our capitalization and financial flexibility, increase our visibility in the marketplace and create a public market for our Common Stock. As of the date of this Offering Circular, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. However, we currently intend to use the net proceeds to us from this offering primarily for general corporate purposes, including working capital, sales and marketing activities and general and administrative matters. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments.

We will retain broad discretion in the allocation of the net proceeds from this offering and could utilize the proceeds in ways that do not necessarily improve our results of operations or enhance the value of our Common Stock.

Accordingly, we expect to use the net proceeds as follows:

 

     Minimum Offering     Maximum Offering  
     Amount      Percentage     Amount      Percentage  

Inventory

   $ 2,735,000         37.30   $ 5,705,000         26.81

ADOMANI China

   $ 750,000         10.23   $ 2,500,000         11.75

Additional Staffing

   $ 665,000         9.07   $ 1,330,000         6.25

Sales and Marketing

   $ 1,020,000         13.91   $ 1,360,000         6.39

Engineering

   $ 140,000         1.91   $ 140,000         0.66

Repayment of 9% Notes Payable (1)

   $ 0         0   $ 4,255,325         20.00

Repayment of working capital loan (2)

   $ 500,000         6.82   $ 500,000         2.35

General Working Capital (3)

   $ 1,521,575         20.76   $ 5,489,500         25.79
  

 

 

    

 

 

   

 

 

    

 

 

 

TOTAL

   $ 7,331,575         100.00   $ 21,279,825         100.00
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) The 9% Notes payable have maturity dates ranging from January 2017 to November 2017.
(2) The working capital loan has an interest rate equal to 5% per annum and a maturity date of November 15, 2017.
(3) A portion of working capital will be used for officers’ salaries.

There are no anticipated material changes in the use of proceeds if all of the Common Stock being qualified in this offering are not sold. To the extent that we sell more than 5,000,000 shares, the additional net proceeds will be used for working capital.

The foregoing information is an estimate based on our current business plan. We may find it necessary or advisable to re-allocate portions of the net proceeds reserved for one category to another, and we will have broad discretion in doing so. Pending these uses, we intend to invest the net proceeds of this offering in short-term, interest-bearing securities.

 

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DESCRIPTION OF BUSINESS

Overview

We design, manufacture and install advanced zero-emission electric and hybrid drivetrain systems for use in new school buses and medium to heavy-duty commercial fleet vehicles. We also design, manufacture and install unique and patented conversion kits to replace conventional drivetrain systems for diesel and gasoline powered vehicles zero-emission electric or hybrid drivetrain systems. The hybrid drivetrain systems are available in both an assistive hybrid format and a full-traction format for use in private and commercial fleet vehicles of all sizes. We seek to expand our product offerings to include the sale of zero-emission vehicles manufactured by OEM partners, but to be marketed, sold, warrantied and serviced through our developing distribution and service network.

ADOMANI drivetrain systems can be built with options for remote monitoring, electric power-export and various levels of grid-connectivity. Our zero-emission systems may also grow to include automated charging infrastructure and “intelligent” stationary energy storage that enables fast vehicle charging, emergency back-up facility power, and access to the developing, grid-connected opportunities for the aggregate power available from groups of large battery packs.

We are a provider of new zero-emission electric and hybrid vehicles and replacement drivetrains focused on total cost of ownership. We help fleet operators unlock the benefits of green technology and address the challenges of local, State and Federal regulatory compliance and traditional-fuel price cost instability.

We generated virtually no revenue for 2014, 2015 or for the nine months ended September 30, 2016. For 2015, 2014 and the nine months ended September 30, 2016, our net losses were $6.0 million, $2.2 million and $9.2 million, respectively.

Market Overview

Concerns regarding climate change and other environmental considerations have led to the implementation of laws and regulations that restrict, cap, or tax emissions in the automotive industry and throughout other industries. In particular, EPA Tier 4 emission standards, CARB regulations, and recently implemented policies in Europe, generally referred to as Stage I, II, III and IV regulations, are requiring a significant reduction in the level of emissions and particulate matter produced by diesel power systems. These regulations are taking effect and are expected to increase both the cost and size of emission-compliant diesel power products, primarily due to the need to incorporate additional combustion and after-treatment components.

A variety of market factors are contributing to the increased use of alternative fuels and growth of alternative fuel technology, including economics, energy independence, environmental concerns, and the widespread availability of alternative fuels. As the price of crude oil remains volatile and the threat of climate change and air pollution remain public concerns, the search for more cost effective and cleaner fuels has become more important. Electricity has emerged as one solution to these challenges. The price of alternative fuels such as electricity is substantially less than diesel or gasoline, and alternative fuels produce lower amounts of toxic greenhouse gases.

Electric passenger cars reached one million in cumulative global sales in September 2015, up from about 665,000 at the end of 2014, at which time there were also 46,000 electric buses and 235 million electric two-wheelers on the road worldwide. Despite significant increases, electric vehicles still represented only 0.08% of passenger cars in 2014, with electric vehicle market share exceeding 1% of total car sales in only four countries: the Netherlands, Norway, Sweden, and the United States, with Norway leading at 12.5% of annual sales in 2014.

As the recent mention of buses and two wheelers indicates, when discussing electric vehicles, there are multiple markets. Passenger cars are the most prominent, but two wheelers are far more prevalent, and buses and

 

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trucks, although smaller in number are significantly higher in price and often purchased in bulk by major corporate customers or government or transit agencies. Because light duty passenger vehicles represent the largest potential market and have received the most attention from both analysts and policymakers, most global forecasts look at light duty electric vehicle sales.

Charging infrastructure is another important factor in electric vehicle adoption rates. The United States currently has 12,845 public electric charging stations and 32,069 public charging outlets. Some areas have considerably more charging stations than others, contributing to greater electric vehicle usage in those regions. Examples of particularly well equipped areas include the East and West Coasts of the United States, Japan, and Western Europe.

Electric Vehicle Markets

Electric vehicles include those that plug in to sources of electricity to recharge: plug-in hybrid electric vehicles (“PHEVs”) and pure electric battery electric vehicles (“BEVs”), as well as simple hybrid vehicles that combine a conventional powertrain with some kind of electric propulsion. Electric motors all share simple mechanics and high energy conversion efficiency, which can reach 90% over a range of speeds and power outputs. Especially in start-stop city driving, regenerative braking can help convert motive energy back into electricity and reduce wear on brakes. Electric motors can also provide high torque from rest and do not need multiple gears to match power curves, obviating the need for gearboxes and torque converters.

Passenger Vehicles

Total worldwide sales of passenger EVs only surpassed one million in September 2015. Despite recent growth, this still represents only 5% of the multi-nation Electric Vehicles Initiative’s goal of 20 million passenger EVs on the roads by 2020, or 2% of global cars.

2015 saw significant sales growth for plug-in electric vehicles (including both pure PEVs and PHEVs). Global sales reached almost 540,000, a nearly 70% increase from 2014, which itself saw about a 50% increase from 2013. As positive as this trend is, electric vehicles still comprised only 0.6% of the global auto market in 2015.

Regionally, the greatest growth by far came in China, which more than tripled electric vehicle sales in 2015, followed by Europe, where sales were nearly double a year before. Perhaps surprisingly, both the United States and Japan saw slight drop-offs in 2015. Sustained low gasoline prices over the past year may have made fuel economy less of an issue than before, negating much of the economic value of purchasing an electric vehicle instead of a conventional diesel or gasoline vehicle. On the other hand, China and Europe were able to accelerate sales growth, likely due to stronger government support, particularly in the form of rebates, tax abatements, and other financial incentives for purchasing electric vehicles.

Commercial Vehicles

As relatively simple as the pricing analysis is for individual consumers, the purchase and deployment of heavy duty commercial vehicles involve consideration of many more variables. Here, the type of customer is a major determinant, whether it is a commercial customer buying trucks for a fleet or a municipal entity purchasing buses for public use. Navigant Research forecasts global sales of electric drive and electric-assisted medium and heavy duty commercial vehicles (over 10,000 pounds) to grow from 16,000 in 2014 to almost 160,000 in 2023, for total sales of over 800,000 of such vehicles during the period. Navigant expects electric vehicles’ market share to increase from 0.4% to 2.9% of all medium and heavy duty commercial vehicle sales over the same period.

 

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Environmental Benefits

Because heavy-duty commercial vehicles consume considerably more fuel than light duty passenger vehicles, the environmental benefits of replacing conventionally fueled commercial vehicles with EVs can also be substantial. Whereas an electric passenger car will reduce greenhouse gas (GHG) emissions by 3 tons per year as compared to a conventional car, replacing a conventional Class 8 port drayage truck with an electric equivalent can bring an 18 metric ton annual reduction in GHG emissions. Replacing a conventional diesel bus with an all-electric bus can achieve a 78 metric ton reduction in GHG emissions. Electric buses can also reduce NOx emissions by 47 kg per year compared to a diesel bus and 19 kg compared to a CNG bus. As discussed below, these pollution reductions have had the greatest impact in the electric bus market, where public-minded municipalities are the principal purchasers.

Electricity Cost Considerations

Despite the higher electricity consumption of electric trucks, more widespread adoption could lead to more efficient utilization of utility assets and thus not necessarily lead to higher rates. At this point, deployment of electric trucks and buses is still too small to assess their full impact on electricity prices. As a study by the clean transportation nonprofit CALSTART emphasizes, evaluating this impact will involve weighing potential efficiency benefits, the impact on utility distribution grids, including the cost of potential upgrades, and the need for additional infrastructure.

Trucks

Some of the main markets for electric trucks include delivery vans, shuttle buses, and utility or work trucks, each of which has its own set of challenges. Where PHEVs have greater operational flexibility and require less charging infrastructure, battery electric vehicles (BEVs) can be either short range, which can charge quickly and operate with limited interruption, or long range, requiring longer charging times but more intraday operational flexibility. The table below presents some examples of different kinds of vehicles, battery sizes, and electricity demands.

Table 1: Electricity Needs of Electric Truck and Bus Types

 

Technology Type    Example    Average Peak Demand   Battery Size
Short Range PHEV    Volvo PHEV Class 8 Drayage Truck    10 kW   10kWh
Work Truck PHEV    Odyne Advanced Diesel PHEV Truck    3.3 kW   14/28 kWh
Long Range PHEV    Efficient Drivetrain PHEV/CNG Class 4 Truck    Up to 6.6 kW   40 kWh
Short Range BEV    Proterra Fast Charge Catalyst    280 to 380 kW*   53 or 131 kWh
Medium Range BEV    Transpower Electric Drayage Drive    70 kW   215 kWh
Long Range BEV    BYD 40-foot Electric Transit Bus    80 kW or 200 kW   324 kWh

 

* For deployments of 4 to 8 buses per fast charger

Source: CALSTART, Electric Truck & Bus Grid Integration (Sept. 2015), p. 8

Because of charging needs and restrictions, short-haul fleet vehicles that operate in a limited geographic area and return to central locations, such as delivery vans and shuttle buses, are the best candidates for electrification. Smith Electric Vehicles, for example, has sold step trucks and vans to companies like FedEx and Frito-Lay to use on local delivery routes.

Buses – Transit

For a number of reasons, buses probably present a more promising near-term market for electrification than other commercial vehicles. First, most bus purchases are public in nature, coming from transit agencies or school

 

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districts. As a later survey of government policies in the United States and abroad will show, many locales require public transportation operators to purchase and operate low-emissions vehicles. For public entities, cleaner transportation systems can provide benefits beyond reduced operating costs, in the form of less pollution and lower abatement and cleanup costs. Second, electric drive buses are likely to have lower fuel and maintenance costs, typically a large cost area for transit operators, compared to conventional diesel buses. Third, electric buses have smoother, faster acceleration and provide a quieter, smoother ride, benefiting both passengers and the surrounding urban environment.

Similarly to passenger cars and commercial fleets, high initial costs and the logistics of charging remain the greatest drawbacks. As detailed in the table below, depending on the market, hybrid buses can cost at least 40% more than, and sometimes over twice as much as, conventional diesel or CNG buses. Electric buses can be anywhere from twice to nearly five times as expensive as conventional buses.

Table 2: Hybrid and Electric Transit Bus Estimated Prices by Region, 2014

 

Market    Conventional (Diesel and CNG)      Hybrid      Electric  

China

   $ 60,000-90,000       $ 125,000-200,000       $ 280,000-350,000   

India

   $ 75,000-110,000       $ 175,00-255,000       $ 325,000-410,000   

Russia

   $ 130,000-180,000       $ 245,000-325,000       $ 400,000-500,000   

South America

   $ 200,000-225,000       $ 280,000-340,000       $ 410,000-500,000   

North America

   $ 420,000-580,000       $ 620,000-700,000       $ 850,000-980,000   

Europe

   $ 300,000-410,000       $ 450,000-540,000       $ 595,000-680,000   

Rest of World

   $ 100,000-350,000       $ 195,000-500,000       $ 300,000-700,000   

Source: Frost & Sullivan

Hybrid buses have gained greater traction than pure electric models in China and India, the two largest markets for electric buses. Both countries have some of the world’s worst urban pollution, as well as cities where buses form a greater part of public transportation than rail systems. Both China and India have a number of domestic hybrid and electric bus manufacturers, including Yutong, Xiamen King Long Motor Group, BYD, Nanjing Golden Dragon Bus, and Zhongtong Bus in China and Tata and Ashok Leyland in India. Of the 500,000 city buses in operation in China in 2014, analysts estimate that 80,000 were electric (presumably including hybrid electric models), with 27,000 more sold in 2014 and about 20,000 sold through the first half of 2015. The five companies just mentioned accounted for 62.5%, or 17,011, of the buses sold in 2014.

Electric drive or hybrid electric buses made up 17% of bus fleets in the United States in 2014, with most being gasoline or diesel hybrids, which made up between 30% and 40% of new bus sales. At the end of 2014, there were only 130 zero-emissions buses, that is, fully electric or fuel cell-powered buses, in operation or on order in the United States. A CALSTART executive has estimated that this number will double in 2016, and that zero-emissions models will make up 20% of the transit bus market by 2030. As an example of the cost impact of purchasing new electric buses, the Chicago Transit Authority recently committed to purchase 20-30 buses over the next few years, at a total pre-subsidy cost of $30 million to $40 million.

In the United States, the major sellers of battery electric buses through 2014 were Proterra and BYD, having sold 110 and 102 electric buses respectively. BYD, a Warren Buffet-backed Chinese manufacturer, expected to sell an additional 200 electric buses in the United States in 2015, and has sold about 5,200 worldwide.

Buses – School

School buses present another significant potential market for electrification. The United States has 480,000 school buses carrying 25 million children to school every day. The typically short, predictable routes of school buses are particularly suited to running solely on electricity. Traditional diesel school buses, which make up over

 

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half the total fleet, not only consume large amounts of fuel—more than 800 million gallons of diesel a year in the United States, at a fuel economy of only 4 mpg—but also directly impact children with tailpipe emissions. In response, a number of states have included school buses in clean transportation mandates, and some school districts, notably in California and Illinois, have begun to replace diesel buses with electric. Navistar introduced the first hybrid model in 2007, improving fuel economy by 30%, or up to 65% for a plug-in hybrid model, and other manufacturers followed suit, but we are not aware of any current hybrid manufacturing of school buses taking place.

Market Drivers

A number of factors impact both the supply and demand for various types of electric vehicles and we believe that we are well positioned benefit as a result of these driving forces. Except for energy storage technologies, discussed earlier, subsequent sections will address these market drivers in greater detail.

Prominent drivers of supply include:

 

    The cost and availability of energy storage technologies, specifically the cost and capacity of rechargeable lithium ion batteries;

 

    Grants, loans, tax breaks, and other financial support available for energy storage and electric vehicle research and development;

 

    Requirements that a specific percentage of automakers’ models be electric or other zero-emission vehicles; and

 

    Fuel economy standards that require automakers to meet certain fleet-wide benchmarks.

Prominent drivers of demand include:

 

    Mandates that government fleets purchase certain percentages of low emission, energy efficient, or alternative fuel vehicles;

 

    Mandates for transport agencies or school districts to purchase or convert to electric or other alternative fuel vehicles;

 

    Rebates, tax credits, and other incentives for purchasing or leasing electric or other alternative fuel vehicles;

 

    The availability of charging stations and other charging infrastructure, driven in turn by government funding, tax credits, rebates, and other incentives aimed at increasing the number of charging stations;

 

    The cost of electricity to recharge PEVs, impacted by special rates introduced by utilities;

 

    Preferential treatment in registration, emissions testing, and access to highways, city centers, and HOV lanes; and

 

    The cost of conventional diesel or gasoline and the resultant incremental costs of owning and operating an electric vehicle versus a conventionally fueled equivalent.

United States – Federal Laws and Incentives

As numerous as U.S. policies at the state and Federal levels may at first appear, unlike in China and many European nations, few Federal, and fewer state policies directly single out electric vehicles. Most often, U.S. policies encourage greater use of vehicles that run on some kind of alternative fuel, whether electricity, natural gas, hydrogen, or biodiesel. In addition, the United States has less of a comprehensive, coherent framework aimed at increasing electric vehicle use than do countries like China and many European nations.

 

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United States – State Laws and Incentives

Among U.S. states, California is notable for pioneering a number of measures that have encouraged ELECTRIC VEHICLE production and adoption, often later copied by other jurisdictions. These include financial incentives like tax credits and rebates for both individual and fleet owners, HOV lane access, and various grant and loan programs. Besides setting the nation’s most stringent emissions standards, California has required automakers to produce increasing percentages of zero-emission vehicles, of which EVs make up a significant portion, along with creating a market that allows manufacturers to buy and sell credits awarded for selling EVs. AB 923 became effective January 1, 2005 and effective January 1, 2012, Assembly Bill 470 authorized using AB 923 funding for the purchase of new school buses or retrofit of existing buses to accomplish the primary goal of reducing children’s exposure to both cancer-causing and smog-forming pollutants. Administered by the CARB, AB 923 authorizes State funding of up to $400,000 per new zero-emission school buses and up to $200,000 for the conversion of existing school buses ten years old or newer. The purchase of new buses, restricted to replacement of existing buses prior to AB 923, is now permitted for fleet expansion as well. There are no longer any limits on the buses’ gross vehicle weight rating (“GVWR”). All-electric school bus conversions that use technologies already demonstrated on school buses, and with engineering plans, are eligible for AB923 funding. All vehicles receiving AB 923 funding must have CHP Safety Certifications that are submitted to CARB prior to funding. AB 923 contains other technical requirements for the buses, all of which ADOMANI products comply with.

Challenges

Fleet operators and their companies face a number of challenges in the market today, including:

 

    Difficulty complying with existing and new federal and state emission restrictions and compliance requirement. Whether from Federal regulatory agencies, such as the EPA or from State regulatory agencies such as CARB, there are mandates designed to reduce emissions from mobile sources. At least 10 other states follow the CARB rules and regulations making similar requirements and more are expected to join along with the EPA at the Federal level.

 

    Finding cost savings while managing high fuel, maintenance and repair costs. The Global Warming Pollution Reduction Act of 2007 set strict air quality standards for PM, NOx and GHG reductions from new manufactured vehicles which were further tightened in 2010 to further reduce the amounts of PM, NOx and GHG emitted by newly manufactured vehicles.

 

    Extending the lives of existing vehicles. Due to reductions in capital expenditure budgets and the legislatively mandated addition of expensive and limiting emission reduction equipment it is challenging to prolong the lives of existing vehicles because of the increased cost of expensive maintenance, service and repairs.

 

    Difficulty planning for the operation of their fleet when fuel supplies are interrupted, such as during a natural disaster. Existing vehicles rely on fuel that must be pumped (using electricity) which may be a challenge to source when supply is interrupted during natural or man-made disasters. It may be possible for emergency service organizations to use the large battery packs of electric drive, commercial fleet vehicles as a mobile source of stored electrical energy. This electrical energy could supplement traditionally fueled back-up generators.

 

    Difficulty in improving the environment around these heavy-duty commercial fleets. Many studies have shown that the air quality in and around vehicles fueled by fossil-fuels pose a health risk not only to drivers of these vehicles but to their passengers and those in and around these vehicles. Especially at risk are children as passengers on older diesel fueled buses, as their lungs, brains and other organs have not fully developed and the air quality surrounding a typical school bus using diesel fuel can pose serious health risks. By using zero emission buses, trucks and cars we are creating a healthier environment in and around the vehicles they operate for their employees, customers and the communities they serve.

 

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Our Solution

We design, manufacture and install advanced zero-emission electric and hybrid vehicles and replacement drivetrain systems that improve fuel economy and reduce emissions. ADOMANI helps vehicles run more efficiently and cost effectively. Specifically, we enable our customers to:

 

    Add Emission-Compliant ADOMANI Vehicles and Drivetrain Systems to Their Fleets. Our commercial fleet vehicles and drivetrain systems are designed to reduce or eliminate the use of traditional fuels that create greenhouse gases and particulate matter.

 

    Reduce Total Cost of Ownership. We reduce fuel budgets by eliminating or reducing the reliance on traditional petroleum based fuels, instead using the more energy efficient and less variably priced grid-provided electricity.

 

    Prolong Lives of Existing Vehicles. Our vehicles and vehicles with our drive train systems have lower maintenance costs. These reduced maintenance costs may take the form of longer service intervals between brake system maintenance, reduction or elimination of internal combustion engine oil and oil filter changes, reduction or elimination of transmission oil and oil filter changes, reduction or elimination of air filter changes, reduction or elimination of emissions systems services, reduction or elimination of diesel emission fluid use, elimination of emissions tests on traditional fuel vehicles (if converted to a zero-emission electric drivetrain) and the elimination of certification tests of high pressure tanks on propane, liquefied natural gas, compressed natural gas powered vehicles (if converted to a zero-emission electric drivetrain).

 

    Plan for Natural Disasters When Fuel Supply May be Interrupted. Our zero-emissions systems can serve as on-site emergency back-up energy storage if grid power becomes intermittent or fails temporarily during natural or man-made disasters.

 

    Improve the Environment Around Vehicles. As a result of our zero-emission systems, drivers, operators, customers and the communities they serve have healthier environments in and around these vehicles.

Development of the Business to Date

We have developed and commercialized our products and services, which primarily include:

 

    Zero-emission electric drivetrain systems for use in “new” school bus and medium to heavy-duty commercial fleet vehicles.

 

    Zero-emission electric drivetrain systems for use in “existing fleet” school bus and medium to heavy-duty commercial fleet vehicles.

 

    Conversion hybrid drivetrain systems in an assistive hybrid format for use in private and commercial fleet vehicles of all sizes.

 

    Conversion hybrid drivetrain systems in a “full-traction” format for use in private and commercial fleet vehicles of all sizes.

 

    Purpose built, zero-emission vehicles of all sizes manufactured by outside OEM partners but to be marketed, sold, warrantied and serviced through the developing ADOMANI distribution and service network.

 

    Optional drivetrain components that allow for advanced remote monitoring features of vehicle location (geofencing), driver behavior, drivetrain health (error codes) and battery management systems.

 

    Optional drivetrain components that allow for electric power-export and various levels of grid connectivity.

 

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We have taken an active role in building awareness and support for our zero-emission electric and hybrid drivetrain systems in industry specific target groups and at all levels of government and regulatory agencies and the constituencies they serve. We have accomplished this through prior and current memberships in industry groups (private and governmental) and participation in their events; speaking engagements; management interviews; pilot product exhibits; fleet vehicle demonstrations and responses to Requests For Information and Requests For Proposals. In addition to the visibility we have achieved through these efforts, we believe that having an office in Silicon Valley will assist us in finding and recruiting appropriately trained engineers and technicians.

As a result of these activities and our sales efforts, as of July 1, 2016, we had procured Letters of Intent (“LOIs”) to purchase 25 new purpose-built zero-emission electric school buses; LOIs to convert an additional 25 buses to all-electric buses; and we have pending discussions for many more. We continue to work with the various agencies providing funding available to our customers so that the LOIs become purchase orders, which we expect to see happen in the first quarter of 2017, although there can be no assurance as to that timing.

As discussed below under Partnerships/Teaming Agreements, we have entered into a number of agreements with third parties, and continue to explore additional alliances, to establish our decentralized assembly, sales and service model. We believe we can preserve cash resources and yet still scale-up quickly when demand requires by leveraging the unused or underutilized service technician time, specific vehicle type expertise and service facility equipment of specific partners in ways to off-load some defined tasks, providing seasonal demand adjustments to technician headcount that will partially mitigate the human resource costs and challenges associated with scaling-up or down an employee base.

Our Strengths

We believe the following attributes and capabilities provide us with long-term competitive advantages:

 

    Product Diversity. We have multiple product offerings including zero-emission electric and hybrid drivetrains, new purpose built zero-emission electric vehicles and stationary energy storage solutions, and as a result, the ability to scale-up, scale-down or refine a specific product line in response to market demands and the evolving local, state and federal incentive programs. Also, within each product area, we have multiple suppliers of key drivetrain components allowing price flexibility both for our final products and replacement parts required over the product lifespan. This allows us to meet the expectations and budget constraints of public or private commercial fleet operators.

 

    Regulatory Agency Familiarity. By taking an active role in many trade industry groups and related events, we have developed and continually strive to maintain strong relationships with key local, state and federal regulatory agencies involved in the growing zero-emission and hybrid vehicle industry. To meet their own aggressive emissions targets, these regulatory agencies have encouraged the growth of zero-emission electric vehicles and hybrid drivetrains, especially in connection with heavy-duty commercial fleets.

 

    Relationships With Purchasers. To help shorten the sales cycles for our products, we have identified and built relationships with key commercial operators that have purchasing authority or influence over their organizations. We are also able to leverage past sales and marketing relationships that were built by our experienced management team.

 

    Additional Sales Potential. We have additional sales potential with commercial fleet customers. These potential additional sales could include: automated charging infrastructure, intelligent stationary energy storage systems that enables higher levels of vehicle fast-charging, emergency back-up facility power for use during grid power outages, enabling technologies to access the developing grid-connected opportunities for the aggregate power available from groups of large battery packs, or enabling technologies that allow for the avoidance of electric utility demand charges.

 

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    Unique Market Knowledge. We have specific and unique sales cycle knowledge for based on over 30 years’ experience.

Our Strategy

We intend to capitalize on these opportunities by pursuing the following key growth strategies:

 

    Develop Sales Staff. We plan to hire and train our initial sales staff to complement our current group. Training will include familiarizing them with the many and varied funding options available, and how to access those opportunities, or help our customers access them. See “Description of Business – Governmental Programs and Incentives.”

 

    Build Dealership Networks. We intend to build dealership networks for the local sales and service of ADOMANI zero-emission replacement drivetrain vehicles and new purpose-built zero-emission electric and hybrid commercial vehicles either manufactured by or for us.

 

    Develop Third Party Relationships. We plan to complete existing negotiations with partners and seek additional partners for the manufacture of our zero-emission systems.

 

    Provide Demonstrations. We will seek out and respond to local, state and federal pilot demonstration opportunities in interest areas for which we have relevant current product offerings or, in areas of interest that are congruent with product(s) that are on our product development roadmap but still in early stage development.

 

    Obtain Approvals From Incentive Programs. We will seek to have our products approved for various local, state and federal vehicle designations and incentive programs, like the California Heavy Duty Voucher Incentive Project administered by the CARB meant to accelerate the purchase of cleaner, more efficient trucks and buses in California.

 

    Develop an Intellectual Property Portfolio, License Our Technology and Enter into Strategic Collaborations. We plan to build upon our existing intellectual property, knowledge base and patent portfolio while seeking opportunities to license, white-label, and collaborate with strategic partners that can provide unique and complementary products and technology.

 

    Grow Our Manufacturing, Installation and Service Capability. As facility space and technician time requirements at partners are exceeded, we intend to expand or relocate to larger ADOMANI-owned or leased facilities dedicated to the manufacture, installation and service of our zero-emission systems.

 

    Introduce New Products. As new markets develop, we plan to expand our zero-emission systems into ancillary product verticals, such as charging infrastructure also called Electric Vehicle Service Equipment, stationary energy storage, vehicle-to-grid hardware and capabilities.

 

    Develop Our International Business. We plan to develop our business internationally. Through our wholly-owned subsidiary ADOMANI China we intend to pursue opportunities in China.

Our Customers

Our current primary focus is school buses and transit buses. For example, we have entered into a Teaming Agreement with A-Z Bus Sales to market and convert school buses to all-electrics and/or hybrids. Our target customers primarily include all public and private fleet operators that have an interest in meeting or exceeding local, State and Federal emission regulatory guidelines while saving money in fuel and maintenance costs over the lifecycle of their fleet vehicles and that also have an interest in tangible demonstrations (publicity) of their green-house-gas (GHG) reducing efforts. These targets include:

 

    Public and private K-12 schools that operate Type-A, C and D school buses and special-needs student buses.

 

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    Public and private schools that operate “white fleet” vehicles for non-student transportations use, such as facility service trucks, food service delivery vans/trucks and campus security vehicles.

 

    Student transportation contractors that serve public and private schools (First Student, etc.).

 

    Community based, public/privately funded shuttle buses serving special-needs community members (Merced Transportation Company).

 

    Public and private colleges and universities that operate shuttle buses, transit style buses, facility service vans and trucks on their campuses.

 

    Large companies that operate shuttle buses, transit style buses and facility based vehicles for employee transport to/from remote parking areas, to/from special events and the various vehicles used for facilities maintenance, services and security. (Apple, Google, Facebook, Yahoo, etc.).

 

    Private transportation contractors that shuttle large companies’ employees from common public transportation hubs to their campuses (Bauer Intelligent Transportation, Storer Transportation Services, MV Transportation Inc., among others).

 

    Commercial fleet operators that provide high daily mileage vehicles for use on routes in and around airports, hotels and offsite parking facilities.

 

    Port, railway, distribution center operators that use traditionally-fueled loading equipment, tractors, material handling equipment, forklifts, Class 1 through 8 trucks, delivery vans, yard goats, etc., that could be replaced with zero-emission alternatives.

 

    Large agricultural (farming) and food processing industry focused companies that operate Class 1 through 8 trucks, buses and/or delivery vans.

 

    Mining companies with fleets of above ground service vehicles and underground staff transport and support vehicles.

 

    Oil and gas companies with fleets of field trucks.

 

    Electric Utility companies with fleets of service trucks (PG&E, Edison, Southern Company) that are in the public eye.

 

    Package delivery companies with fleets of delivery vans, short haul trucks and distribution/sorting facility center vehicles (UPS, FedEx).

 

    Military based fleet operators that have non-combat fleet vehicles of all sizes.

Our Products and Services

Our products and services primarily include:

 

    Zero-emission electric drivetrain systems for use in new school buses and medium to heavy-duty commercial fleet vehicles.

 

    Zero-emission electric drivetrain systems for use in existing fleet school buses and medium to heavy-duty commercial fleet vehicles.

 

    Conversion hybrid drivetrain systems in either an assistive hybrid or a full traction format for use in private and commercial fleet vehicles of all sizes.

 

    Purpose built, zero-emission vehicles of all sizes manufactured by outside OEM partners but to be marketed, sold, warrantied and serviced through the developing ADOMANI distribution and service network.

 

    Optional drivetrain components that allow for advanced remote monitoring features of vehicle location (geofencing), driver behavior, drivetrain health (error codes) and battery management systems.

 

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    Optional drivetrain components that allow for electric power-export and various levels of grid connectivity.

Zero-emission electric drivetrain systems for use in new school buses and medium to heavy-duty commercial fleet vehicles.

This drivetrain system results in a zero-emission electric vehicle with similar performance specifications (except range) to a traditionally fueled version. The major drivetrain components systems include appropriately sized traction motor/generator(s), motor controller(s) and power-flow set up for either a direct-drive configuration, a single speed gearbox (speed reduction) or, a multi-gear ration transmission system. Other integrated drivetrain components include lithium iron phosphate (LiFePO4 or similar) battery packs, a battery management system (BMS), inverters, chargers, electrically driven systems for power steering and power (hydraulic or air) brakes, a vehicle control unit (VCU), wiring harnesses, a flat screen user-interface (dash board) and fleet technician diagnostic tools. An additional feature of our drivetrain system is that it uses many existing OEM parts, permitting easy access to parts and facilitating maintenance, repair and warranty activity

Zero-emission electric conversion drivetrain systems for use in existing fleet, school buses and medium to heavy-duty commercial fleet vehicles.

This drivetrain system results in the same zero-emission electric vehicle described immediately above. However, this drivetrain systems allows for the removal of the OEM’s internal combustion engine (ICE), radiator cooling systems, fuel tanks, exhaust and emission systems (manifolds, pipes, mufflers, particulate filters, DEF system, etc.) and usually the OEM transmission and associated transmission cooling system.

Conversion hybrid drivetrain systems in an assistive hybrid format for use in private and commercial fleet vehicles of all sizes to improve overall miles per gallon (mpg) performance.

This conversion drivetrain system integrates a modest sized motor/generator, motor controller, modest sized energy storage system (battery packs) of high C-rated batteries or ultra-capacitors and a user-interface for system monitoring by the vehicle operator.

Conversion hybrid drivetrain systems in a “full-traction” format for use in private and commercial fleet vehicles of all sizes.

This hybrid conversion drivetrain system retains the OEM drivetrain system and adds an electric drive system that results in a vehicle with OEM performance as well as the ability to run the vehicle in various drivetrain power-flow modes including an all-electric mode for when zero-emission operations are required. The major drivetrain components systems include the same items enumerated above. Optional equipment for this system can provide significant power export capabilities.

Purpose-built, zero-emission vehicles of all sizes manufactured by outside OEM partners but to be marketed, sold, warrantied and serviced through the developing ADOMANI distribution and service network.

ADOMANI currently has such an arrangement with a manufacturer of zero-emission electric transit-style buses and school buses of various sizes. These vehicles are designed to the Company’s specifications where possible, and will utilize the drivetrains systems described above.

Optional drivetrain components that allow for electric power-export and various levels of grid connectivity.

These systems integrate bi-directional changers and inverters and require additional facility based, stationary charging hardware and control systems.

 

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In addition, our products and services may in the future include some or all of the following:

 

    Zero-emission electric drivetrain systems for ship-through integration by outside OEMs into their own privately branded medium to heavy-duty commercial fleet vehicles.

 

    Automated charging infrastructure for commercial fleet vehicles.

 

    “Intelligent” stationary energy storage that enables fast vehicle charging.

 

    “Intelligent” stationary energy storage that enables emergency back-up facility power during grid power outages.

 

    “Intelligent” stationary energy storage that enables access to the developing grid-connected opportunities for the aggregate power available from groups of large battery packs.

 

    “Intelligent” stationary energy storage that enables avoidance of electric utility demand charges for commercial customers integrated with or independent of ADOMANI supplied, zero-emission fleet vehicle(s).

 

    Energy storage systems (battery packs) replacements with better energy density and/or expected lifecycles for existing electric vehicles and equipment that has outlived their original equipment manufacturer-provided energy storage systems. For example, replace Flooded Lead Acid (FLA) battery packs of existing industrial forklifts and underground mining equipment with more energy dense and higher cycle-life battery packs composed of Lithium Iron Phosphate (LiFePO4) or similar cell chemistry.

Testing

Our suppliers are completely vetted before their products are accepted for use in our products. Our drivetrains and finished products are inspected, road-tested and receive a complete quality control report prior to delivery.

Customer Service, Support and Training

The sales team, both direct and contractors, will be used as the first point of customer contact for customer support and training. At the point that the sales force can no longer handle the volume of these requirements, we will hire, train and support an additional internal staff.

Technology

Zero-emission electric drivetrain systems for purpose-built new vehicles generally include a wide range of traction drivetrain systems utilizing OEM original specs with multi-ratio options, traction battery pack chemistries with options for 2C (normal), 5C (modest) or 20C ( fast charging), using thermal management systems; battery management systems (“BMS”) with full CAN bus control at a cellular level; options for vehicle-to-grid (bi-directional) power management; and options for HVAC, and utilizing a more powerful and efficient high voltage system of 600 volts or higher. As previously mentioned, the systems also use many existing OEM parts, permitting easy to find, order and obtain almost any part, and facilitating maintenance, repair and warranty activity.

Gas/diesel to all-electric conversion systems. include similar features as purpose-built vehicle systems, and typically retain the OEM transmission, cooling systems for the engine and transmission, mounting brackets and bolts, power steering and air brake systems, alternators for 12 and/or 24 volt systems, and accessories like belts, pulleys, pumps and related components. The conversion kits only replace the engine block with an electric motor and the gas tank with a battery pack. Almost all other moving OEM parts remain in the vehicle, facilitating a straightforward, easy to work on conversion and providing the benefits described in the preceding paragraph with respect to parts.

 

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Our hybrid drivetrain systems use electric power assist to allow vehicles to drive in economy mode, or increases the power of a conventional gas or diesel engine if operated in regular mode. Our patented electric driveshaft replaces only the OEM driveshaft with an electric motor driveshaft. The hybrid driveshaft kit doesn’t affect the OEM components, parts or computer and the entire hybrid system can be installed within hours on most vehicles. Our patented system allows rear-wheel driveshaft trucks and buses to become a hybrid simply by replacing the driveshaft and adding a battery pack and controller box.

Our research and development expenses were $0.5million, $0.1million and $0.5million for 2013, 2014 and 2015, respectively.

Sales and Marketing

Sales

Currently, our sales team includes James L. Reynolds, Kevin G. Kanning and Enrique Boull’t, currently a consultant and the former COO of the Los Angeles Unified School District. We intend to expand our marketing and sales force as we open our sales, service and assembly facilities. We expect that each facility will have a team of dedicated marketing and sales employees with responsibility for the geographic region in which the facility is located. As a result, we believe we can efficiently and cost-effectively build out our marketing and sales network.

Marketing

We plan to focus our marketing efforts on increasing brand awareness, generating demand for our products, communicating product advantages and generating qualified leads for our sales force. We intend to rely on a variety of marketing vehicles, including participation in industry conferences and trade shows, public relations, industry research and our collaborative relationships with our business and teaming partners to share our technical message with customers. We also market our products on our website http://adomanielectric.com.

Manufacturing

We intend initially to contract with third-party suppliers to manufacture our products.

Distribution

We intend to distribute products to regional locations for installation into the motor vehicle.

Partnerships/Teaming Agreements

We have agreements with A-Z Bus Sales; GreenPower Motor Company, Inc.; Central States Bus Sales; ADOMANI/Redwood/TSI; China Low-Carbon Industry Investment Center International Committee; and with Lion Buses, Inc.

A-Z Bus Sales

ADOMANI and A-Z Bus Sales, a provider of sales, service, parts, and financing for both new and pre-owned buses, coaches, mini-buses, commercial trucks, vans, fire engines and fire trucks, as well as emissions compliance services like diesel particulate filter retrofits for buses and trucks, have entered into a Teaming Agreement where both companies have agreed to work together on the conversion, marketing, selling and servicing of school buses and other vehicles. A-Z Bus Sales has operations in California, Arizona, Nevada and Hawaii.

Green Power Motor Company, Inc. (“Green Power”)

GreenPower produces a range of bus models deploying electric drivetrain and battery technologies with a lightweight chassis. GreenPower integrates key components from such global suppliers as Siemens, Knorr, ZF

 

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and Parker, among others, providing an OEM platform that allows them to meet the specifications of various operators. GreenPower has appointed ADOMANI as its authorized factory representative for the California for Types A, C and D zero-emission electric school buses on a non-exclusive basis. Assuming various milestones are achieved, the agreement with ADOMANI will be ongoing and may expand into additional states or regions.

Central States Bus Sales (“Central States”)

Central States, a large Blue Bird school bus dealer and a large commercial bus dealer covering AR, IL, KY,TN and MO; have entered into a teaming agreement where both companies have agreed to work together on the conversion, marketing, selling and servicing of the many types of buses Central States currently sells.

Redwood/TSI (“Redwood”)

Redwood, an affiliate of Redwood Group International Limited, an advisor to ADOMANI, entered into a teaming agreement with ADOMANI to assist ADOMANI with converting new and used buses and trucks to zero-emission electric or hybrid vehicles through collaboration on various projects to develop and expand the market opportunities for ADOMANI.

China Low-carbon Industry Investment Center International Committee (“Low Carbon”)

To assist with its efforts to gain access to the China market through ADOMANI China, ADOMANI has entered into an agreement with Low Carbon, who is tasked with reducing carbon emissions in China, to assist ADOMANI with converting new and used buses and trucks to zero-emission electric or hybrid vehicles through marketing, public relations, sales and financing activity, including compliance with regulatory requirements.

Lion Buses, Inc. (“Lion”)

On November 1, 2016, Lion, a manufacturer of Type C electric school buses, granted ADOMANI exclusive dealer rights to sell Type C school buses, and when available, Type A school buses, in Nevada, Oregon, Utah, Arizona, Washington and Idaho for three years, at which time the agreement will automatically renew.

Employees

As of September 30, 2016 we had four full-time employees, James L. Reynolds, our CEO/President, Edward R. Monfort, our Chief Technology Officer and Founder, Kevin G. Kanning, our Chief Operating Officer, and Robert Williams, our VP Purchasing. None of our employees are covered by collective bargaining agreements. We believe our employee relations are good.

Competition

The power conversion vehicle market is highly competitive and we expect it to become even more so in the future as additional companies launch competing products and vehicle offerings. We compete with other alternative energy technologies, such as natural gas and hybrid technologies. These competitors include Ford, which produces the Ford Transit Connect EV®; Navistar, which produces the Navistar eStar®; Freightliner, which produces the MT E-CELL; Odyne Systems, which produces plug-in hybrid heavy- and medium-duty trucks; ZeroTruck, which produces an all-electric medium-duty truck; Electric Vehicles International, which produces an all-electric walk-in van and light- and medium-duty commercial electric trucks; BYD which manufactures new electric transit buses; Proterra, which manufactures new electric transit buses; TransPower which converts Type D school buses; and Motiv, which converts Type A school buses.

Intellectual Property

The protection of our technology and intellectual property is an important component of our success. We rely on intellectual property laws, including trade secret, copyright, trademark and patent laws in the United States and abroad, and use contracts, confidentiality procedures, non-disclosure agreements, employee disclosure and invention assignment agreements and other contractual rights to protect our intellectual property.

 

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As of September 30, 2016, we own three issued U.S. Patents which will expire in in 2030 and 2033. We also are in the process of preparing domestic and foreign patent applications on new inventions. In addition, we maintain a trademark portfolio including common law trademarks and service marks and have two service mark applications pending in the United States.

Circumstances outside of our control could pose a threat to our intellectual property rights. Effective intellectual property protection may not be available in the United States or other countries in which we provide our solution. In addition, the efforts we have taken to protect our intellectual property rights may not be sufficient or effective. Any impairment of our intellectual property rights could harm our business, our ability to compete and harm our operating results. In addition, as the number of competitors grows and solutions of competitors overlap, we may in the future face claims by third parties that we infringe upon or misappropriate their intellectual property rights, and we may be found to be infringing upon or to have misappropriated such rights. In the future, we, or our customers, may be the subject of legal proceedings alleging that our solutions or underlying technology infringe or violate the intellectual property rights of others.

Governmental Programs and Incentives

We believe that the availability of government subsidies and incentives currently is an important factor considered by our customers when purchasing our vehicles, and that our growth depends in part on the availability and amounts of these subsidies and incentives. Over time, we believe that the importance of the availability of government subsidies and incentives will decrease, as we continue to reduce the upfront cost of our vehicles. In order to help ensure that we and our customers benefit from available subsidies and incentive programs in both the United States, Canada, Mexico, Asia and in Europe, we have incentive specialists that work directly with our sales team and our customers on these issues.

U.S./State/Local programs and incentives

California Hybrid Truck and Bus Voucher Incentive Program

We believe our customers may be eligible for purchase under HVIP. HVIP is a partnership between CARB, and CALSTART, the purpose of which is to help speed the early market introduction of clean, low-carbon hybrid and electric trucks and buses. Under HVIP, dealers and fleet operators may request vouchers from HVIP on a first-come first-serve basis, up to the funding amount available for that year, to reduce the cost of purchasing hybrid and zero-emission medium- and heavy-duty trucks and buses. HVIP vouchers range in amount from $6,000 to $110,000, depending on the gross vehicle weight of the purchased vehicle and the number of vehicles purchased. School buses would be entitled to $95,000 to $110,000 for each new school bus.

HVIP funds the purchase of only fully commercialized hybrid and zero-emission trucks and buses. Vehicles still in the demonstration or evaluation stage are not eligible for inclusion in HVIP. Vehicle manufacturers must apply to have their hybrid and zero-emissions trucks and buses included in HVIP’s voucher program. Once a make and model is included in the program, the manufacturer is not required to submit a full application for the succeeding year’s program unless the vehicle has been modified. We intend to comply with the HVIP guidelines and qualify our school buses and vehicles for the HVIP vouchers.

Overview of State-Level, Fleet Incentive Programs Most Applicable to ADOMANI Products

California Hybrid and Zero-Emissions Truck and Bus Voucher Incentive Project

HVIP is a streamlined incentive program to help speed the purchase of clean, hybrid, and electric trucks and buses. All fleets are eligible, whether they’re public or private, large or small. HVIP is designed to assist fleets and dealers by reducing vehicle cost right at the time of purchase. HVIP base vouchers range from $18,000 to $95,000 per vehicle on a first-come, first-served basis. Additional funding for some vehicles can raise voucher levels up to $160,000 per vehicle HVIP is funded at $9 million per year in voucher funding from CARB.

 

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New York Truck Voucher Incentive Program

NYT-VIP is a first-come, first-served $19 million incentive program funded by the New York State Energy Research & Development Authority (NYSERDA). Eligible vehicles include all-electric, hybrid-electric, and CNG trucks and buses, along with retrofit diesel-emission control devices (DECD). Funding for eligible vehicles domiciled in New York State and New York City can reach $60,000 per vehicle.

Drive Clean Chicago

Drive Clean Chicago is accelerating the adoption of advanced vehicle technologies for the commercial truck and taxi sectors in the Chicago six-county area by reducing the cost of new alternative fuel vehicles and public alternative fuel stations. The program from the Chicago Department of Transportation (CDOT) offers incentives including $10,000 for CNG and electric taxis, up to $150,000 for hybrid and all-electric trucks, and 30% of the capital cost for CNG and fast-charge electric fueling stations.

In addition to these state-level programs, there are many Federal programs that range from providing tax credits to providing funding to providing grants and loans for the purchase of zero-emission and hybrid vehicles. Many of the programs provide funding for up to 60% of the cost an all-electric repower conversion.

U.S. Clean Vehicles Incentive Program (US-VIP) A CALSTART Initiative

CALSTART is taking the next step with US-VIP, a new five-year campaign to expand voucher opportunities nationwide and accelerate fleet adoption across a wide spectrum of alternative fuel and advanced technology vehicles. US-VIP represents a plan for dramatic change in the clean vehicle marketplace. Its goals include:

 

    $100M/year in voucher funding

 

    20,000 new clean vehicles by 2020

 

    Triple the voucher incentive markets with 6 new regions nationwide

California Air Resources Board

CARB gathers air quality data for the State of California, ensures the quality of this data, designs and implements air models, and sets ambient air quality standards for the state. CARB compiles the state’s emissions inventory and performs air quality and emissions inventory special studies. CARB uses the Emissions Inventory and Air Quality Models to evaluate air quality and reduce emissions in each of the 35 local air districts.

CARB has programs and awards hundreds of millions of dollars in grants to reduce emissions from on- and off-road vehicles and equipment. CARB is responsible for program oversight. CARB awards grants and funds through the Air Quality Improvement Program (AB 118); the Carl Moyer Program; the Voucher Incentive Program for enhanced fleet modernization and emission reduction; and the Lower-Emission School Bus Program/School Bus Retrofit and Replacement Account.

California Energy Commission (“CEC”)

The goal of the CEC is to mitigate greenhouse gas emissions and reduce the impact of climate change. In 2006 the Legislature passed and then Governor Arnold Schwarzenegger signed two landmark pieces of legislation with far-reaching implications for energy policy. The most comprehensive is Assembly Bill 32, the California Global Warming Solutions Act of 2006, which sets an economy-wide cap on California greenhouse gas emissions at 1990 levels by no later than 2020. This is an aggressive goal that represents approximately an 11 percent reduction from current emissions levels and nearly a 30 percent reduction from projected business-as-usual levels in 2020. Thirty-eight percent of the state’s greenhouse gas emissions is attributable to the

 

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transportation sector. In 2007, Assembly Bill 118 created the Alternative and Renewable Fuel and Vehicle Technology Program. The program is intended to increase the use of alternative and renewable fuels and innovative technologies that will transform California’s fuel and vehicle types to help attain the state’s climate change policies. AB 118 authorizes the Energy Commission to provide approximately $100 million annually as incentives to public agencies, vehicle and technology consortia, businesses, public-private partnerships, workforce training partnerships and collaboratives, fleet owners, consumers, recreational boaters, and academic institutions for projects that: Develop and improve alternative and renewable low-carbon fuels; Optimize alternative and renewable fuels for existing and developing engine technologies; Improve light-, medium-, and heavy-duty vehicle technologies; and Retrofit medium-and heavy-duty on-road and non-road vehicle fleets.

Air Quality Management Districts (“AQMD”) and Air Pollution Control Districts (“APCD”)

AQMD/APCD are responsible for controlling emissions primarily from stationary sources of air pollution. These can include anything from large power plants and refineries to the corner gas station. Seventy-five percent of emissions come from mobile sources–mainly cars, trucks and buses, but also construction equipment, ships, trains and airplanes. Local AQMD/APCD develop and adopt an Air Quality Improvement Plans (AQIP), which serves as the blueprint to bring the respective areas into compliance with federal and state clean air standards. Rules are adopted to reduce emissions from various sources, including specific types of equipment, industrial processes, paints and solvents, even consumer products. Permits are issued to many businesses and industries to ensure compliance with air quality rules. Local AQMDs award grants to help reduce emissions in their local communities.

Clean Cities

Clean Cities is a program administered by the DOE’s Office of Efficiency and Renewable Energy, Vehicle Technology Program. According to the DOE, the mission of Clean Cities is to advance the energy, economic, and environmental security of the United States by supporting local decisions to adopt practices that reduce the use of petroleum in the transportation sector. Clean Cities is a government-industry partnership. Under the program, public and private stakeholders from businesses, city and state governments, the automotive industry, fuel providers, and community organizations form coalitions throughout the country, which then work with the DOE to establish a plan for reducing petroleum consumption in their respective geographic areas.

Diesel Emissions Reduction Act funding

The National Clean Diesel Funding Assistance Program, which is administered by the EPA National Clean Diesel Campaign, provides funding under the Diesel Emissions Reduction Act for projects that seek to reduce emissions from existing diesel engines. Eligible applicants include U.S. regional, state and local agencies that have jurisdiction over transportation or air quality and certain nonprofit institutions that provide pollution reduction or educational services to owners and operators of diesel fleets or that have as their principal purpose the promotion of transportation or air quality. Among the eligible uses of funding under this program are the purchase of buses and medium and heavy-duty trucks that result in reduced diesel emissions.

Congestion Mitigation and Air Quality Improvement Program

The Congestion Mitigation and Air Quality Improvement program (“CMAQ”), which is jointly administered by the DOT Federal Highway Administration and Federal Transit Administration, provides funding to states to support surface transportation projects and other related efforts that contribute air quality improvements and provide congestion relief. CMAQ funding is allocated to the states annually based on a statutory formula that is based on population and air quality classification as designated by the EPA. Each state’s transportation department then is responsible for distributing the funds. State transportation departments may spend CMAQ funds on projects that reduce ozone precursors, and at least 16 states have used CMAQ funds for alternative fuel vehicle projects (such as purchasing electric or hybrid vehicles).

 

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Other State incentives

A number of states and municipalities in the United States, as well as certain private enterprises, offer incentive programs to encourage the adoption of alternative fuel vehicles, including tax exemptions, tax credits, exemptions and special privileges. For example, Maryland has introduced a voucher program that provides financial assistance for the purchase of electric trucks registered in that state, and Arizona exempts use tax and lowers registration fees for the purchase of an electric vehicle. Other states, including Colorado, Georgia, Utah, Florida and West Virginia, provide for substantial state tax credits for the purchase of electric vehicles.

Government Regulation

Our products are designed to comply with a significant number of governmental regulations and industry standards, some of which are evolving as new technologies are deployed. Government regulations regarding the manufacture, sale and implementation of products and systems similar to ours are subject to future change. We cannot predict what impact, if any, such changes may have upon our business. We believe that our vehicles are in conformity with all applicable laws in all relevant jurisdictions.

Emission and fuel economy standards

Government regulation related to climate change is under consideration at the U.S. federal and state levels. The EPA and NHTSA issued a final rule for greenhouse gas emissions and fuel economy requirements for trucks and heavy-duty engines on August 9, 2011, which will have an initial phase in starting with model year 2014 and a final phase in occurring in model year 2017. NHTSA standards for model year 2014 and 2015 will be voluntary, while mandatory standards will first come into effect in 2016.

The rule provides emission standards for CO2 and fuel consumption standards for three main categories of vehicles: (i) combination tractors, (ii) heavy-duty pickup trucks and vans, and (iii) vocational vehicles. According to the EPA and NHTSA, vocational vehicles consist of a wide variety of truck and bus types, including delivery, refuse, utility, dump, cement, transit bus, shuttle bus, school bus, emergency vehicles, motor homes and tow trucks, and are characterized by a complex build process, with an incomplete chassis often built with an engine and transmission purchased from other manufacturers, then sold to a body manufacturer.

The EPA and NHTSA rule also establishes multiple flexibility and incentive programs for manufacturers of alternatively fueled vehicles, including an engine averaging banking and trading (“ABT”) program, a vehicle ABT program and additional credit programs for early adoption of standards or deployment of advanced or innovative technologies. The ABT programs will allow for emission and/or fuel consumption credits to be averaged, banked or traded within defined groupings of the regulatory subcategories. The additional credit programs will allow manufacturers of engines and vehicles to be eligible to generate credits if they demonstrate improvements in excess of the standards established in the rule prior to the model year the standards become effective or if they introduce advanced or innovative technology engines or vehicles.

Vehicle safety and testing

The National Traffic and Motor Vehicle Safety Act of 1966, or the Safety Act, regulates motor vehicles and motor vehicle equipment in the United States in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not conform to applicable motor vehicle safety standards established by NHTSA. Meeting or exceeding many safety standards is costly, in part because the standards tend to conflict with the need to reduce vehicle weight in order to meet emissions and fuel economy standards. Second, the Safety Act requires that defects related to motor vehicle safety be remedied through safety recall campaigns. A manufacturer is obligated to recall vehicles if it determines that the vehicles do not comply with a safety standard. Should we or NHTSA determine that either a safety defect or noncompliance exists with respect to any of our modified vehicles, the cost of such recall campaigns could be substantial.

 

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Battery safety and testing

Our battery packs conform to mandatory regulations that govern transport of “dangerous goods,” which includes lithium-ion batteries that may present a risk in transportation. The governing regulations, which are issued by PHMSA, are based on the UN Recommendations on the Safe Transport of Dangerous Goods Model Regulations, and related UN Manual of Tests and Criteria. The requirements for shipments of these goods vary by mode of transportation, such as ocean vessel, rail, truck and air.

Our battery suppliers have completed the applicable transportation tests including:

 

    Altitude simulation, which involves simulating air transport;

 

    Thermal cycling, which involves assessing cell and battery seal integrity;

 

    Vibration, which involves simulating vibration during transport;

 

    Shock, which involves simulating possible impacts during transport;

 

    External short circuit, which involves simulating an external short circuit; and

 

    Overcharge, which involves evaluating the ability of a rechargeable battery to withstand overcharging.

Legal Proceedings

We are not currently a party to any legal proceedings, litigation, or claims that could materially affect our business, results of operations, cash flows, or financial position. We may, from time to time, be party to litigation and subject to claims incident to the ordinary course of business. As our growth continues, we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of any future matters could materially affect our future results of operations, cash flows or financial position.

DESCRIPTION OF PROPERTY

We maintain our principal office, R&D facility and additional office space in Newport Beach, Orange and Los Altos, California, respectively, under a combination of leases and subleases that expire between December 2016 and June 2017. We believe that our facilities are adequate to meet our needs for the immediate future, and that, should it be needed, we will be able to secure additional space to accommodate any such expansion of our operations.

 

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

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes to consolidated financial statements included elsewhere in this Offering Circular. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Offering Circular, particularly in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

Since our incorporation in 2012, we have been engaged in developing our zero emission systems electric and, obtaining loans and funds from investors to fund that development. We are considered to be a development stage company, since we are devoting substantially all of our efforts to establishing our business and planned principal operations have not commenced, although we have refined our technology and built a variety of prototype vehicles. From inception through the date of this offering we have raised approximately $5.3 million in equity capital and $5.4 million in debt to fund our operations, including the development of third party relationships discussed in more detail in the section titled “Description of Business.”. In March, April and May 2016 we received LOIs from Southern California area public school districts and coordinating agencies for the anticipated combined purchases of 25 new, purpose-built, zero-emission electric school buses with an estimated sales value of $6.8 million. During that time we also received LOIs for the conversion of an additional 25 existing school buses with an estimated sales value of $5.0 million.

We intend to grow through a combination of the sale and installation of zero-emission systems for new or existing electric or hybrid fleet vehicles and the sale of purpose-built, zero-emission electric or hybrid vehicles of all sizes manufactured by outside OEM partners but to be marketed, sold, warrantied and serviced through the developing ADOMANI distribution and service network.

Factors Affecting Our Performance

We believe that the growth and future success of our business depend on various opportunities, challenges and other factors, including the following:

New Customers. We are competing with other companies and technologies to help fleet managers and their districts/companies more efficiently and cost-effectively manage their fleet operations. Once these fleet managers have decided they want to buy from us, we still face challenges helping them obtain financing options to reduce the cost barriers to purchasing. We may also encounter customers with inadequate electrical services at their facilities that may delay their ability to purchase from us.

Investment in Growth. We plan to continue to invest for long-term growth. We anticipate that our operating expenses will increase in the foreseeable future as we invest in research and development to enhance our zero-emission systems; design, develop and manufacture our drivetrains and their components; increase our sales and marketing to acquire new customers; and increase our general and administrative functions to support our growing operations. We believe that these investments will contribute to our long-term growth, although they will adversely affect our results of operations in the near term. In addition, the timing of these investments can result in fluctuations in our annual and quarterly operating results. We believe the successful completion of this offering will provide ADOMANI the necessary working capital to move forward with our business plan. Without that capital, it is unlikely we will achieve our production and sales goals.

Zero-emission electric and hybrid drivetrain experience. Our dealer and service network is not currently established, although we do have certain agreements in place. One issue they may have, and ADOMANI may

 

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encounter, is finding appropriately trained technicians with zero-emission electric and hybrid drivetrain experience. Our performance will be dependent on having a robust dealer and service network, which will require appropriately trained technicians to be successful. Because our vehicles are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in zero-emission electric and hybrid vehicles may not be available to hire, and we may need to expend significant time and expense training the employees we do hire. If we are not able to attract, assimilate, train or retain additional highly qualified personnel in the future, or do so cost-effectively, our performance would be significantly and adversely affected.

Market Growth. We believe the market is very large today, and will continue to grow as more purchases of new zero emission vehicles and as more conversions of existing fleet vehicles to zero-emission vehicles are made. However, unless the costs to produce decrease dramatically, purchases of our products will continue to depend in large part on financing subsidies of some kind from government agencies. We cannot be assured of the continuation or the amounts of that assistance being available to our customers.

Revenue Growth from Additional Products. We seek to add to our product offerings additional zero-emission vehicles of all sizes manufactured by outside OEM partners but to be marketed, sold, warrantied and serviced through our developing distribution and service network, as well as adding other ancillary products discussed elsewhere in this document.

Revenue Growth from Additional Geographic Markets. We believe that growth opportunities for our products exist internationally in addition to domestically, and through our wholly-owned subsidiary ADOMANI China, we will be pursuing international growth as well. Our future performance will be dependent in part upon the growth of these additional markets. Accordingly, our business and operating results will be significantly affected by our ability to timely enter and effectively address these emerging markets and the speed with which and extent to which demand for our products in these markets grows.

See the section titled “Description of Business” for a more detailed discussion.

Components of Our Results of Operations

Revenue

Revenue is recognized from the sales of advanced zero-emission electric and hybrid drivetrain systems for fleet vehicles and from the sale of new, purpose-built zero-emission electric or hybrid vehicles. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured.

Cost of Sales

Cost of sales includes those costs related to the development, manufacture, and distribution of our products. Specifically, we include in cost of sales each of the following: material costs (including commodity costs); freight costs; warranty, including product recall and customer satisfaction program costs; labor and other costs related to the development and manufacture of our products; and other associated costs.

Selling, General and Administrative Expenses

Selling, general and administrative costs include all corporate and administrative functions that support our company. These costs also include stock-based compensation expense, consulting costs, and other costs that cannot be included in Cost of Sales.

Consulting and Research & Development Costs

These costs are substantially related to our research and development activity.

 

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Other Income/Expense, Net

Other income/expenses include non-operating income and expenses including interest expense.

Provision for Income Taxes

We account for income taxes in accordance with the ASC 740 that requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. Because only losses have been incurred to this point, no provision for income taxes has been made.

Results of Operations

The following table sets forth our consolidated results of operations and our consolidated results of operations as a percentage of total revenue for the periods presented.

ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for share and per share data)

(unaudited)

 

     Year Ended December 31,      Nine Months Ended  
     2015      2014      September 30,
2016
     September 30,
2015
 
                   (unaudited)  

Net sales

   $ —         $ 53       $ 68       $ —     

Cost of sales

     —           1         50         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     —           52         18         —     

Operating expenses:

           

General and administrative (1)

     4,633         2,059         8,107         2,737   

Consulting

     135         143         95         43   

Research and development

     549         59         128         42   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses, net

     5,317         2,261         8,330         2,822   
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from operations

     (5,317      (2,209      (8,312      (2,822

Other income (expense):

           

Interest expense

     (702      (65      (833      (512

Other income (expense)

     (16      88         (9      (492
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other income (expense)

     (718      23         (842      (1,004
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (6,035      (2,186      (9,154      (3,826

Income tax expense

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

   $ (6,035    $ (2,186    $ (9,154    $ (3,826
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss per share to common shareholders:

           

Basic and diluted

   $ (0.07    $ (0.03    $ (0.13    $ (0.05
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted shares used in the computation of net loss per share:

           

Basic and diluted

     82,611,477         81,459,084         69,286,226         82,525,626   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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(1) Includes compensation-based stock expense as follows:

 

     Year Ended December 31,      Nine Months Ended  
         2015              2014          September 30,
2016
     September 30,
2015
 

Cost of sales

     —           —           —           —     

Marketing expenses

     —           —           —           —     

General and administrative expenses

     3,035         1,549         6,920         1,891   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

     3,035         1,549         6,920         1,891   
  

 

 

    

 

 

    

 

 

    

 

 

 

Comparison of the Years Ended December 31, 2015, and 2014

Revenues

No appreciable revenue was generated in 2015 or 2014. We do not expect to begin generating any significant revenues until successful completion of this offering, which we estimate to be first quarter 2017.

Research and Development Expenses

Research and development expenses comprise a significant portion of our operating expenses. Research and development expense was $548,889 and $59,882 for 2015 and 2014 respectively. Due to an increase in the amount of capital raised, we accelerated the level of research and development activity in 2015.

General and Administrative Expenses

General and administrative expenses consist primarily of the following:

 

    personnel-related expenses, including stock-based compensation costs;

 

    costs related to raising capital and becoming a public reporting company; and

 

    business development-related expenses.

General and administrative expenses have historically been significant. General and administrative expense was $4.633 million and $2.059 million in 2015 and 2014 respectively. This increase is primarily due to increases in stock-based compensation charges of $1.486 million; payroll expense of $738,419: advertising expense of $112,307; legal, accounting and other professional fees of $148,248 and increases in insurance and other accounts of $90,026 during 2015. We would anticipate the stock-based compensation expenses continuing to increase as we expand our infrastructure in order to begin generating revenues. As we become a public company; we cannot specifically predict the changes in the other accounts because they are all dependent on the increased activity we anticipate after a successful completion of this offering, which would cause them to increase as well.

Interest Expense

Interest expense consists of the following:

 

    accrued third-party finance charge amortization;

 

    accrued benefit conversion features applicable to debt instruments, including amortization of the fair market value of warrants issued in 2016 that related to the debt; and

 

    accrued interest on existing debt.

Interest expense was $702,134 and $65,148 for 2015 and 2014 respectively. This increase is due to the accrual of a beneficial conversion expense to existing debt instruments, the amortization of finance charges

 

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incurred due to new debt issued during 2015, and the amortization of the fair market value of the warrants. These expenses will be impacted in the future by the decisions of current noteholders to convert or not to convert into Common Stock of the Company if this contemplated offering is successful.

Comparison of the nine months ended September 30, 2016 and September 30, 2015

Revenues

Revenue was $68,000 and $0 for the nine months ending September 30, 2016 and September 30, 2015, respectively. This is due to the recognition of previously deferred revenue from 2015 based on the June 2016 delivery of the vehicle.

Research and Development Expenses

Research and development expense was $128,384 and $41,982 for the nine months ended September 30, 2016 and September 30, 2015, respectively. Due to an increase in the amount of capital raised, we accelerated the level of research and development activity in 2016.

Consulting Expenses

Consulting expense was $94,925 and $42,949 for the nine months ended September 30, 2016 and September 30, 2015, respectively. This increase is largely due to engineering consulting and advisement costs. We would anticipate these costs to increase as we move toward full production.

General and Administrative Expenses

General and administrative expense was $8.107 million and $2.737 million for the nine months ended September 30, 2016 and September 30, 2015, respectively. This increase was due to increases in stock-based compensation of $5.029 million, legal and professional fees of $391,950 and payroll expense of $183,646, and offset by a decrease of other general and administrative expenses of $234,596. The increase in stock-based compensation expense was primarily due to the CEO’s purchase of 5,000,000 shares of Common Stock that were determined to be stock-based compensation.

Interest Expense

Interest expense was $832,544 and $512,041 for the nine months ended September 30, 2016 and September 30, 2015, respectively. This increase is due to the accrual of a beneficial conversion expense to existing debt instruments, the amortization of finance charges incurred due to new debt issued during the second half of 2015, and the amortization of the fair market value of warrants issued during 2015.

Cash Flows

 

     Year Ended
December 31,
     Nine Months Ended  
     2015      2014      September 30,
2016
     September 30,
2015
 
                   (unaudited)  

Consolidated Statements of Cash Flow Data:

        

Cash flows used in operating activities

   $ (2,103    $ (618    $ (2,107    $ (1,760

Cash flows used in investing activities

     (113      —           (369      (127

Cash flows provided by (used in) financing activities

     6,635         692         (324      4,805   
  

 

 

    

 

 

    

 

 

    

 

 

 

Increase (decrease) in cash and cash equivalents

   $ 4,419       $ 74       $ (2,800    $ 2,918   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Operating Activities

Cash used in operating activities is primarily the result of our operating losses, reduced by the impact of the non-cash stock-based compensation amounts. These numbers were further impacted by adjustments for non-cash interest expense and, in 2015, an increase in accrued liabilities. The increase in accrued liabilities was largely due to payroll-related accruals that were paid in 2016.

Net cash used in operating activities during 2015 was $2.103 million, as a result of a net loss of $6.035 million, stock-based compensation of $3.035 million, other non-cash charges of $430,722, and changes in operating assets and liabilities that provided $466,808 in cash. Accrued liabilities increased $404,603 due to payroll-related accrual increases of $374,799 and an increase in accrued interest on debt of $28,004 and other accruals of $1,800.

Net cash used in operating activities during the nine months ended September 30, 2016 was $2.107 million, as a result of a net loss of $9.154 million, stock-based compensation expense of $6.920 million, other non-cash charges of $463,248 and changes in operating assets and liabilities that used $336,997 in cash. Accrued liabilities decreased $315,622 due to compensation payments. Deferred liabilities decreased by $68,000 due to recognition of this revenue. Other non-current assets increased $90,370 due to an increase in deposits. Accounts payable increased by $164,788 and other current assets increased by $27,793.

Net cash used in operating activities during the nine months ended September 30, 2015 was $1.761 million, as a result of a net loss of $3.826 million, stock-based compensation expense of $1.891 million, other non-cash charges of $202,435 and changes in operating assets and liabilities that used $28,801 in cash, primarily due to increases in other current assets of $370,164, other non-current assets of $3,524, current liabilities of $276,886 and deferred revenue of $68,000. The increase in other current assets was primarily due to an increase in prepaid expense of $325,546. The increase in other current liabilities is due to an increase in accrued interest of $193,452 and accrued payroll liabilities of $83,434. The increase in deferred revenue of $68,000 was due to a prepayment by a customer that was recognized as revenue in 2016.

We expect cash used by operating activities to fluctuate significantly in future periods as a result of a number of factors, some of which are outside of our control, including, among others: the success we achieve in generating revenue; the success we have in helping our customers obtain financing to subsidize their purchases of our products; our ability to efficiently develop our dealer and service network; the costs of batteries and other materials utilized to make our products; the extent to which we need to invest additional funds in research and development; and the amount of expense we incur to satisfy future warranty claims.

Investing Activities

Net cash used by investing activities during 2015 was $113,332. This was primarily due to the $110,000 investment in Silicon Turbine Solutions.

Net cash used by investing activities during the nine months ended September 30, 2016 was $368,939. This was due to purchase of property, plant & equipment in the amount of $358,939, and a $10,000 investment in Silicon Turbine Solutions.

Net cash used by investing activities during the nine months ended September 30, 2015 was $126,969. This was due to purchase of property, plant & equipment in the amount of $56,969, and a $70,000 investment in Silicon Turbine Solutions.

Financing Activities

Net cash provided by financing activities during 2015 was $6.635 million, due to net proceeds of $4.653 million from the issuance of convertible debt and net proceeds of $1.982 million from the sale of stock.

 

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Net cash used in financing activities during the nine months ended September 30, 2016 was $324,146, primarily due to net proceeds of $187,900 from the issuance of common stock, payment for stock rescission of $54,000, convertible debt issued in the amount of $42,160 and a $7,500 repayment of notes payable debt principle. Other non-current assets increased $492,706 due to the capitalization of 1-A offering costs.

Net cash provided by financing activities during the nine months ended September 30, 2015 was $4.805 million, due to net proceeds of $4.350 million from the issuance of convertible debt and net proceeds of $454,500 in sales of Common Stock.

The following table summarizes our future minimum payments under contractual commitments, excluding debt, as of September 30, 2016:

 

     Payments due by period  
     Total      Less than
one year
     1 - 3 years      3 - 5 years      More than 5
years
 

Operating lease obligations

     33,765         33,765         —           —           —     

Employment contracts

     1,115,333         480,000         635,333         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,149,098         513,765         635,333         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Other than the employment contracts, obligations under contracts that we can cancel without a significant penalty are not included in the table above.

Credit Facilities

The Company does not currently have any credit facilities.

Indemnification Agreements

As we begin producing revenue, we will provide customers with indemnification of varying scope against claims of intellectual property infringement by third parties arising from the use of our products. We do not estimate the costs related to these indemnification provisions to be significant and are unable to determine the maximum potential impact of these indemnification provisions on our future results of operations. In addition, effective April 2016 we have secured Directors and Officers liability coverage to further mitigate our indemnification exposure. No demands have been made upon us to provide indemnification and there are no claims that we are aware of that could have a material effect on our consolidated balance sheet, consolidated statement of operations, or consolidated cash flows.

Critical Accounting Policies Judgments and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

We believe that the assumptions and estimates associated with the preparation of the financial statement information presented in this Offering Circular are not significant because we have not generated any appreciable revenue. Therefore, we have not had to make assumptions or estimates related to a reserve for bad debt expense, or for future warranty costs to be incurred, two items that will have the greatest potential impact on our

 

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consolidated financial statements in the future. We also have no significant current litigation on which we have to provide reserves or estimate accruals and our investment to date in property, plant and equipment has not been significant. We therefore have not had to rely on estimates related to impairment. We have not generated any taxable income to date, so have not had to make any decisions about future profitability that would impact recording income tax expense. Assuming we are able to generate future profits by executing our business plan, these areas, among others, will most likely be our critical accounting policies and estimates. For further information on all of our significant accounting policies, see note 1 of the notes to our consolidated financial statements.

Convertible Instruments

GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable GAAP.

When we determine that the embedded conversion options should not be bifurcated from their host instruments, we record, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments (the beneficial conversion feature) based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur. Our management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

Stock-Based Compensation

We measure the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. The fair value of our Common Stock was estimated by management based on observations of the cash sales prices of its common shares. Awards granted to directors are treated on the same basis as awards granted to employees.

 

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Fair Value Measurement

We measure the fair value of financial assets and liabilities based on applicable accounting guidance, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The guidance also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs are used to measure fair value:

Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

The fair value of the our cash, accounts receivable, accounts payable, and accrued expenses approximates the carrying amounts of such instruments due to their short maturity. The fair value of the convertible promissory notes approximates the carrying amount because the rate and terms currently available to us approximate the rate and terms on the existing debt.

Ongoing Reporting Requirements; JOBS Act Accounting Election

Upon the completion of this offering, we expect to elect to become a public reporting company under the Exchange Act. If we elect to do so, we will be required to publicly report on an ongoing basis as an “emerging growth company,” as defined in the JOBS Act, under the reporting rules set forth under the Exchange Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. For so long as we remain an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not “emerging growth companies,” including but not limited to:

 

    not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;

 

    taking advantage of extensions of time to comply with certain new or revised financial accounting standards;

 

    being permitted to comply with reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and

 

    being exempt from the requirement to hold a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We expect to take advantage of the other reporting exemptions until we are no longer an emerging growth company. We would remain an “emerging growth company” for up to five years, although if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an “emerging growth company” as of the following December 31.

If we elect not to become a public reporting company under the Exchange Act, 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

 

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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.

In either case, we will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not “emerging growth companies,” and our stockholders could receive less information than they might expect to receive from more mature public companies.

Recent Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15, which is effective for annual reporting periods ending after December 15, 2016, extends the responsibility for performing the going-concern assessment to management and contains guidance on how to perform a going-concern assessment and when going-concern disclosures would be required under GAAP. We do not anticipate that the adoption of ASU 2014-15 will have a material impact on our consolidated financial condition or results from operations. Management’s evaluations regarding the events and conditions that raise substantial doubt regarding our ability to continue as a going concern as discussed in the notes to our consolidated financial statements included elsewhere in this Offering Circular.

The FASB has issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities are required to apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The Company has not yet determined the effect of the adoption of this standard on the Company’s financial position and results of operations.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): “Improvements to Employee Share-Based Payment Accounting.” This ASU makes targeted amendments to the accounting for employee share-based payments. This guidance is to be applied using various transition methods such as full retrospective, modified retrospective, and prospective based on the criteria for the specific amendments as outlined in the guidance. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted, as long as all of the amendments are adopted in the same period. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In March 2016, the FASB issued ASU 2016-03, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments,” which clarifies the requirements for assessing whether contingent call or put options that can accelerate the repayment of principal on debt instruments are clearly and closely related to their debt hosts. This guidance will be effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods, and early adoption is permitted. The Company does not anticipate a material impact to its consolidated financial statements as a result of the adoption of this guidance.

 

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We have implemented all other new accounting pronouncements that are in effect and that may impact our financial statements and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our consolidated financial position or results of operations.

Liquidity and Capital Resources

Our principal sources of cash are our existing cash and cash equivalents balances, sourced primarily from the proceeds received in private placements of Common Stock, convertible promissory notes and notes payable discussed elsewhere in this Offering Circular. As of September 30, 2016, we had cash and cash equivalents of $1.737 million. We believe that our existing cash and cash equivalents will be sufficient to meet our working capital requirements for at least the next several months until completion of this offering. On November 2, 2016, we paid $310,000 to Lion for a school bus to be sold. We may make a payment of a similar amount to GreenPower later in 2016 for a second bus. These expenditures, combined with expenditures on prototype vehicles and for the ongoing costs of this offering, prompted us, as a precaution against our liquidity assumptions proving to be incorrect, to borrow additional short-term funds. On November 10, 2016, our Board of Directors authorized borrowing $0.5 million in order to assure adequate working capital through the completion of this offering. The terms of the loan are not yet negotiated, but it is our intent to borrow the funds, which will be repaid from the proceeds of the offering. We remain, therefore, confident that our working capital funds will be adequate. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in the section of this Offering Circular titled “Risk Factors.”

We believe that the net proceeds from this offering of approximately $21 million will be sufficient to fund our operations at least through the end of calendar year 2018. However, as stated previously, there can be no assurance we will successfully execute our business plan, and if we do not, we may need additional capital to continue our operations. We do not expect to be able to satisfy our cash requirements solely through sales in the near future, therefore we expect to rely on the equity funds from this offering to fund our operations. The sale of additional equity securities in the future could result in additional dilution to our stockholders and those securities may have rights senior to those of our Common Stock. The incurrence of additional indebtedness in the future would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure that such capital, if required, will be available on terms that are favorable to us or at all. We are currently incurring operating deficits that are expected to continue for the foreseeable future, and as we begin to execute our marketing plan, we expect our operating deficit will continue to grow initially until we begin to generate a sufficient level of revenue from our sales and marketing efforts.

Since our initial incorporation in 2012 as a Florida corporation, we have financed our operations and capital expenditures through issuing equity capital, convertible notes and notes payable. A significant portion of this funding has been provided by affiliated shareholders, although significant equity capital from non-affiliated third parties was also raised in late 2015, and the majority of the secured promissory notes outstanding was also raised in 2015 from non-affiliated third parties, as discussed below and in Note 5 to the audited financial statements and Note 4 to the unaudited financial statements contained in this document.

Note Financings

As of September 30, 2016 the Company had borrowed $645,000 from Acaccia Family Trust, a trust and other related parties by issuing notes convertible into Common Stock at prices ranging from $0.10 per share to $0.50 per share. As of September 30, 2016, we also had outstanding a total of $4,255,325 of secured promissory notes, net of $884,700 of these secured notes that were exchanged for 884,700 shares of Common Stock on September 1, 2016. In December 2016, we borrowed an additional $500,000 from a third party pursuant to a secured promissory note, and immediately made a $500,000 loan to another third party who operates in the zero emissions drivetrain technology industry. All notes referenced in this paragraph mature in 2016 and 2017. See Note 5 to the audited financial statements and Note 4 and Note 7 to the unaudited financial statements contained in this document.

 

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Equity Financings

In a series of closings dated in fiscal years ended 2012, 2013, 2014, 2015 and thus far in 2016, the Company sold an aggregate of 26,740,520, shares of Common Stock to certain of its officers, directors and other related parties for an aggregate purchase price of $653,882.

Options to Purchase Common Stock

At September 30, 2016 we had granted 33,775,000 options to purchase Common Stock, exercisable at an exercise price of $0.10 per share. As of November 30, 2016, the anticipated closing date of this offering, 22,118,356 of those options will have vested and be exercisable If all the vested options to purchase Common Stock were exercised, we would receive proceeds approximating $2,211,836 and we would be required to issue 22,118,356 shares of Common Stock. There can be no assurance, however, that any such options will be exercised.

Warrants to Purchase Common Stock

During 2015, the Company issued two-year secured promissory notes to third party lenders in an aggregate principal amount of $5,147,525 (the “Note Financing”). $7,500 of the notes were repaid in January, 2016. The secured promissory notes are due on various dates between January 31 and November 30, 2017 unless extended by the Company at its option for an additional six months. The notes bear interest at an annual rate of 9%, payable monthly in arrears. The note obligations are secured by a lien on all assets of the Company. On September 1, 2016, holders of $884,700 of principal amount of the notes exchanged their notes for 884,700 shares of Common Stock, thereby reducing the amount outstanding of the notes to $4,255,325.

In connection with the Note Financing, in January 2015, the Company also issued a two-year convertible, callable, subordinated debenture to a third party in the aggregate principal amount of $5,000,000 (the “Debenture”). The Debenture bore interest at the annual rate of 9% , was to come due on January 31, 2017 unless extended by the parties for six months until July 31, 2017, was convertible into Common Stock of the Company at a conversion price of $4.00 per share, and was callable upon 30 days’ notice. The company did not receive $5,000,000 of loan proceeds for the Debenture, and believes the original intent of the parties was to issue a warrant, exercisable for $5,000,000 of Common Stock of the Company at an exercise price of $4.00 per share. To address such understanding, in September 2016, the Company issued a five-year warrant to purchase 1,250,000 shares of Common Stock of the Company at $4.00 per share. The warrant was issued to the holder of the Debenture in exchange for cancellation of the Debenture, thus reflecting the original intent of the parties.

The Company may repay its secured promissory notes from proceeds from the Offering; or from any cash exercise of the warrant prior to repayment of the secured promissory notes. The Company may also elect to extend the maturity of the notes indefinitely, and the noteholders have indicated a willingness to do so.

Credit Facilities

We do not currently have any credit facilities or other access to bank credit. If, however, we elect to repay the promissory notes payable at maturity, or believe that making an acquisition is appropriate, or see that sales of product are more rapidly using working capital than anticipated, we may seek to obtain a credit facility to address these issues.

Capital Expenditures

We do not have any contractual obligations for ongoing capital expenditures at this time. We do, however, purchase equipment necessary to conduct our operations on an as needed basis.

 

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Going Concern

As of September 30, 2016, we had a working capital deficit of $1.6 million and a stockholders’ deficiency of approximately $1.8 million. During the nine months ended September 30, 2016, we incurred a net loss attributable to common stockholders of approximately $9.2 million. We have not generated any material revenues and have incurred net losses since inception. Our recurring operating losses and our need for additional sources of capital to fund our ongoing operations raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the years ended December 31, 2015 and 2014 with respect to this uncertainty.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Plan of Operations

By executing on the business plan described earlier, as fully discussed on page 54 under “Our Strategy”, which applies both to the United States and China, achievement of which is subject to the many risk factors cited earlier in this Offering Circular, we expect to generate approximately $102 million in consolidated net sales, including approximately $11 million from operations of ADOMANI China, in the twelve months following the successful completion of this offering. We anticipate gross profit from those sales will be approximately $27.3 million, including approximately $3.0 million from China. We expect that net income, excluding any adjustment for stock-based compensation, which we have not projected, will be approximately $11.8 million, of which approximately $872,000 will come from China.

Historically, we have primarily focused on and engaged in research and development and product testing. As such, our strategy to implement our business plan depends upon unknown variables, including completion of this offering and the total amount raised. Key assumptions underlying the estimates in the preceding paragraph for the first twelve months of U.S. operations following the successful completion of this offering are that we sell approximately 180 new vehicles (including school buses, transit buses, class 4-6 trucks and shuttle buses) and perform 123 conversions of vehicles from gas/diesel to all electric. We also assume we will receive carbon credit funds of approximately $4.8 million from various government programs, which we treat as revenue. We assume we will sell 156 conversion kits in China, including batteries, primarily to manufacturers of electric trucks in the first few years. Our assumptions are based on our knowledge of and experience with the U.S. markets and industries in which we expect to sell our products. Similarly, our assumptions regarding sales in China are based on the knowledge and experience in China, augmented by input from resources within China and from consulting firms with extensive experience in China.

Based on the above assumptions, we anticipate the need to hire and train 8 in-house sales staff and managers in addition to the contract sales people we intend to use. This may cost approximately $766,000 in the U.S., plus related commissions and bonuses. We plan to utilize our developing dealership networks to provide services for our zero-emission replacement drivetrain vehicles and new purpose-built zero-emission electric and hybrid commercial vehicles through such dealership networks by entering into agreements. Further, we plan to commit approximately $1.5 million to marketing efforts in the U.S. and $104,000 in China. These efforts will include providing demonstrations in areas likely to show interest in our product offerings. We plan to continue to seek approvals from incentive programs. We anticipate the need to lease larger facilities in both the U.S. and in China based on the assumptions in the preceding paragraph which we anticipate will cost $191,250 and $15,000, respectively, over the next 12 months. Finally, we plan to continue our research and development activities to identify new product offerings and develop our international business. We anticipate these costs will be approximately $300,000 for our research and development activities in the U.S., and approximately $122,000 for our international development based on future projections.

 

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Net of a provision for warranty costs, we assume a gross profit percentage on U.S. sales of 26.6% and 27.5% on China sales. We further assume that general and administrative, consulting and research and development costs collectively will be 12.1% of revenue in the United States and 17.5% in China, with the largest component being salaries, bonuses commissions and related benefit and recruiting costs: 8.2% of sales in the United States and 9.6% in China. We also assume for the projected operating results the current U.S. debt will remain outstanding during this period, therefore creating interest expense of 0.3% of sales in the United States. Because of the utilization of existing loss carryforwards in the United States, we have assumed there will be reduced income tax expense in the United States of 2.1% of sales in this initial period, so the projected net income is 11.9% of net sales. In China, we have no debt, but have assumed an income tax liability that is 2.0% of sales, leaving projected net income of 8.0% of sales.

Based on the projected results described above, in the Company’s opinion, the proceeds from the offering will satisfy its cash requirements for and beyond the ensuing twelve months. If an election is made to repay the outstanding debt instead of extending the maturity dates, cash will be reduced by approximately $4.2 million, but we believe this would still leave us adequate liquidity with which to execute our business plan.

Trend Information

As discussed extensively above under Risk Factors and Description of Business, the Company has generated very little revenue to date and has many challenges to successfully generating revenue in the future., Assuming we can execute our business plan successfully, we plan to generate revenue and profit in the twelve months immediately following the successful completion of this offering, and beyond. We have no historical results to provide a basis for our revenue projections other than our management’s knowledge of and experience in our industry and our belief in our product offerings and in our strategies to take advantage of the market opportunities we believe are available to us. We believe that our expenses will increase as our sales volume increases, but we also expect to realize certain economies of scale in the production process attributable to more production experience and refinements, as well as higher purchase volumes, creating cost savings for us that will partially offset other marketing, sales and administrative cost increases. We believe the proceeds of this offering will be sufficient to fund our future expanded operations, including international expansion. We may experience, however, quarterly fluctuations in our operating results due to a number of factors discussed elsewhere in this Offering Circular.

Quantitative and Qualitative Disclosures about Market Risks

We are exposed to market risks in the ordinary course of our business. We do not currently face material market risks such as interest rate fluctuation risk and foreign currency exchange risk. Our cash and cash equivalents include cash in readily available checking and money market accounts. These investments are not dependent on interest rate fluctuations that may cause the principal amount of these investments to fluctuate, and we do not expect such fluctuation will have a material impact on our financial conditions. If we issue additional debt in the future, we will be subject to interest rate risk. The majority of our expenses are denominated in the U.S. dollar.

As we continue our commercialization efforts internationally, we may generate revenue and incur expenses denominated in currencies other than the U.S. dollar, a majority of which we expect to be denominated in Chinese Yuan. As a result, as operations of ADOMANI China expand in the future, our revenue may be significantly impacted by fluctuations in foreign currency exchange rates. We may face risks associated with the costs of raw materials, primarily batteries, as we go into production. To the extent these and other risks materialize, they could have a material effect on our operating results or financial condition. We currently anticipate that our international selling, marketing and administrative costs related to foreign sales will be largely denominated in the same foreign currency, which may mitigate our foreign currency exchange risk exposure.

 

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DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

The following table sets forth information regarding our executive officers and directors:

 

Name    Position    Age    Term of Office
James L. Reynolds    Chief Executive Officer, President and Director    70    September 2014
Kevin G. Kanning    Chief Operating Officer, Secretary, and Director    50    November 2012
Edward R. Monfort    Chief Technology Officer and Director    50    August 2012
Michael K. Menerey    Chief Financial Officer    65    March 2016
Robert E. Williams    Vice President and Director    58    November 2012

 

(1) Member of our audit committee.

 

(2) Member of our compensation committee.

 

(3) Member of our nominating and corporate governance committee.

All of our executive officers and significant employees work full-time for us unless otherwise disclosed in this Offering Circular. There are no family relationships between any director, executive officer or significant employee. During the past five years, none of the persons identified above has been involved in any bankruptcy or insolvency proceeding or convicted in a criminal proceeding, excluding traffic violations and other minor offenses.

Executive Officers and Directors

James L. Reynolds has served as our President and Chief Executive Officer and a Director since September 2014 and a Director since July 2014. Mr. Reynolds was elected to Chairman of our Board in July, 2016. Prior to ADOMANI, he served in various executive roles at A-Z Bus Sales most recently as Chief Executive Officer from March 2010 until June 2014 and President from June 2006 until August 2013. Prior to his senior executive positions, Mr. Reynolds also held positions of Vice-President and General Manager and Vice-President of New Bus Sales. Prior to his tenure at A-Z Bus Sales, he was the Regional Manager of Tyco Corporation and managed direct sales. Mr. Reynolds holds a B.A. in Business Administration from Pepperdine University.

Kevin G. Kanning has served as our Chief Operating Officer, Secretary and as a Director since November 2012. Previously, Mr. Kanning served as Chief Operating Officer of Greentech Mining, Inc., a technology company focused on sustainable mining practices and precious metal recovery. He has also held a variety of positions over the last 26 years with real estate and technology related businesses and private corporations including Seville Properties, RE/MAX Valley Properties, Realty World-Galley One, Voelker Sensors, Inc., Cryotherm USA, Inc., Greentech Mining Ventures, Inc., and Klever Technologies, Inc. Mr. Kanning has held a broker’s license with the California Bureau of Real Estate since 1990 and has participated in both residential and commercial real estate sales/leasing, sales team recruitment/training and office management. Mr. Kanning earned a degree in Business Administration from the Haas School of Business, University of California Berkeley.

Edward R. Monfort, our Founder, has served as our Chief Technology Officer since September 2014 and as a Director since our inception in August 2012 and served as our Chairman until 2016. From our inception in August 2012 to September 2014, Mr. Monfort served as our President and Chief Executive Officer. From 2010 until forming ADOMANI in 2012, he was President of Cryotherm. From 2005 to 2009, Mr. Monfort designed and developed the Ronaele Mustang. From 1999 to 2005 Mr. Monfort developed and patented the COLDfire thermal cycling machine and the COLDfire programs and process. From 1997 to 1999 Mr. Monfort was employed by Watlow Corp, where he assisted with prototype development and engineering projects for major U.S. companies who were Watlow Corp customers. Mr. Monfort holds a Bachelor of Science degree in Finance from Western Carolina University.

 

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Michael K. Menerey has served as our Chief Financial Officer since March 2016. Mr. Menerey is a partner with CFO Edge LLC; in that capacity he provides interim and project-related services to various entities as a Chief Financial Officer. Prior to ADOMANI and to CFO Edge, Mr. Menerey was employed by Mapleton Investments, LLC from early 2000 through 2010; initially as Executive Vice president, and then as President and Chief Operating Officer from 2005 through 2010. Mr. Menerey served as Executive Vice President, Chief Financial Officer and Secretary of Falcon Communications and its predecessors from mid-1984 until the company sold in November, 1999. Mr. Menerey is a Certified Public Accountant, and received his undergraduate degree in Business Administration from the University of Michigan. Mr. Menerey has agreed to join our Board of Directors upon the date we are listed on NASDAQ.

Robert E. Williams has served as our Vice President and a Director since November 2012. Prior to joining ADOMANI, he served from 1991 through May 2015 as Senior Production Manager and Key Account Manager for Event Beverage Catering and continues to consult for them periodically. From 1984 through 2000, Mr. Williams served as Operations Manager and was a partner in STARD, Inc.

Gary W. Nettles - Director Nominee. Mr. Nettles has agreed to join our board of directors upon the date we are listed on NASDAQ. Mr. Nettles has served as the Chief Operating Officer, Chief Financial Officer and Director of Allen Tel Products, Inc., a non-public supplier and manufacturer of data and telecommunication components. From 1987 to 2003, Mr. Nettles was a certified public accountant and president of Guchereau & Nettles, an accounting firm. In 1996, Mr. Nettles was elected to the Board of Directors of Cost-U-Less, Inc., an international operator of mid-sized warehouse club-style stores), where he served in various capacities until the company was sold in 2007, including as Chairman of the Audit Committee and as a member of the Nominating and Corporate Governance Committee and Compensation Committee. Mr. Nettles received his Bachelor of Science degree, Magna Cum Laude, from the United States International University, San Diego California.

Janet Boydell – Director Nominee. Ms. Boydell has agreed to join our board of directors upon the date we are listed on NASDAQ. Ms. Boydell is currently a Vice President for The Code Group, Inc., a staffing agency. Previously, from 2006 to 2015, Ms. Boydell served as CEO of A Hire Connection, Inc., a professional services firm providing strategic management consulting and retained executive search services for C-Level functions. Ms. Boydell was an Assistant Controller in the field of investment banking. Ms. Boydell graduated from Cal Poly Pomona where she received a BSBA.

Jack Perkowski - Director Nominee. Mr. Perkowski has agreed to join our Board of Directors upon the date we are listed on NASDAQ. Mr. Perkowski is the founder and managing partner of JFP Holdings, a merchant bank focused primarily on transactions in China. From 1994 through 2008, Mr. Perkowski served as the Chairman and Chief Executive Officer,of ASIMCO Technologies, a supplier and manufacturer of automotive components. From 1973 to 1993, Mr. Perkowski held various positions with PaineWebber. Mr. Perkowski serves on numerous boards of directors, including the China Advisory Council of Magna International, Inc. and Transmetrics, Inc, a European logistics software firm. Mr. Perkowski received his Bachelor of Science degree, from Yale, and his Masters degree in Business Administration from Harvard Business School.

Board Composition

Our business and affairs are managed under the direction of our board of directors. The number of directors will be fixed by our board of directors, subject to our amended and restated certificate of incorporation and our amended and restated bylaws which will become effective immediately prior to the completion of this offering.

Upon completion of this offering, our board of directors will be divided into three classes with staggered three-year terms as follows:

 

    Class I directors will be Messrs. Reynolds and             , and their terms will expire at the annual general meeting of stockholders to be held in 2017;

 

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    Class II directors will be Messrs. Menerey and             , and their terms will expire at the annual general meeting of stockholders to be held in 2018; and

 

    Class III directors will be Messrs.             , and             , and their terms will expire at the annual general meeting of stockholders to be held in 2019.

The authorized number of directors may be changed only by resolution of our board of directors. This classification of our board of directors into three classes with staggered three-year terms may have the effect of delaying or preventing changes in our control of our company or management.

Director Independence

Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment and affiliations, our board of directors has determined that             ,             ,             , and              do not have a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or responsibilities and that each of these directors is “independent” as that term is defined under the listing standards of NASDAQ.

Board Leadership Structure and Board’s Role in Risk Oversight

Our board of directors has a Chairman, Mr. James L. Reynolds. The Chairman has authority, among other things, to preside over board of directors meetings and set the agenda for board of directors meetings. Accordingly, the Chairman has substantial ability to shape the work of our board of directors. Because of the addition of our independent board members, we currently believe that separation of the roles of Chairman and Chief Executive Officer is not necessary to ensure appropriate oversight by the board of directors of our business and affairs. However, no single leadership model is right for all companies and at all times. The board of directors recognizes that depending on the circumstances, other leadership models, such as the appointment of a lead independent director, might be appropriate. Accordingly, the board of directors may periodically review its leadership structure. In addition, following the completion of the offering, the board of directors will hold executive sessions in which only independent directors are present.

Our board of directors is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities. Our principal source of risk falls into two categories, financial and product commercialization. The audit committee will oversee management of financial risks; our board of directors regularly reviews information regarding our cash position, liquidity and operations, as well as the risks associated with each. The board of directors regularly reviews plans, results and potential risks related to our product development, commercialization efforts and clinical trial progress. Our Compensation Committee is expected to oversee risk management as it relates to our compensation plans, policies and practices for all employees including executives and directors, particularly whether our compensation programs may create incentives for our employees to take excessive or inappropriate risks which could have a material adverse effect on the Company.

Board Committees

Immediately after the closing of this offering, our board of directors will establish three standing committees —audit, compensation and nominating and corporate governance —each of which will operate under a charter that has been approved by our board of directors. We intend to appoint persons to the board of directors and committees of the board of directors as required meeting the corporate governance requirements of a national securities exchange, in accordance with the phase-in provisions of NASDAQ Rule 5615(b). We intend to appoint directors in the future so that we have a majority of our directors who will be independent directors.

 

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Audit Committee

Immediately after the closing of this offering, we will appoint              members of our board of directors to the audit committee, one of whom will qualify as an audit committee financial expert within the meaning of SEC regulations and the NASDAQ Listing Rules. In making a determination on which member will qualify as a financial expert, our board of directors expects to consider the formal education and nature and scope of such members’ previous experience. As described above, we expect to rely on the phase-in provisions of NASDAQ Rule 5615(b) such that at least one member of the audit committee will be independent upon listing, at least two members of the audit committee will be independent within 90 days after listing and the entire audit committee will be independent within one year following listing.

Upon the completion of this offering, our audit committee will be responsible for, among other things:

 

    appointing, compensating, retaining and overseeing our independent registered public accounting firm;

 

    approving the audit and non-audit services to be performed by our independent registered public accounting firm;

 

    reviewing, with our independent registered public accounting firm, all critical accounting policies and procedures;

 

    reviewing with management the adequacy and effectiveness of our internal control structure and procedures for financial reports;

 

    reviewing and discussing with management and our independent registered public accounting firm our annual audited financial statements and any certification, report, opinion or review rendered by our independent registered public accounting firm;

 

    reviewing and investigating conduct alleged to be in violation of our code of conduct;

 

    reviewing and approving related party transactions;

 

    preparing the audit committee report required in our annual proxy statement; and

 

    reviewing and evaluating, at least annually, its own performance and the adequacy of the committee charter.

Compensation Committee

Immediately after the closing of this offering, we will appoint at least              members of our board of directors to the compensation committee. Our compensation committee will assist our board of directors in the discharge of its responsibilities relating to the compensation of our executive officers.

Upon the completion of this offering, our compensation committee will be responsible for, among other things:

 

    reviewing and approving corporate goals and objectives relevant to compensation of our Chief Executive Officer and other executive officers;

 

    reviewing and approving the following compensation for our Chief Executive Officer and our other executive officers: salaries, bonuses, incentive compensation, equity awards benefits and perquisites;

 

    recommending the establishment and terms of our incentive compensation plans and equity compensation plans, and administering such plans;

 

    recommending compensation programs for directors;

 

    preparing disclosures regarding executive compensation and any related reports required by the rules of the SEC;

 

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    making and approving grants of options and other equity awards to all executive officers, directors and all other eligible individuals; and

 

    reviewing and evaluating, at least annually, its own performance and the adequacy of the committee charter.

In carrying out these responsibilities, the compensation committee will review all components of executive compensation for consistency with our compensation philosophy and with the interests of our stockholders.

Nominating and Corporate Governance Committee

Immediately after the closing of this offering, we will appoint at least two members of our board of directors to the nominating and corporate governance committee.

Our nominating and corporate governance committee is responsible for, among other things:

 

    assisting our board of directors in identifying qualified director nominees and recommending nominees for each annual meeting of stockholders;

 

    developing, recommending and reviewing corporate governance principles and a code of conduct applicable to us;

 

    assisting our board of directors in its evaluation of the performance of our board of directors and each committee thereof; and

 

    reviewing and evaluating, at least annually, its own performance and the adequacy of the committee charter.

Code of Business Conduct and Ethics

We have adopted a written code of business conduct and ethics, which outlines the principles of legal and ethical business conduct under which we do business. The code is applicable to all of our directors, officers and employees and will be available on our corporate website following the completion of the offering. We intend to disclose any amendments to our code of business conduct and ethics, or waivers of its requirements, on our website or in filings under the Exchange Act to the extent required by applicable rules and exchange requirements.

EXECUTIVE OFFICER AND DIRECTOR COMPENSATION

Overview

The following discussion contains forward-looking statements that are based on our current plans, considerations, expectations, and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation policies and practices that we adopt in the future may differ materially from currently planned programs as summarized below.

As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act. The compensation provided to our named executive officers for 2015 and 2014 is detailed in the Summary Compensation Table and accompanying footnotes and narrative that follows this section.

Our named executive officers in 2015 and 2014 were:

 

    James L. Reynolds, our President and Chief Executive Officer;

 

    Edward R. Monfort, our Chief Technology Officer; and

 

    Kevin G. Kanning, our Chief Operating Officer.

 

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The following table sets forth information about the annual compensation of each of our three highest paid persons who were executive officers or directors during the fiscal years ended December 31, 2015 and December 31, 2014. Individuals we refer to as our “named executive officers” include our Chief Executive Officer and most highly compensated executive officers or directors whose salary and bonus for services rendered in all capacities exceeded $100,000 during the fiscal year ended December 31, 2015.

 

Name and principal position

   Year      Salary ($) (1)      Bonus
($)
     Option awards ($)      Total ($)  

James L. Reynolds

     2015         240,000         —           —           240,000   

President and Chief Executive Officer

     2014         35,000         —           500,000         535,000   

Edward R. Monfort

     2015         240,000         —           —           240,000   

Chief Technology Officer

     2014         35,000         —           300,000         335,000   

Kevin G. Kanning

     2015         123,900         —           —           123,900   

Chief Operating Officer

     2014         60,000         —           50,000         110,000   

 

(1) Includes amounts accrued in 2015, but paid in 2016

Narrative Disclosure to Summary Compensation Table

James L. Reynolds

In September 2014, Mr. Reynolds’ base salary was established at $240,000 per annum, per the terms of his employment agreement, which also stipulated that he would not receive a salary until December 1, 2014. In addition to his base salary, Mr. Reynolds is entitled to receive a bonus of up to five percent of our net profits and he was granted an option to purchase 5,000,000 shares of Common Stock at an exercise price of $0.10 per share. Mr. Reynolds’ employment agreement is for a five-year term and the Company cannot terminate his employment thereunder at any time without cause, as defined therein. If Mr. Reynold’s employment with us ceases due to his death, then his unvested stock options will fully vest upon the date of death.

Edward R. Monfort

Pursuant to an employment agreement entered into in September 2014 (the “2014 Employment Agreement”), Mr. Monfort’s base salary was set at $240,000 per annum. Per the terms of the 2014 Employment Agreement, he received a portion of his salary until February 2016, when he began receiving the full amount. In June 2016, Mr. Monfort entered into an employment agreement superseding the 2014 Employment Agreement and his salary was reduced to $120,000 per annum effective June 1, 2016. In 2014, Mr. Monfort was granted options to purchase 3,000,000 shares of Common Stock at an exercise price per share of $0.10, after giving effect to the termination of our 2012 Preferred Option Plan as discussed elsewhere in this Offering Circular. In 2012, Mr. Monfort was granted options to purchase 12,000,000 shares of Common Stock at an exercise price of $0.10 per share. Additionally, we pay up to $7,000 per month for invoiced expenses relating to research and development to ELO, LLC which is owned by Mr. Monfort.

Kevin Kanning

We do not currently have a written employment agreement with Mr. Kanning. His base salary will be determined by our board of directors based upon such factors as it deems appropriate and is currently $128,070 per annum. In 2012, Mr. Kanning was granted options to purchase 2,000,000 shares of Common Stock at an exercise price of $0.10 per share. Mr. Kanning was also granted options to purchase 500,000 shares of Common Stock at an exercise price of $0.10 per share in 2014.

 

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Outstanding Equity Awards as of December 31, 2015

The following table sets forth information regarding outstanding stock options held by our named executive officers as of September 30, 2016. Our named executive officers did not hold any restricted stock or other awards as of September 30, 2016.

 

     Option Awards  

Name

   Grant Date            Number of
Securities
Underlying
Unexercised
Options
Exercisable
     Number of
Securities
Underlying
Unexercised
Options
Unexercisable
     Option
Exercise
Price
($) (1)
     Option
Expiration
Date
 

James L. Reynolds

     9/1/2014        (2 )(3)       2,249,315         2,750,685       $ 0.10         9/1/2022   

Edward R. Monfort

     11/1/2012        (2 )(3)        9,797,260         2,202,740       $ 0.10         11/1/2020   
     6/1/2014        (2 )(3)        1,500,822         1,499,178       $ 0.10         6/1/2022   

Kevin G. Kanning

     11/1/2012        (2 )(3)        1,632,877         367,123       $ 0.10         11/1/2020   
     1/1/2014        (2 )(3)        291,507         208,493       $ 0.10         1/1/2022   

 

(1) This column represents the fair value of a share of our Common Stock on the date of grant, as determined by our board of directors.
(2) The shares subject to the stock option vest over a five-year period with respect to 1/60th of the shares vesting each month, subject to continued service with us through each vesting date.
(3) Option is subject to 100% acceleration upon a qualifying Transfer of Control (as defined in the Stock Option Agreement Letter).

Employment Agreements with Current Named Executive Officers

We have entered into an employment agreement with our Chief Executive Officer, James L. Reynolds, with an effective date of September 1, 2014 and an annual base salary of $240,000. In addition to his base salary, Mr. Reynolds is entitled to receive a bonus of up to five percent of our net profits and he was granted an option to purchase 5,000,000 shares of Common Stock. Mr. Reynolds’ employment agreement is for a five-year term and the Company cannot terminate his employment thereunder at any time without cause, as defined therein. If Mr. Reynold’s employment with us ceases due to his death, then his unvested stock options will fully vest upon the date of death.

We have entered into an employment agreement with our Chief Technology Officer, Edward R. Monfort, with an effective date of June 1, 2016. The term of the employment agreement is two years, with an annual base salary of $120,000. Additionally, we pay up to $7,000 per month for invoiced expenses relating to research and development to ELO, LLC which is owned by Mr. Monfort.

We do not currently have a written employment agreement with Mr. Kanning.

Severance and Change in Control Payments and Benefits

Our named executive officers are not entitled to any severance or change in control payments or benefits.

Limitations of Liability; Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law authorizes a corporation’s board of directors to grant, and authorizes a court to award, indemnity to officers, directors and other corporate agents. As permitted by Delaware law, our amended and restated certificate of incorporation to be effective immediately prior to the

 

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completion of this offering provides that, to the fullest extent permitted by Delaware law, no director will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. Pursuant to Delaware law such protection would be not available for liability:

 

    for any breach of a duty of loyalty to us or our stockholders;

 

    for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

 

    for any transaction from which the director derived an improper personal benefit; or

 

    for an act or omission for which the liability of a director is expressly provided by an applicable statute, including unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law.

Our amended and restated certificate of incorporation to be effective immediately prior to the completion of this offering also provides that if Delaware law is amended after the approval by our stockholders of the amended and restated certificate of incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law.

Our amended and restated certificate of incorporation and amended and restated bylaws to be effective immediately prior to the completion of this offering further provide that we must indemnify our directors and officers to the fullest extent permitted by Delaware law. Our amended and restated bylaws also authorize us to indemnify any of our employees or agents and authorize us to secure insurance on behalf of any officer, director, employee or agent for any liability arising out of his or her action in that capacity, whether or not Delaware law would otherwise permit indemnification.

In addition, our amended and restated bylaws to be effective immediately prior to the completion of this offering provide that we are required to advance expenses to our directors and officers as incurred in connection with legal proceedings against them for which they may be indemnified and that the rights conferred in the amended and restated bylaws are not exclusive.

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and bylaws to be effective immediately prior to the completion of this offering may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.

At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in material claims for indemnification. We believe that our indemnity agreements and our amended and restated certificate of incorporation and amended and restated bylaw provisions to be effective immediately prior to the completion of this offering are necessary to attract and retain qualified person as directors and executive officers.

Indemnity Agreements

In addition to the indemnification required in our amended and restated certificate of incorporation and amended and restated bylaws, we have entered into indemnification agreements with each of our directors and executive officers. These agreements generally provide for the indemnification of such persons for all reasonable expenses and liabilities, including attorneys’ fees, judgments, penalties, fines and settlement amounts, incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were serving

 

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in such capacity, to the extent indemnifiable under the law. We believe that these charter and bylaw provisions and indemnity agreements are necessary to attract and retain qualified persons as directors and executive officers. Furthermore, as is typical, we have obtained director and officer liability insurance to cover both us and our directors and officers for liabilities that may be incurred in connection with their services to us, and expect to increase the insurance limits upon completion of this offering.

Employee Benefit and Equity Incentive Plans

The Company currently has two stock option plans: the 2012 Stock Option Plan and the 2012 Preferred Option Plan. Options have been issued under each plan as disclosed elsewhere in this document. The Company plans to terminate the 2012 Preferred Option Plan and seek consent of the participants thereunder to convert their options to purchase shares of preferred stock to options to purchase shares of Common Stock. No other equity incentive plans are contemplated being formed in the immediate future, but as the Company adds employees and executes its business plan, there will most likely be additional plans created or modifications made to the existing plans.

2012 Stock Option Plan

Our board of directors adopted, and our stockholders approved, our 2012 Stock Option Plan, on September 1, 2012. The 2012 Stock Option Plan was assumed by the Delaware company in our reincorporation in November 2016. Our 2012 Stock Option Plan provides for the grant of incentive stock options to our employees, and for the grant of nonstatutory stock options to our directors, officers, employees, consultants and advisors.

Authorized Shares. The maximum aggregate number of shares that may be issued under the 2012 Stock Option Plan is 40,000,000 shares of our Common Stock. As of September 1, 2016, options to purchase 33,775,000 shares of our Common Stock were outstanding, taking into consideration the conversion of the options to purchase preferred stock into options to purchase Common Stock, and 6,225,000 shares were available for future grants.

Plan Administration. Our board of directors, or a committee appointed by the board of directors, administers the 2012 Stock Option Plan and any stock awards granted under the 2012 Stock Option Plan. The administrator has the power and authority to determine the terms of the awards, including eligibility, the form of agreements for use under the 2012 Stock Option Plan, the exercise price, the number of shares covered by each such award, the vesting schedule and exercisability of awards, and the form of consideration payable upon exercise. The administrator also has the power and authority to construe and interpret the terms of the 2012 Stock Option Plan and awards granted pursuant to the 2012 Stock Option Plan.

Stock Options. With respect to all stock options granted under the 2012 Stock Option Plan, the exercise price of such options must equal at least the fair market value of our Common Stock on the date of grant. The term of an option may not exceed eight years; provided, however, that an incentive stock option held by a participant who owns more than 10% of the total combined voting power of all classes of our stock, or of certain of our subsidiary corporations, may not have a term in excess of five years and must have an exercise price of at least 110% of the fair market value of our Common Stock on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash or other methods of payment acceptable to the administrator. Subject to the provisions of the 2012 Stock Option Plan, the administrator determines the vesting terms of options granted under the 2012 Stock Option Plan. After the termination of service of an employee, director or consultant, the participant may exercise his or her option, to the extent vested as of such date of termination, for the period of time stated in his or her option agreement.

Transferability of Awards. Unless otherwise determined by the administrator, the 2012 Stock Option Plan generally does not allow for the sale or transfer of awards under the 2012 Stock Option Plan other than by will or the laws of descent and distribution, and may be exercised during the lifetime of the participant only by such participant.

 

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Merger or Change in Control. In the event of a merger, the sale of substantially all of our assets or any other acquisition, the 2012 Stock Option Plan provides that the outstanding options and stock rights will be treated as set forth in the agreement of merger, consolidation, or asset sale, which shall provide for any of the following: (i) the assumption of the awards by the surviving corporation or its parent or (ii) the continuation of the awards by the company if the company is the surviving corporation.

Plan Amendment, Termination. Our board of directors may at any time amend, suspend or terminate the 2012 Stock Option Plan, provided such action does not impair the existing rights of any participant.

2012 Preferred Option Plan

The 2012 Preferred Option Plan was terminated in November 2016. The Company and all holders of options to purchase preferred stock agreed to cancel such options. There are no options outstanding under the 2012 Preferred Option Plan.

Non-Employee Director Compensation

There are currently no non-employee directors, and there were none during the year ended December 31, 2015. We reimburse our officers and directors for reasonable expenses incurred during the course of their performance. We currently have no long-term incentive plans.

Directors who are also our employees receive no additional compensation for their service as a director. During the year ended December 31, 2015, our directors who also served as employees were Mr. Reynolds, our President and Chief Executive Officer, Monfort, our Chief Technology Officer, Mr. Kanning, our Chief Operating Officer and Mr. Williams, our Vice President.

We intend to implement a formal policy to be effective upon completion of this offering pursuant to which our non-employee directors would be eligible to receive equity awards and annual cash retainers as compensation for service on our board of directors and committees of our board of directors as follows. This policy would include an annual compensation of $15,000, with an additional $5,000 annually to the chairpersons of the Audit, Compensation and Nominating and Corporate Governance Committees, including reimbursement of expenses. In addition, for each year of service directors would be awarded stock options to purchase 10,000 shares of our Common Stock, exercisable at the public trading price on the date of issuance, with vesting over the ensuing twenty-four months of continuous board service.

Future Compensation

Compensation paid to Messrs. Reynolds and Kanning listed in the table above for 2016 is at the same levels as 2015. Mr. Monfort’s compensation has decreased from $240,000 per annum to $120,000 per annum as discussed elsewhere in this Offering Circular. Future compensation will be determined by the Compensation Committee of the board of directors.

 

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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS

The following table sets forth information known to us regarding the beneficial ownership of our Common Stock as of September 30, 2016, as adjusted to reflect the shares of Common Stock to be issued and sold by us in this offering, for:

 

    each person, or group of affiliated persons, known to us to beneficially own more than 5% of our Common Stock;

 

    each of our directors;

 

    each of our named executive officers; and

 

    all of our directors and executive officers as a group.

Beneficial ownership of shares is determined under the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as indicated by footnote, and subject to applicable community property laws, we believe each person identified in the table has sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Section 13(d) and 13(g) of the Securities Act.

Applicable percentage ownership in the following table is based on 58,542,350 shares of our Common Stock outstanding as of September 30, 2016, including the conversion of our outstanding convertible notes into Common Stock for Directors and officers shown below. We have based our calculation of the percentage of beneficial ownership after this offering on 67,209,748 shares of our Common Stock outstanding after the completion of this offering, assuming the minimum amount of shares offered by us, as set forth on the cover page of this Offering Circular, and the issuance of 6,817,986 shares of Common Stock issuable upon conversion of an aggregate principal amount of $645,000 plus accrued interest at conversion prices ranging from $0.10 per share to $0.50 per share pursuant to certain of our promissory notes. Shares of our Common Stock subject to stock options or warrants that are currently exercisable or exercisable within 60 days of September 30, 2016, are deemed to be outstanding and to be beneficially owned by the person holding the stock option or warrant for the purpose of computing the number and percentage ownership of outstanding shares of that person. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Consequently, the denominator for calculating beneficial ownership percentages may be different for each beneficial owner.

 

    Shares Beneficially Owned
Prior to this Offering (2)
    Prior to this
Offering (3)
    After this
Offering

(4)
    After this
Offering
(5)
 

Name of Beneficial Owner (1)

  Shares of
Common Stock
    % of total
voting
power
    % of total
voting
power
    % of total
voting
power
 

James L. Reynolds (6)

    7,749,315        10.28                          

Michael K. Menerey (7)

    351,025        0.47                          

Edward R. Monfort (8)

    15,298,082        20.29                          

Kevin G. Kanning (9)

    5,854,597        7.77                          

Robert E. Williams (10)

    2,907,945        3.86                          

Dennis R. Di Ricco (11)

    13,972,153        21.49                          

James Rogers (12)

    3,914,020        6.69                          

Directors and executive officers as a group (5 persons)

    32,160,964        42.67                          

 

(1) The address of those listed is c/o ADOMANI, Inc., 620 Newport Center Drive, Suite 1100, Newport Beach CA 92660.
(2) Unless otherwise indicated, all shares are owned directly by the beneficial owner.

 

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(3) Based on 58,542,350 shares outstanding prior to this offering. Shares of Common Stock subject to options or warrants currently exercisable or exercisable within 60 days of September 30, 2016 are deemed outstanding for purposes of computing the percentage ownership of the person holding such options or warrants, and for the Directors and executive officers as a group, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
(4) Assuming that the minimum amount of shares offered by us, as set forth on the cover page of this Offering Circular, and the issuance of 6,817,986 shares of Common Stock issuable upon conversion of an aggregate principal amount of $645,000 plus accrued interest at conversion prices ranging from $0.10 per share to $0.50 per share pursuant to certain of our promissory notes.
(5) Assuming that the maximum amount of shares offered by us, as set forth on the cover page of this Offering Circular, and the issuance of 6,817,986 shares of Common Stock issuable upon conversion of an aggregate principal amount of $645,000 plus accrued interest at conversion prices ranging from $0.10 per share to $0.50 per share pursuant to certain of our promissory notes.
(6) Includes 5,500,000 shares held of record by The Reynolds Irrevocable Family Trust II, Dated July 30, 2016 and an option to acquire up to 2,249,315 restricted shares of Common Stock at an exercise price of $0.10 per share.
(7) Includes 254,525 shares of Common Stock issuable upon conversion of debt. Includes 341,025 shares of Common Stock held of record by the Menerey Living Trust u/t/d 4/12/96.
(8) Includes 4,000,000 restricted shares of Common Stock held of record by the Monfort Revocable Living Trust, Dated 8/19/16 and an option to acquire up to 11,298,082 restricted shares of Common Stock at an exercise price of $0.10 per share.
(9) Includes 1,800,000 shares of Common Stock held of record by The Entrust Group, Inc. FBO Kevin G. Kanning ROTH IRA, 2,100,000 shares held of record by the Kevin Kanning Living Trust, 30,000 shares held of record by the Eulate Family Trust, of which Kevin Kanning serves as trustee. Also includes an option to acquire up to 1,924,597 restricted shares of Common Stock at an exercise price of $0.10 per share.
(10) Includes an option to acquire up to 1,107,945 restricted shares of Common Stock at an exercise price of $0.10 per share.
(11) Includes 2,473,797 shares of Common Stock issuable upon conversion of debt. Includes 920,000 shares held of record by the Acaccia Family Trust, for which Dennis Di Ricco serves as trustee, 2,500,000 shares held of record by Pershing LLC FBO Dennis R. Di Ricco Roth IRA, 4,000,000 shares held of record by Provident Trust Group FBO Cornelia P. Doherty ROTH IRA and 80,000 shares held of record by Connie Doherty Living Trust Dated May 1, 1996. Also includes an option to acquire up to 3,998,356 restricted shares of Common Stock at an exercise price of $0.10 per share.
(12) Includes 2,034,020 shares held of record by Spirit of California Entertainment Group, Inc., 130,000 shares held of record by James B. Rogers Irrevocable Family Trust and 1,750,000 shares of record held by Mobile Grow, Inc.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Other than compensation arrangements for our directors and named executive officers, which are described in the sections titled “Management” and “Executive Compensation,” below we describe transactions since January 1, 2014 to which we were a party or will be a party, in which:

 

    the amounts involved exceeded or will exceed the lesser of $120,000 and 1% of the average of our total assets at year-end; and

 

    any of our directors, director nominees, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, the foregoing persons, had or will have a direct or indirect material interest.

Agreements with Consultants

Per the terms of Mr. Monfort’s employment agreement, we pay up to $7,000 per month for invoiced expenses relating to research and development to ELO, LLC which is owned by Mr. Monfort.

Convertible Notes

In April 2013, we entered into a Convertible Loan Agreement with the Acaccia Family Trust (“Acaccia”), for which Dennis Di Ricco, a greater than ten percent holder of our Common Stock, serves as trustee, whereby Acaccia agreed to loan to us up to $600,000 in increments. As part of the Convertible Loan Agreement, Acaccia agreed to suspend the collection of interest and collect the unpaid interest at the due date of each incremental loan which is December 31, 2016. We agreed to pay simple interest at 5% per annum. As consideration for the loans to us made by Acaccia, we agreed to allow Acaccia to convert the loans to Common Stock at any time until December 31, 2016 at $0.10 per share. In addition, we agreed that if Acaccia elected to receive Common Stock rather than interest as of December 31, 2016, Acaccia could, at its option, convert the accrued and unpaid interest at $0.10 per share.

In July and August of 2016, our Chief Financial Officer purchased $25,000 of the outstanding. convertible notes from Acaccia. Also in July 2016, our Chief Financial Officer purchased 10,000 shares of Common Stock from Acaccia and we issued 86,500 shares of Common Stock to him pursuant to a contract for providing CFO services.

Indemnification of Directors and Officers

Our amended and restated bylaws to be effective immediately prior to the completion of this offering provide that we will indemnify each of our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. Further, prior to the completion of this offering, we expect to enter into indemnification agreements with each of our directors and executive officers. These agreements require us, among other things, to indemnify these individuals for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts reasonably incurred by such person in any action or proceeding, including any action by or in our right, on account of any services undertaken by such person on behalf of our company or that person’s status as a member of our Board of Directors to the maximum extent allowed under Delaware law. We also maintain directors’ and officers’ liability insurance. For further information, see the section titled “Executive Compensation — Limitations of Liability; Indemnification of Directors and Officers.”

Policies and Procedures for Related Person Transactions

All future transactions, if any, between us and our officers, directors and principal stockholders and their affiliates, as well as any transactions between us and any entity with which our officers, directors or principal stockholders are affiliated will be reviewed and approved or ratified in accordance with policies and procedures

 

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that our board of directors intends to adopt effective upon the completion of this offering. Such policies and procedures will require that related person transactions be approved by the audit committee or our board of directors or otherwise in accordance with the then applicable SEC and rules and regulations governing the approval of such transactions. The audit committee and the board of directors have adopted policies and procedures for review of, and standards for approval of related party transactions. These policies and procedures have not been and will not be applied to the related party transactions described above.

All future affiliated transactions will be made or entered into on terms that are no less favorable to us than those that can be obtained from any unaffiliated third party. A majority of the independent, disinterested members of our board of directors will approve future affiliated transactions, and we will maintain at least two independent directors on our board of directors to review all material transactions with affiliates.

 

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DESCRIPTION OF SECURITIES

General

The following description summarizes certain terms of our capital stock, as in effect upon the completion of this offering. We will submit to our stockholders for approval an amended and restated certificate of incorporation and amended and restated bylaws to be effective upon the completion of this offering, and this description summarizes the provisions included in such documents. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description of the matters set forth in this section you should refer to our amended and restated certificate of incorporation and bylaws, which are included as exhibits to this Offering Circular, and to the applicable provisions of Delaware law.

Immediately following the completion of this offering, our authorized capital stock will consist of shares of Common Stock, $0.00001 par value per share, and shares of preferred stock, $0.00001 par value per share.

As of September 30, 2016, there were 58,542,350 shares of our Common Stock outstanding and held of record by 226 stockholders. The rights, preferences and privileges of the holders of our Common Stock are subject to the rights of the holders of shares of any series of preferred stock which we may issue in the future.

Common Stock

Dividend Rights

Subject to preferences that may apply to any shares of our preferred stock outstanding at the time, for as long as such stock is outstanding, the holders of our Common Stock are entitled to receive ratably any dividends as may be declared by our board of directors out of funds legally available for dividends. See the section titled “Dividend Policy” for additional information.

Voting Rights

Holders of our Common Stock are entitled to one vote per share on any matter to be voted upon by stockholders. We have not provided for cumulative voting for the election of directors in our amended and restated certificate of incorporation. Our amended and restated certificate of incorporation establishes a classified board of directors that is divided into three classes with staggered three-year terms. Only the directors in one class will be subject to election at each annual meeting of stockholders, with the directors in other classes continuing for the remainder of their three-year terms.

No Preemptive or Similar Rights

Our Common Stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.

Liquidation Rights

If we become subject to a liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our Common Stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.

Undesignated Preferred Stock

Following this offering, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares

 

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to be included in each series, and to determine for each such series of preferred stock the voting powers, designations, preferences, and special rights, qualifications, limitations, or restrictions as permitted by law, in each case without further vote of action by our stockholders. Our board of directors will also be able to increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of Common Stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our company and might adversely affect the market price of our Common Stock and the voting and other rights of the holders of our Common Stock. We have no current plan to issue any shares of preferred stock.

Warrants

In September 2016, we issued a warrant to certain stockholders to purchase up to 1,250,000 shares of Common Stock at a price per share of $4.00. The term of the warrant extends until 10 years from the grant date and the warrant is exercisable at any time during that 10-year period.

In connection with this offering, we will issue warrants to the Underwriters to purchase up to              shares of Common Stock at a price per share of $            . The warrants expire in                  2022 and are immediately exercisable.

Options

As of November 30, 2016, there were 22,118,356 shares of our Common Stock issuable upon exercise of outstanding stock options pursuant to our equity plans with a weighted average exercise price of $0.10 per share.

Registration Rights

The Company granted registration rights to certain holders of our Common Stock. We filed a registration statement on Form S-1 to comply with the registration rights; however, we have withdrawn the registration statement on Form S-1 due to this offering. Additionally, holders of an aggregate of 600,000 shares of our Common Stock are entitled to certain “piggy back” registration rights allowing them to include shares in such a registration or offering, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement or offering statement under the Securities Act, the holders of these shares are entitled to notice of the registration and have the right, subject to limitations that the underwriters may impose on the number of shares included in the registration or offering, to include their shares in the registration or offering.

Anti-Takeover Matters

Charter and Bylaw Provisions

The provisions of Delaware law, our amended and restated certificate of incorporation to become effective immediately prior to completion of this offering and amended and restated bylaws to become effective immediately prior to the completion of this offering, will include a number of provisions that may have the effect of delaying, deferring or discouraging another person from acquiring control of our company and discouraging takeover bids. These provisions may also have the effect of encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include the items described below.

Board Composition and Filling Vacancies

Our amended and restated bylaws will provide that directors may be removed only for cause by the affirmative vote of the holders of a majority of the voting power of all the outstanding shares of capital stock

 

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entitled to vote generally in the election of directors voting together as a single class. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the size of our board of directors, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum.

Classified Board of Directors

Our amended and restated bylaws will establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election.

No Cumulative Voting

The Delaware General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our amended and restated certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation and our amended and restated bylaws will provide that there shall be no cumulative voting.

No Written Consent of Stockholders

Our amended and restated certificate of incorporation will provide that all stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting, and that stockholders may not take any action by written consent in lieu of a meeting.

Meetings of Stockholders

Our amended and restated bylaws will provide that a majority of the members of our board of directors then in office, the Chairman of the Board, the Chief Executive Officer or the President may call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders. Our amended and restated bylaws will limit the business that may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting.

Advance Notice Requirements

Our amended and restated bylaws will establish advance notice procedures for stockholders seeking to bring business before an annual or special meeting of stockholders or to nominate candidates for election as directors at our annual meeting of stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 120 days prior to the first anniversary date of the annual meeting for the preceding year. The notice must contain certain information specified in the amended and restated bylaws.

Amendment to Bylaws and Charter

The amendment of the provisions in our amended and restated certificate of incorporation will require approval by holders of at least 66 2/3% of our outstanding capital stock entitled to vote generally in the election of directors, in addition to any rights of the holders of our outstanding capital stock to vote on such amendment under the Delaware General Corporation Law. The amendment of the provisions in our amended and restated bylaws will require approval by either a majority of our board of directors or holders of at least 66 2/3% of our outstanding capital stock entitled to vote generally in the election of directors, in addition to any rights of the holders of our outstanding capital stock to vote on such amendment under the Delaware General Corporation Law.

 

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Blank Check Preferred Stock

Our amended and restated certificate of incorporation will provide for authorized shares of preferred stock. The existence of authorized but unissued shares of preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest, or otherwise. For example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of us or our stockholders, our board of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. In this regard, our amended and restated certificate of incorporation grants our board of directors broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of Common Stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring, or preventing a change in control of us.

Delaware General Corporation Law

Upon completion of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes, among other things, a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person or entity who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more of the corporation’s voting stock. Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:

 

    before the stockholder became interested, our board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

 

    upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or

 

    at or after the time the stockholder became interested, the business combination was approved by our board of directors and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Common Stock, and could also affect the price that some investors are willing to pay for our Common Stock.

Choice of Forum

Our restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable.

 

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Limitations of Director Liability and Indemnification of Directors and Officers

As permitted by the Delaware General Corporation Law, provisions in our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect upon the closing of this offering will limit or eliminate the personal liability of our directors. Consequently, directors will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for:

 

    any breach of the director’s duty of loyalty to us or our stockholders;

 

    any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

    any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or

 

    any transaction from which the director derived an improper personal benefit.

These limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies, such as an injunction or rescission.

In addition, our amended and restated bylaws provide that:

 

    we will indemnify our directors, officers and, in the discretion of our board of directors, certain employees, to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions, including an exception for indemnification in connection with a proceeding (or counterclaim) initiated by such persons; and

 

    we will advance expenses, including attorneys’ fees, to our directors and, in the discretion of our board of directors, certain officers and employees, in connection with legal proceedings, subject to limited exceptions.

Prior to the completion of this offering, we intend to enter into indemnification agreements with each of our executive officers and directors. These agreements provide that, subject to limited exceptions and among other things, we will indemnify each of our executive officers and directors to the fullest extent permitted by law and advance expenses to each indemnitee in connection with any proceeding in which a right to indemnification is available.

We also intend to maintain general liability insurance that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons who control us, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We believe that these provisions, the indemnification agreements and the insurance are necessary to attract and retain talented and experienced directors and officers.

At present, there is no pending litigation or proceeding involving any of our directors or officers where indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification.

Exchange Listing

We intend to apply to have our Common Stock approved for listing on NASDAQ, subject to notice of issuance, under the proposed symbol “ADOM.”

 

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Transfer Agent and Registrar

The transfer agent and registrar for our Common Stock is Issuer Direct Corporation. The transfer agent’s address is 500 Perimeter Park Drive Suite D, Morrisville, North Carolina 27560, and its telephone number is (919) 744-2722.

DIVIDEND POLICY

We have never declared or paid any dividends on our Common Stock and do not anticipate that we will pay any dividends to holders of our Common Stock in the foreseeable future. Instead, we currently plan to retain any earnings to finance the growth of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on our financial condition, results of operations and capital requirements as well as other factors deemed relevant by our board of directors.

 

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our Common Stock. Future sales of substantial amounts of our Common Stock, or securities or instruments convertible into our Common Stock, in the public market, or the perception that such sales may occur, could adversely affect the market price of our Common Stock prevailing from time to time. Furthermore, because there will be limits on the number of shares available for resale shortly after this offering concludes, due to contractual and legal restrictions described below, there may be resales of substantial amounts of our Common Stock in the public market after those restrictions lapse. This could adversely affect the market price of our Common Stock prevailing at that time.

Upon completion of this offering, assuming the maximum amount of shares of Common Stock offered in this offering are sold, there will be                  shares of our Common Stock outstanding. This number excludes any issuance of additional shares of Common Stock that could occur in connection with:

 

    any conversion of our convertible promissory notes; or

 

    any exercise of stock options outstanding as of the date of this Offering Circular.

These                  shares of our Common Stock will be freely tradable in the public market, except to the extent they are acquired by an “affiliate” of ours, as such term is defined in Rule 405 under the Securities Act. Under Rule 405, an affiliate of a specified person is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the specified person. Any affiliate of ours that acquires our shares can only further transact in such shares in compliance with Rule 144 under the Securities Act, which imposes sales volume limitations and other restrictions on such further transactions. See “— Rule 144,” below.

In addition to the foregoing, shares of our Common Stock not sold in this offering will be restricted securities written the meaning of Rule 144, and would be tradable only if they are sold pursuant to a registration statement under the Securities Act or if they qualify for an exemption from registration, including under Rule 144. See “— Rule 144,” below.

Rule 144

In general, a person who has beneficially owned restricted shares of our Common Stock for at least one year, in the event we are a reporting company under Regulation A, or at least six months, in the event we have been a reporting company under the Exchange Act for at least 90 days, would be entitled to sell such securities, provided that such person is not deemed to be an affiliate of ours at the time of sale or to have been an affiliate of ours at any time during the three months preceding the sale. A person who is an affiliate of ours at such time would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of shares that does not exceed the greater of the following:

 

    1% of the number of shares of our Common Stock then outstanding; or

 

    the average weekly trading volume of our Common Stock during the four calendar weeks preceding the filing by such person with the SEC of a notice on Form 144 with respect to the sale;

provided that, in each case, we have been subject to the periodic reporting requirements of the Exchange Act for at least 90 days before the sale. Persons replying on Rule 144 to transact in our Common Stock must also comply with the manner of sale, notice and other provisions of Rule 144, to the extent applicable.

Rule 701

In general, Rule 701 allows a stockholder who purchased shares of our capital stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of ours during the immediately preceding 90 days to sell those shares in reliance upon Rule 144, but without being required to comply with the

 

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public information, holding period, volume limitation or notice provisions of Rule 144. Persons relying on Rule 701 to transact in our Common Stock, however, are required to wait until 90 days after the date of this Offering Circular before selling shares pursuant to Rule 701.

Lock-Up Agreements

We and our officers, directors, and current stockholders have agreed, or will agree, with the Underwriters, subject to certain exceptions, that, without the prior written consent of the Underwriter, we and they will not, directly or indirectly, during the period ending one year after the date of the Offering Circular:

 

    sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or file (or participate in the filing of) a registration statement with the SEC in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act with respect to, any Common Stock or any other of our securities that are substantially similar to Common Stock, or any securities convertible into or exchangeable or exercisable for, or any warrants or other rights to purchase, the foregoing; or

 

    enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Common Stock or any other of our securities that are substantially similar to Common Stock, or any securities convertible into or exchangeable or exercisable for, or any warrants or other rights to purchase, the foregoing, whether any such transaction is to be settled by delivery of Common Stock or such other securities, in cash or otherwise.

As a result of the lock-up agreements being entered into in connection with this offering, approximately                      shares of our Common Stock will be subject to the contractual lock-up provisions set forth in the lock-up agreements.

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

The following is a summary of the material U.S. federal income tax considerations relating to the purchase, ownership and disposition of shares of our Common Stock issued pursuant to this offering by Non-U.S. Holders (defined below). This summary does not purport to be a complete analysis of all the potential tax considerations relevant to Non-U.S. Holders of shares of our Common Stock. This summary is based upon the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury regulations promulgated or proposed thereunder and administrative and judicial interpretations thereof, all as of the date hereof and all of which are subject to change or differing interpretations at any time, possibly with retroactive effect.

This summary assumes that shares of our Common Stock are held by a Non-U.S. Holder as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). This summary does not purport to deal with all aspects of U.S. federal income and estate taxation that might be relevant to particular Non-U.S. Holders in light of their particular investment circumstances or status, nor does it address specific tax considerations that may be relevant to particular persons subject to special treatment under U.S. federal income tax laws (including, for example, financial institutions, broker-dealers, insurance companies, partnerships or other pass-through entities or arrangements, certain U.S. expatriates or former long-term residents of the U.S., tax-exempt organizations, pension plans, “controlled foreign corporations,” “passive foreign investment companies,” corporations that accumulate earnings to avoid U.S. federal income tax, or persons in special situations, such as those who have elected to mark securities to market or those who hold shares of our Common Stock as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment). In addition, this summary does not address estate or any gift tax considerations or considerations arising under the tax laws of any state, local or non-U.S. jurisdiction or any consideration relating to the alternative minimum tax or the 3.8% tax on net investment income.

 

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For purposes of this summary, a “Non-U.S. Holder” means a beneficial owner of shares of our Common Stock that for U.S. federal income tax purposes, is an individual, corporation, estate or trust other than:

 

    an individual who is a citizen or resident of the United States;

 

    a corporation, or any other organization taxable as a corporation for U.S. federal income tax purposes, that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

    an estate, the income of which is included in gross income for U.S. federal income tax purposes regardless of its source; or

 

    a trust if (1) a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons (as defined in the Internal Revenue Code) have the authority to control all of the trust’s substantial decisions or (2) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds shares of our Common Stock, the tax treatment of persons treated as its partners for U.S. federal income tax purposes will generally depend upon the status of the partner and the activities of the partnership. Partnerships and other entities that are classified as partnerships for U.S. federal income tax purposes and persons holding our Common Stock through a partnership or other entity classified as a partnership for U.S. federal income tax purposes are urged to consult their own tax advisors.

There can be no assurance that the IRS will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling from the IRS or an opinion of counsel with respect to the U.S. federal income tax consequences to a Non-U.S. Holder of the purchase, ownership or disposition of shares of our Common Stock.

THIS SUMMARY IS NOT INTENDED TO BE TAX ADVICE. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAXATION AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SHARES OF OUR COMMON STOCK, AS WELL AS THE APPLICATION OF STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX LAWS.

Distributions on shares of our Common Stock

As described above under the heading “Dividend Policy,” we do not anticipate declaring or paying any cash dividends on our Common Stock in the foreseeable future. However, if we do make distributions on our Common Stock, those payments generally will constitute dividends for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, and will be subject to withholding as described in the next paragraph below. To the extent those distributions exceed our current and accumulated earnings and profits, they will constitute a return of the Non-U.S. Holder’s investment, up to such holder’s adjusted tax basis in our Common Stock, as determined on a share-per-share basis. Any remaining excess will be treated capital gain as described below under the heading “Gain on Sale or Other Disposition of Common Stock.”

Any dividends paid to a Non-U.S. Holder with respect to shares of our Common Stock generally will be subject to a 30% U.S. federal withholding tax unless such Non-U.S. Holder provides the applicable withholding agent with an appropriate and validly completed IRS Form W-8, such as:

 

    IRS Form W-8BEN (or successor form) or IRS Form W-8BEN-E (or successor form) certifying, under penalties of perjury, that such Non-U.S. Holder is entitled to a reduction in withholding under an applicable income tax treaty; or

 

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    IRS Form W-8ECI (or successor form) certifying, under penalties of perjury, that a dividend paid on shares of our Common Stock is not subject to withholding tax because it is effectively connected with conduct of a trade or business in the United States of the Non-U.S. Holder (in which case such dividend generally will be subject to regular graduated U.S. federal income tax rates on a net income basis as described below).

The certifications described above must be provided to the applicable withholding agent prior to the payment of dividends and must be updated periodically. The certification also may require a Non-U.S. Holder that provides an IRS form or that claims treaty benefits to provide its U.S. taxpayer identification number. Special certification and other requirements apply in the case of certain Non-U.S. Holders that are intermediaries or pass-through entities for U.S. federal income tax purposes.

If dividends are effectively connected with the conduct of a trade or business in the United States of the Non-U.S. Holder (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base maintained by such Non-U.S. Holder in the United States), the Non-U.S. Holder, although exempt from the withholding tax described above (provided that the certifications described above are satisfied), generally will be subject to U.S. federal income tax on such dividends on a net income basis in the same manner as if it were a resident of the U.S. In addition, if such Non-U.S. Holder is taxable as a corporation for U.S. federal income tax purposes, such Non-U.S. Holder may be subject to an additional “branch profits tax” equal to 30% of its effectively connected earnings and profits for the taxable year, unless an applicable income tax treaty provides otherwise.

Non-U.S. Holders that do not timely provide the applicable withholding agent with the required certification, but which are eligible for a reduced rate of U.S. federal withholding tax pursuant to an applicable income tax treaty may obtain a refund or credit of any excess amount withheld by timely filing an appropriate claim for refund with the IRS.

Any distribution described in this section would also be subject to the discussion below in the section titled “—Foreign Account Tax Compliance Act.”

Gain on sale, exchange or other taxable disposition of shares of our Common Stock

Subject to the discussion below under “—Backup withholding and information reporting” and “—Foreign Account Tax Compliance Act,” in general, a Non-U.S. Holder will not be subject to U.S. federal income tax or withholding tax on any gain realized upon such holder’s sale, exchange or other disposition of shares of our Common Stock (including a redemption, but only if the redemption would be treated as a sale or exchange rather than a distribution for U.S. federal income tax purposes) unless (i) such Non-U.S. Holder is an individual who is present in the U.S. for 183 days or more in the taxable year of disposition, and certain other conditions are met, (ii) we are or have been a “U.S. real property holding corporation,” as defined in the Code (a “USRPHC”), at any time within the shorter of the five-year period preceding the disposition and the Non-U.S. Holder’s holding period with respect to the applicable shares of our Common Stock (the “relevant period”) and certain other conditions are met, or (iii) such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business in the U.S. (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by such Non-U.S. Holder in the U.S.).

If the first exception applies, the Non-U.S. Holder generally will be subject to U.S. federal income tax at a rate of 30% (unless an applicable income tax treaty provides otherwise) on the amount by which such Non-U.S. Holder’s capital gains allocable to U.S. sources exceed capital losses allocable to U.S. sources during the taxable year of the disposition.

With respect to the second exception above, although there can be no assurance, we believe we are not, and we do not currently anticipate becoming, a USRPHC. However, because the determination of whether we are

 

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a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of other business assets, there can be no assurance that we are not currently or will not become a USRPHC in the future. Generally, a corporation is a USRPHC only if the fair market value of its U.S. real property interests (as defined in the Code) equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus certain other assets used or held for use in a trade or business. Even if we are or become a USRPHC, a Non-U.S. Holder would not be subject to U.S. federal income tax on a sale, exchange or other taxable disposition of our Common Stock by reason of our status as a USRPHC so long as (a) our Common Stock is regularly traded on an established securities market (within the meaning of Code Section 897(c)(3)) during the calendar year in which such sale, exchange or other taxable disposition of our Common Stock occurs and (b) such Non-U.S. Holder does not own and is not deemed to own (directly, indirectly or constructively) more than 5% of our Common Stock at any time during the relevant period. If we are a USRPHC and the requirements of (a) or (b) are not met, gain on the disposition of shares of our Common Stock generally will be taxed in the same manner as gain that is effectively connected with the conduct of a U.S. trade or business, except that the “branch profits tax” generally will not apply. Prospective investors are urged to consult their own tax advisors regarding the possible consequences to them if we are, or were to become, a USRPHC.

If the third exception applies, the Non-U.S. Holder generally will be subject to U.S. federal income tax on a net income basis with respect to such gain in the same manner as if such holder were a resident of the U.S., unless otherwise provided in an applicable income tax treaty. In addition, a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes may also be subject to a “branch profits tax” on its effectively connected earnings and profits at a rate of 30%, unless an applicable income tax treaty provides otherwise.

Foreign Account Tax Compliance Act

Legislation commonly referred to as the Foreign Account Tax Compliance Act, as modified by Treasury regulations and subject to any official interpretations thereof, any applicable intergovernmental agreement between the U.S. and non-U.S. government to implement these rules and improve international tax compliance, or any fiscal or regulatory legislation or rules adopted pursuant to any such intergovernmental agreement (collectively, “FATCA”), generally will impose a U.S. federal withholding tax of 30% on payments to certain non-U.S. entities (including certain intermediaries), including dividends on and the gross proceeds from a sale or other disposition of our Common Stock unless such persons comply with a complicated U.S. information reporting, disclosures and certification requirements. This regime requires, among other things, a broad class of persons to obtain disclose and report information about their investors and account holders. These requirements are different from and in addition to the certification requirements described elsewhere in this discussion. The withholding rules apply currently to payments of dividends on shares of our Common Stock, and are scheduled to apply to payments of gross proceeds from the sale or other dispositions of our Common Stock paid after December 31, 2018. If a dividend payment is both subject to withholding under FATCA and subject to the withholding tax discussed above under “—Distributions on shares of our Common Stock,” the withholding under FATCA may be credited against, and therefore reduce, such other withholding tax. Prospective investors should consult their own tax advisors regarding the possible impact of these rules on their investment in our Common Stock, and the entities through which they hold our Common Stock, including, without limitation, the process and deadlines for meeting the applicable requirements to prevent the imposition of this 30% withholding tax under FATCA.

Backup withholding and information reporting

We or a financial intermediary must report annually to the IRS and to each Non-U.S. Holder the gross amount of the distributions on shares of our Common Stock paid to such holder and the tax withheld, if any, with respect to such distributions. These information reporting requirements apply even if withholding was not required. In addition to the requirements described above under “—Foreign Account Tax Compliance Act,” a Non-U.S. Holder generally will be subject to backup withholding at the then applicable rate for dividends paid to such holder unless such holder furnishes a valid IRS Form W-8BEN or IRS Form W-8BEN-E (or such other

 

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applicable form and documentation as required by the Code or the Treasury regulations promulgated thereunder) certifying under penalties of perjury that it is a Non-U.S. Holder (and the payor does not have actual knowledge or reason to know that such holder is a U.S. person as defined under the Code). Dividends paid to Non-U.S. Holders subject to the U.S. federal withholding tax, as described above under “—Distributions on shares of our Common Stock,” generally will be exempt from U.S. backup withholding.

Information reporting and backup withholding will generally apply to the payment of the proceeds of a disposition of shares of our Common Stock by a Non-U.S. Holder effected by or through the U.S. office of any broker, U.S. or non-U.S., unless the holder certifies that it is not a U.S. person (as defined in the Code) and satisfies certain other requirements, or otherwise establishes an exemption. For information reporting purposes, dispositions effected through a non-U.S. office of a broker with substantial U.S. ownership or operations generally will be treated in a manner similar to dispositions effected through a U.S. office of a broker, and dispositions otherwise effected through a non-U.S. office generally will not be subject to information reporting. Generally, backup withholding will not apply to a payment of disposition proceeds to a Non-U.S. Holder where the transaction is effected through a non-U.S. office of a U.S. broker or non-U.S. office of a non-U.S. broker. Prospective investors are urged to consult their own tax advisors regarding the application of the information reporting and backup withholding rules to them.

Copies of information returns may be made available to the tax authorities of the country in which the Non-U.S. Holder resides or is incorporated, under the provisions of a specific treaty or agreement.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment made to a Non-U.S. Holder can be refunded or credited against such Non-U.S. Holder’s U.S. federal income tax liability, if any, provided that an appropriate claim is timely filed with the IRS.

LEGAL MATTERS

Certain legal matters with respect to the shares of Common Stock offered hereby will be passed upon by DLA Piper LLP (US). Orrick, Herrington & Sutcliffe LLP is representing the underwriter in this offering.

EXPERTS

The consolidated financial statements of the Company appearing elsewhere in this Offering Circular have been included herein in reliance upon the report, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern, of MaloneBailey, LLP, an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of MaloneBailey, LLP as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a Regulation A Offering Statement on Form 1-A under the Securities Act with respect to the shares of Common Stock offered hereby. 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 and schedules filed therewith. For further information about us and the Common Stock offered hereby, we refer you to the Offering Statement and the exhibits and schedules filed therewith. Statements contained in this Offering Circular regarding the contents of any contract or 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. Upon the completion of this offering, we will be required to file periodic reports, proxy statements, and other information with the SEC pursuant to the Exchange Act. You may read and copy this information at the SEC’s Public Reference Room,

 

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100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers, including us, that file electronically with the SEC. The address of this site is www.sec.gov.

 

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FINANCIAL STATEMENTS

ADOMANI, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

Report of Independent Registered Public Accounting Firm

     F-2   

Consolidated Financial Statements:

  

Consolidated Balance Sheets

     F-3   

Consolidated Statements of Operations

     F-4   

Consolidated Statements of Stockholders’ Deficit

     F-5   

Consolidated Statements of Cash Flows

     F-6   

Notes to Consolidated Financial Statements

     F-7   

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

ADOMANI, Inc.

Calabasas, California

We have audited the accompanying consolidated balance sheets of ADOMANI, Inc. and subsidiaries (collectively, the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ADOMANI, Inc. and subsidiaries as of December 31, 2015 and 2014 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company suffered recurring losses from operations. These conditions raise significant doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 5 to the financial statements, the Company has restated its 2015 financial statements to correct for errors in the accounting of warrants issued in 2015.

/s/ MaloneBailey, LLP

www.malonebailey.com

Houston, Texas

August 17, 2016, except for Notes 5 and 11 as to which the date is October 5, 2016

 

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ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except for share information)

 

     December 31,  
     2015     2014  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 4,537      $ 118   

Other current assets

     10        8   
  

 

 

   

 

 

 

Total current assets

     4,547        126   

Property, plant and equipment, net

     19        22   

Other investments

     134        21   
  

 

 

   

 

 

 

Total assets

   $ 4,700      $ 169   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ DEFICIT     

Current liabilities:

    

Accounts payable

   $ 5      $ 5   

Accrued liabilities

     425        20   

Deferred income

     68        —     
  

 

 

   

 

 

 

Total current liabilities

     498        25   

Notes payable, long term

     4,612        —     

Convertible debt, long term

     436        342   
  

 

 

   

 

 

 

Total liabilities

     5,546        367   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ deficit:

    

Preferred stock, 100,000,000 authorized $0.00001 par value none issued and outstanding, respectively

     —          —     

Common stock, 2,000,000,000 authorized $0.00001 par value, 84,253,250 shares and 81,594,250 shares issued and outstanding, respectively

     1        1   

Additional paid-in capital

     9,542        4,155   

Accumulated deficit

     (10,389     (4,354
  

 

 

   

 

 

 

Total stockholders’ deficit

     (846     (198
  

 

 

   

 

 

 

Total liabilities and stockholders’ deficit

   $ 4,700      $ 169   
  

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements

 

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ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for share information)

 

     Year Ended December 31,  
     2015     2014  
     Restated        

Net sales

   $ —        $ 53   

Cost of sales

     —          1   
  

 

 

   

 

 

 

Gross profit

     —          52   

Operating expenses:

    

General and administrative

     4,633        2,059   

Consulting

     135        143   

Research and development

     549        59   
  

 

 

   

 

 

 

Total operating expenses

     5,317        2,261   
  

 

 

   

 

 

 

Loss from operations

     (5,317     (2,209

Other income (expense):

    

Interest expense

     (702     (65

Other expense

     (17     —     

Other income

     1        88   
  

 

 

   

 

 

 

Total other income (expense)

     (718     23   
  

 

 

   

 

 

 

Loss before income taxes

     (6,035     (2,186

Income tax expense

     —          —     
  

 

 

   

 

 

 

Net loss

   $ (6,035   $ (2,186
  

 

 

   

 

 

 

Net loss per share to common shareholders:

    

Basic and diluted

   $ (0.07   $ (0.03
  

 

 

   

 

 

 

Weighted shares used in the computation of net loss per share:

    

Basic and diluted

     82,611,477        81,459,084   
  

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements

 

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ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(in thousands, except for share information)

 

     Common Stock      Additional
Paid-In
Capital
     Accumulated
Deficit
    Stockholders’
Deficit
 
     Shares      Amount          

Balance, December 31, 2013

     81,177,000       $ 1       $ 2,120       $ (2,168   $ (47

Common stock issued for cash

     417,250         —           189         —          189   

Capital contribution

     —           —           11         —          11   

Beneficial conversion feature on convertible debt

     —           —           286         —          286   

Stock based compensation

     —           —           1,549         —          1,549   

Net loss

     —           —           —           (2,186     (2,186
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance, December 31, 2014

     81,594,250       $ 1       $ 4,155       $ (4,354   $ (198

Common stock issued for cash

     2,659,000         —           1,982         —          1,982   

Beneficial conversion feature on convertible debt

     —           —           21         —          21   

Stock based compensation

     —           —           3,035         —          3,035   

Warrants issued for debt discount

     —           —           349         —          349   

Net loss

     —           —           —           (6,035     (6,035
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance, December 31, 2015, as restated

     84,253,250       $ 1       $ 9,542       $ (10,389   $ (846
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements

 

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ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

         Year Ended December 31,      
     2015     2014  
     Restated        

Cash flows from operating activities:

    

Net loss

   $ (6,035   $ (2,186

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     7        7   

Amortization of debt discount

     424        46   

Stock based compensation expense

     3,035        1,549   

Changes in assets and liabilities:

    

Other current assets

     (2     —     

Other non-current assets

     (4     (7

Accounts payable

     —          5   

Accrued liabilities

     404        21   

Deferred revenue

     68        (53
  

 

 

   

 

 

 

Net cash used in operating activities

     (2,103     (618
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property, plant and equipment, net

     (3     —     

Other Investments

     (110     —     
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (113     —     
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of debt, net of issuance costs

     4,653        492   

Proceeds from issuance of Common Stock

     1,982        189   

Capital contribution

     —          11   
  

 

 

   

 

 

 

Net cash provided by financing activities

     6,635        692   
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     4,419        74   

Cash and cash equivalents at the beginning of the year

     118        44   
  

 

 

   

 

 

 

Cash and cash equivalents at the end of the year

   $ 4,537      $ 118   
  

 

 

   

 

 

 

Non-cash transactions:

    

Debt discount due to BCF

   $ 21      $ 286   

Debt discount due to warrant

     349        —     
  

 

 

   

 

 

 

Total non-cash transactions

   $ 370      $ 286   
  

 

 

   

 

 

 

Supplemental cash flow disclosures:

    

Cash paid for interest expense

   $ 234      $ —     
  

 

 

   

 

 

 

Cash paid for income taxes

   $ —        $ —     
  

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements

 

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ADOMANI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. Organization and operations

ADOMANI, Inc. (the “Company) was incorporated in Florida in August 2012 and is a green initiative vehicle technology company specializing in new, purpose-built zero-emission vehicles and in gas/diesel to all-electric and gas/electric to plug-in hybrid vehicle conversions to school bus and medium to heavy-duty fleet operators. ADOMANI, Inc. is the parent company of its wholly-owned subsidiary, ADOMANI California, Inc. The Company is located in Newport Beach, CA.

 

2. Summary of Significant Accounting Policies

Principles of Consolidation - The accompanying financial statements reflect the consolidation of the individual financial statements of ADOMANI, Inc. and ADOMANI California, Inc. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition – The Company recognizes revenue from the sales of advanced zero-emission electric drivetrain systems for fleet vehicles. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured.

The Company recognizes revenue upon delivery or acceptance by the customer of the goods. Deferred revenue includes advance billings and payments for implementation, consulting services or products not yet delivered. Deferred revenue was $68,000 and $0 at December 31, 2015 and 2014 respectively.

Cash and Cash Equivalents – The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts – The Company establishes an allowance for bad debts through a review of several factors including historical collection experience, current aging status of the customer accounts, and financial condition of our customers. We do not generally require collateral for our accounts receivable. There was no allowance at December 31, 2015 and 2014.

Intangible Assets - Acquired intangible assets are amortized over their useful lives unless the lives are determined to be indefinite. Acquired intangible assets are carried at cost, less accumulated amortization. Amortization of finite-lived intangible assets is computed over the useful lives of the respective assets. As of December 31, 2015 and 2014 the Company had not capitalized any patent costs.

Property, Plant and Equipment - Property and equipment are stated at cost. Depreciation and amortization is provided over the estimated useful lives or lease terms of the related assets using the straight-line method for financial reporting and leasehold improvements are amortized over the life of the lease for financial reporting purposes. Various accelerated depreciation methods are utilized for income tax reporting purposes. Major repairs and replacements, which extend the useful lives of equipment, are capitalized and depreciated over the estimated useful lives of the property. All other maintenance and repairs are expensed as incurred. Depreciation and amortization expense was $7,102 and $6,796 during 2015 and 2014, respectively.

 

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Impairment of Long-Lived Assets – Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates long-lived assets to determine potential impairment by comparing the carrying amount to the undiscounted estimated future cash flows of the related assets. There was no impairment of the long-lived assets as of December 31, 2015 and 2014, respectively.

Research and Development - Costs incurred in connection with the development of new products and manufacturing methods are charged to operating expenses as incurred. During 2015 and 2014, $548,889 and $59,882, respectively, were expensed as research and development costs.

Income Taxes – The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.

The Company records a valuation allowance to reduce the deferred income tax assets to the amount that is more likely than not to be realized. In making such determinations, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. As of December 31, 2015 and 2014, the Company recognized a full valuation allowance for all deferred tax assets.

Accounting for Uncertainty in Income Taxes - The Company evaluates its uncertain tax positions and will recognize a loss contingency when it is probable that a liability has been incurred as of the date of the financial statements and the amount of the loss can be reasonably estimated. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. At December 31, 2015 and 2014, management did not identify any uncertain tax positions.

Net Loss Per Share - Basic net loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted net loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity securities.

Concentration of Credit Risk – The Company has credit risks related to cash and cash equivalents on deposit with a federally insured bank, as at times it exceeds the $250,000 maximum amount insured by the Federal Deposit Insurance Corporation.

Stock-Based Compensation - The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered.

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered.

 

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Segment Information - FASB ASC No. 280, “Segment Reporting” establishes standards for reporting information about reportable segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group (“CODM”), in deciding how to allocate resources and in assessing performance. The Company currently operates in a single reportable segment.

Recent Accounting Pronouncements - In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. As amended by the FASB in July 2015, the standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard in 2018.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures requirement. ASU 2014-15 (1) provides a definition of the term substantial doubt, (2) requires an evaluation every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plans, (4) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014-15 is effective for the annual reporting period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently evaluating the impact of this standard, if any, on its consolidated financial position, results of operations, or cash flows.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendment allows for debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The requirement is that companies adopt this standard, effective in fiscal years following December 31, 2015. However, a company may early-adopt where financial statements have not already been issued. The Company has chosen to early-adopt this standard.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 470): Balance Sheet Classification of Deferred Taxes. The amendments in ASU 2015-17 eliminate the requirement to bifurcate deferred taxes between current and non-current on the balance sheet and requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. The amendments for ASU-2015-17 can be applied retrospectively or prospectively and early adoption is permitted. The Company is currently evaluating the impact of this standard, if any, on its consolidated financial position, results of operations, or cash flows.

 

3. Going Concern

As shown in the accompanying financial statements, the Company has incurred net losses of $6,035,033 and $2,186,263 during 2015 and 2014, respectively. This condition raises substantial doubt as to our ability to

 

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continue as a going concern. In response to this condition, we may raise additional capital through the sale of equity securities, through an offering of debt securities or through borrowings from financial institutions or individuals, or from more than one of these sources. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

4. Income Taxes

The cumulative net operating loss carry-forward is $5,344,160 at December 31, 2015, and $2,519,110 at December 31, 2014 and will expire in the years 2035 and 2034, respectively. The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:

 

     December 31,  
     2015      2014  

Net operating loss

     961         213   

Deferred tax asset attributable to:

     

Net operating loss carryover

     1,817         856   

Valuation allowance

     (1,817      (856
  

 

 

    

 

 

 

Net deferred tax asset

     —           —     
  

 

 

    

 

 

 

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryover for Federal income tax reporting purposes are subject to annual limitations. The net operating loss carry-forward includes the years 2012 through 2015. Should a change in ownership occur, net operating loss carryover may be limited as to use in future years.

 

5. Debt (Restated)

During 2015 and 2014, the Company issued convertible notes for total proceeds of $20,275 and $207,465, respectively, to Acaccia Family Trust (“Acaccia”), a related party, bringing the outstanding balance as of December 31, 2015 and 2014 up to $315,840 and $295,565, respectively. During 2014, the Company issued convertible notes for total proceeds of $286,000 to various third parties. As of December 31, 2015 and 2014, the aggregate face value of the convertible notes issued to third and related parties was $601,840 and $581,565, respectively. All notes have a three year maturity and bear interest at rates of 3% or 5% per annum. All loans and any accrued interest may be converted into common shares, with loans totaling $45,000 convertible at a rate of $0.50 per share and loans totaling $556,840, including the Acaccia notes, convertible at $0.10 per share.

As these notes had an effective conversion price that was less than the fair market value of the stock, these notes gave rise to a beneficial conversion feature totaling $20,275 and $286,000 during 2015 and 2014, respectively, which was recognized as an increase to paid-in capital and a corresponding debt discount. The debt discount is being amortized to interest expense on a straight-line basis over the maturity of the notes. For the years ended December 31, 2015 and 2014, debt discount amortization associated with these notes was $94,660 and $46,010, which was recognized as interest expense in the accompanying consolidated statement of operations. There were no repayments or conversions associated with these notes during 2015 and 2014.

During 2015, the Company issued two year promissory notes with a face value of $5,147,525 to a third party entity and approximately 125 different related lenders for cash. The notes payable are secured by all the assets of ADOMANI, mature between January and November 2017 and bear interest at 9%. In connection with these notes, the Company incurred debt issuance costs of $514,753, which are being recognized as a debt discount and amortized over the life of the notes. During the year ended December 31, 2015, the debt discount amortization associated with this note was $157,138, which was recognized as interest expense in the accompanying consolidated statement of operations.

 

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In January 2015, in connection with the 2015 financing discussed in the preceding paragraph, the Company also issued a two-year convertible, callable subordinated debenture to a third party in the aggregate principal amount of $5,000,000 (“the Debenture”). The Debenture bore interest at the annual rate of 9%, was to come due on January 31, 2017 unless extended by the parties for six months until July 31, 2017, was convertible into Common Stock of the Company at a conversion price of $4.00 per share, and was callable upon 30 days’ notice. The Company did not receive $5,000,000 of loan proceeds for the Debenture, and believes the original intent of the parties was to issue a warrant, exercisable for $5,000,000 of Common Stock of the Company at an exercise price of $4.00 per share. To address such understanding, in September 2016, the Company issued a five-year warrant to purchase 1,250,000 shares of Common Stock of the Company at $4.00 per share. The warrant was issued to the holder of the Debenture in exchange for cancellation of the Debenture, thus reflecting the original intent of the parties. The warrant was valued using the Black Scholes valuation model and the resulting fair market value of $349,042 has been recorded in 2015 as debt discount and is being amortized over the term of the notes. Interest expense relating to the amortization of this discount was $170,697 for the year ended December 31, 2015.

 

     As of December 31,
2015
 

Stock price

   $ 1.00   

Expected volatility

     112.3

Risk-free interest rate

     0.4

Expected term (in years)

     2.0   

Expected dividend yield

     0

On September 1, 2016 management determined that the financial statements should be restated due to an error in the accounting for the warrant agreement discussed in the preceding paragraph. The Company has now properly accounted for this warrant agreement to acquire 1,250,000 shares of the Company’s Common Stock at $4.00.

 

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The following tables provide a summary of selected line items in our consolidated financial statements that were affected by this restatement:

 

     December 31, 2015  
     (in thousands)  
     As Previously
Reported
     Adjustments      As Restated  

Balance Sheet

        

Total assets

   $ 4,700       $ —         $ 4,700   
  

 

 

    

 

 

    

 

 

 

Debt discount

   $ 523       $ 178       $ 702   

Additional paid in capital

     (9,193      (349      (9,542

Retained earnings

     (10,218      171         (10,389
  

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders equity

   $ 4,700       $ —         $ 4,700   
  

 

 

    

 

 

    

 

 

 

Statement of Operations

        

Interest expense

   $ (531    $ (171    $ (702
  

 

 

    

 

 

    

 

 

 

Net income

   $ (5,864    $ (171    $ (6,035
  

 

 

    

 

 

    

 

 

 

Statement of cash flows

        

Net income

   $ (5,864    $ (171    $ (6,035

Warrant expense

     —           171         171   
  

 

 

    

 

 

    

 

 

 

Net cash used in operating activities

   $ (2,103    $ —         $ (2,103
  

 

 

    

 

 

    

 

 

 

Net cash used in investing activities

   $ (113    $ —         $ (113
  

 

 

    

 

 

    

 

 

 

Net cash provided by financing activities

   $ 6,635       $ —         $ 6,635   
  

 

 

    

 

 

    

 

 

 

Net change in cash

   $ 4,419       $ —         $ 4,419   
  

 

 

    

 

 

    

 

 

 

Details of notes payable at December 31, 2015 and 2014 are as follows:

 

     As of December 31,  
     2015      2014  
     Restated         

Convertible Debt

     

Principal amount outstanding as of December 31, 2015 and 2014

   $ 601,840       $ 581,565   

Cumulative discount for notes with beneficial conversion feature

     (306,275      (286,000

Cumulative amortization of debt discount

     140,670         46,010   
  

 

 

    

 

 

 

Subtotal of convertible notes @ $0.10 or $.50/share

     436,235         341,575   

Notes Payable

     

Principal amount outstanding as of December 31, 2015 and 2014

     5,147,525         —     

Cumulative discount for finance charges incurred

     (514,753      —     

Cumulative discount for warrant

     (349,042   

Cumulative amortization of finance charges

     157,138         —     

Cumulative amortization of warrant expense

     170,697      
  

 

 

    

 

 

 

Subtotal of notes payable

     4,611,565         —     
  

 

 

    

 

 

 

Total of debt

   $ 5,047,800       $ 341,575   
  

 

 

    

 

 

 

 

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6. Common Stock

During 2014, the Company sold an aggregate of 417,250 shares of Common Stock to third party investors in exchange for proceeds of $189,250.

During 2015, the Company issued 2,659,000 shares of its Common Stock to third party investors for proceeds of $1,982,000. Included in that amount, as part of its compensation strategy, the Company issued 500,000 shares of its Common Stock to its CEO at below fair market value. See Note 7.

 

7. Stock-Based Compensation

During 2015, as part of its compensation strategy, the Company issued 500,000 shares of its Common Stock with a fair value of $500,000 to its CEO in exchange for cash of $1,000. As the shares were fully vested at the issuance date, the Company immediately recognized stock based compensation of $499,000.

The Company has historically granted stock options to officers, employees and consultants as part of its compensation strategies. The grant-date fair value of options were estimated using a Black-Scholes valuation model using the following assumptions for options granted during the years ended December 31:

 

     2015     2014

Stock price

   $ 1.00      $0.10 - $1.00

Expected volitility

     112.3   108.5% - 114.6%

Risk free interest rate

     2.1   1.7% - 2.3%

Expected term (in years)

     8.0      5.3 – 8.0

Expected dividend yield

     0   0%

Expected forfeiture rate

     0   0%

During 2014, the Company issued stock options to officers, employees and consultants to acquire an aggregate of 14,500,000 shares of Common Stock and 4,000,000 shares of preferred stock with an exercise price of $0.10. These shares contain a five-year vesting period with an expiration date 10 years from the date of issue. The grant date fair value of these awards was $11,344,368.

During 2015, the Company issued stock options to consultants to acquire an aggregate of 275,000 shares of Common Stock with an exercise price of $0.10. These shares contain a five-year vesting period with an expiration date 10 years from the date of issue. The grant date fair value of these awards was $267,667.

Stock option activity is as follows:

 

     Number of
Shares
     Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual Life (years)
 

Outstanding at December 31, 2013

     15,000,000       $ 0.10      

Granted

     18,500,000         0.10      

Forfeited

     —           —        
  

 

 

    

 

 

    

Outstanding at December 31, 2014

     33,500,000       $ 0.10      

Granted

     275,000         0.10      

Forfeited

     —           —        
  

 

 

    

 

 

    

Outstanding at December 31, 2015

     33,775,000       $ —           5.6   
  

 

 

    

 

 

    

 

 

 

Exercisable at December 31, 2015

     15,369,583       $ 0.10         5.4   
  

 

 

    

 

 

    

 

 

 

 

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Stock based compensation expense was $3,034,863 and $1,549,406 for the years ended December 31, 2015 and 2014, respectively and is included in general and administrative expense in the accompanying consolidated statements of operations. As of December 31, 2015, the Company expects to recognize $8,435,945 of stock-based compensation for the non-vested outstanding options over a weighted-average period of 3.4 years.

 

8. Major customers

During 2014, the Company delivered services to one customer and recognized $53,000 in revenue. The revenue was recorded as a customer deposit at December 31, 2013. During 2014, the Company received $85,150 from donations through Go Fund Me, a crowdfunding source, which were recorded as other income in the accompanying consolidated statement of operations. These donations were for the general advancement of our technologies and require no further obligations on behalf of the Company.

 

9. Commitments

Employment Agreements - The Company has signed an employment agreement for the Chief Executive Officer with an effective date of September 1, 2014. The term of the employment agreement is 5 years, with an annual base salary of $240,000 and 5% of Company’s Net Profits.

The Company has signed an employment agreement for the Chief Technology Officer with an effective date of September 1, 2014. The term of the employment agreement is 5 years, with an annual base salary of $240,000 and 5% of Company’s Net Profits.

Operating Leases - The Company has signed an office and warehouse lease agreement to serve as its primary facility for research and development activity. The property is located at 1243 West Trenton Avenue, Orange, CA. The total lease amount is $42,282 and the lease period is March 1, 2015 through February 29, 2016. This lease is currently month-to-month as The Company negotiates an extension.

Other Agreements – The Company has entered into a contract with THINKP3 to provide services with the goal of helping secure Federal grant assistance for development of the Company’s zero-emission and hybrid transportation solutions for school bus, commercial, government and utility fleets. The initial term of this contract is December 1, 2015 through November 30, 2016. Fees for these services are $2,500 per month December 2015 through February 2016, $ 4,000 per month March 2016 through May 2016, $6,000 per month June 2016 through August 2016, and $8,000 per month September 2016 through November 2016. The contract can be terminated by either party with a 30 day advance notice.

The Company has signed a licensing option agreement with Silicon Turbines Systems, Inc. (STS) for use of its patent in manufacturing. The option calls for $10,000 payments per month, beginning March 1, 2015, up to the full investment amount of $3,000,000. The original option was to terminate on August 31, 2015, but has been extended to February 26, 2016. A meeting with STS in March 2016 resulted in a verbal agreement to extend the option termination, pending the Company’s completion of a 1-A equity offering in the third or fourth quarter of 2016. As of December 31, 2015, $110,000 in payments have been made. $10,000 has been paid so far in 2016 for a total of $120,000. These amounts appear as Other Investments on the balance sheet.

 

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10. Future Minimum Payment Obligations

The following table summarizes our future minimum payments under contractual commitments, excluding debt, as of December 31, 2015

 

     Payments due by period  
     Total      Less than one
year
     1 - 3
years
     3 - 5
years
     More than 5
years
 

Operating lease obligations

     49,013         49,013         —           —           —     

Employment contracts

     993,000         396,000         597,000         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,042,013         445,013         597,000         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

11. Subsequent Events

The Company has evaluated subsequent events through October 5, 2016, the date the financial statements were available to be issued, and has concluded that, other than as disclosed below, no other events or transactions took place which would require disclosure herein.

The Company has issued 206,400 shares of Common Stock for cash in the amount of $206,400.

The Company has signed an office lease for office space in Newport Beach, CA to serve as office space for its headquarters. The total lease amount is $37,863 and the lease period is January 1, 2016 through December 31, 2016.

The Company has entered into a contract with DLA Piper LLP to assist the Company in connection with corporate, securities, and related legal matters. In exchange for its services, the Company provided a $50,000 retainer. This contract was effective February 29, 2016. There is no stipulated term for this contract, however, it may be terminated by either party at any time.

The Company has signed an office lease for office space in Los Altos, CA to serve as office space for its Northern California operations. The total lease amount is $5,400 and the lease period is March 1, 2016 through February 28, 2017.

The Company has entered into a contract with Redwood Group International Limited to assist in raising capital for the Company. In exchange for its services, Redwood will receive a $5,000 per month retainer along with success fees and warrants as prescribed in the agreement. The initial term is for 12 months, from March 2016 through February 28, 2017 and will continue beyond 12 months unless terminated by either party.

The Company has entered into a contract with Boustead Securities, LLC, formerly known as Monarch Bay Securities, LLC (“Boustead”), to act as financial advisor to the Company with respect to its pre-IPO and IPO financing activities. In exchange for its services, Boustead will receive success fees as prescribed in the agreement. The Company paid a $50,000 advisory fee upon execution of the contract, and is required to pay another $50,000 upon the filing of an application for listing on one of the national securities exchanges. The initial term is for 12 months from the execution date of February 12, 2016 and can be extended for an additional six months, under the same terms and conditions, by agreement of the parties.

With respect to the contract with Boustead, the Company agreed to pay for the services of Orrick, Herrington & Sutcliffe LLP to advise Boustead in connection with the corporate, securities, and related legal matters discussed above. In exchange for those services, the Company provided a $50,000 retainer in March, 2016. There is no stipulated term for this contract, however, it may be terminated by either party at any time.

 

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Table of Contents

The Company has entered into a contract with TriplePoint, LLC to provide an in-depth industry report, updates to the report, and to assist with the marketing function related to the Company’s IPO financing activities. Assuming the transaction is completed, TriplePoint will provide subsequent support. In exchange for its services, TriplePoint will receive $15,000 per month until the Company completes an IPO transaction, and will receive $10,000 per month thereafter until termination of the agreement. TriplePoint will also receive shares of ADOMANI Common Stock on the date the transaction is completed. The initial term is for 12 months from the effective date of February 19, 2016, and can be terminated for any reason by either party upon 30 day notice.

One of our shareholders advanced the sum of $68,000 for the anticipated purchase of 34,000,000 shares of Common Stock by one of the Company’s Officers and Directors with the condition that the Officer/Director either pay the Company $68,000 for the shares in which case the $68,000 advanced by the shareholder would be returned to the shareholder by the Company; or the Officer/Director reimburse the shareholder for the $68,000 so advanced. The 34,000,000 shares were never issued by the Board of Directors. The conditional action by the Officer/Director never occurred and the shareholder rescinded the $68,000 advanced and requested that the Company return the $68,000 so advanced by him. On May 4, 2016, the Board of Directors of the Company approved the rescission and return of the $68,000 plus statutory interest to the shareholder and to cancel the proposed issuance of the 34,000,000 shares. On July 8, 2016, the Board of Directors approved a modification to the May rescission agreement such that 5,000,000 shares were returned to the shareholder, who in turn repaid the Company the pro-rata amount of the payment he received in May. The shareholder subsequently sold the 5 million shares to the CEO at his cost. This transaction will be recorded as stock-based compensation in July, 2016.

Effective June 1, 2016, the employment agreement of the Officer/Director mentioned in the previous paragraph was revised, and the amount of deferred but unpaid compensation owed him from his previous contract was settled and paid to him. The new agreement is for two years, expiring May 31, 2018.

Effective September 1, 2016, $884,700 of the notes payable were exchanged for 884,700 shares of the Company’s Class B Common Stock.

 

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FINANCIAL STATEMENTS

ADOMANI, INC.

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

Consolidated Financial Statements:

  

Consolidated Balance Sheets (unaudited)

     F-18   

Consolidated Statements of Operations (unaudited)

     F-19   

Consolidated Statements of Stockholders’ Deficit (unaudited)

     F-20   

Consolidated Statements of Cash Flows (unaudited)

     F-21   

Notes to Consolidated Financial Statements (unaudited)

     F-22   

 

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ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except for share and per share data)

(unaudited)

 

     September 30,     December 31,  
     2016     2015  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 1,737      $ 4,537   

Other current assets

     631        10   
  

 

 

   

 

 

 

Total current assets

     2,368        4,547   

Property, plant and equipment, net

     368        19   

Other investments

     235        134   
  

 

 

   

 

 

 

Total assets

   $ 2,971      $ 4,700   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS' DEFICIT     

Current liabilities:

    

Accounts payable

   $ 72      $ 5   

Accrued liabilities

     109        425   

Deferred income

     —          68   

Notes payable, net

     3,258        —     

Convertible debt, net

     516        —     
  

 

 

   

 

 

 

Total current liabilities

     3,955        498   

Long-term liabilities

    

Notes payable, net

     837        4,612   

Convertible debt, net

     —          436   
  

 

 

   

 

 

 

Total liabilities

     4,792        5,546   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ deficit:

    

Preferred stock, 100,000,000 authorized $0.00001 par value none issued and outstanding, respectively

     —          —     

Common stock, 2,000,000,000 authorized $0.00001 par value, 58,542,350 and 84,253,250 issued and outstanding, respectively

     1        1   

Additional paid-in capital

     17,721        9,542   

Accumulated deficit

     (19,543     (10,389
  

 

 

   

 

 

 

Total stockholders’ deficit

     (1,821     (846
  

 

 

   

 

 

 

Total liabilities and stockholders’ deficit

   $ 2,971      $ 4,700   
  

 

 

   

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for share and per share data)

(unaudited)

 

     Nine Months Ended  
     September 30, 2016     September 30, 2015  

Net sales

   $ 68      $ —     

Cost of sales

     50        —     
  

 

 

   

 

 

 

Gross profit

     18        —     

Operating expenses:

    

General and administrative

     8,107        2,737   

Consulting

     95        43   

Research and development

     128        42   
  

 

 

   

 

 

 

Total operating expenses, net

     8,330        2,822   
  

 

 

   

 

 

 

Loss from operations

     (8,312     (2,822

Other income (expense):

    

Interest expense

     (833     (512

Other expense

     (9     (492
  

 

 

   

 

 

 

Total other income (expense)

     (842     (1,004
  

 

 

   

 

 

 

Loss before income taxes

     (9,154     (3,826

Income tax expense

     —          —     
  

 

 

   

 

 

 

Net loss

   $ (9,154   $ (3,826
  

 

 

   

 

 

 

Net loss per share to common shareholders:

    

Basic and diluted

   $ (0.13   $ (0.05
  

 

 

   

 

 

 

Weighted shares used in the computation of net loss per share:

    

Basic and diluted

     69,286,226        82,525,626   
  

 

 

   

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

(amounts in thousands, except for shares)

(unaudited)

 

     Common Stock      Additional
Paid-In
Capital
    Accumulated
Deficit
    Stockholders’
Deficit
 
     Shares     Amount         

Balance, December 31, 2015

     84,253,250      $ 1       $ 9,542      $ (10,389   $ (846

Common stock issued for cash

     206,400        —           188        —          188   

Stock issued for third-party services rendered

     98,000        —           98        —          98   

Stock issued for prepaid services

     100,000        —           100        —          100   

Founders shares rescinded

     (27,000,000     —           (54     —          (54

Conversion of debt to common shares

     884,700        —           885        —          885   

Beneficial conversion feature on convertible debt

     —          —           42        —          42   

Stock based compensation

     —          —           6,920        —          6,920   

Net loss

     —          —           —          (9,154     (9,154
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance, September 30, 2016

     58,542,350      $ 1       $ 17,721      $ (19,543   $ (1,821

 

See accompanying notes to unaudited consolidated financial statements.

 

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ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     Nine Months Ended  
     September 30,
2016
    September 30,
2015
 

Cash flows from operating activities:

    

Net loss

   $ (9,154   $ (3,826

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     9        5   

Amortization of debt discount

     454        197   

Stock based compensation expense

     6,920        1,891   

Changes in assets and liabilities:

    

Other current assets

     (28     (370

Other non-current assets

     (90     (4

Accounts payable

     165        —     

Accrued liabilities

     (315     278   

Deferred revenue

     (68     68   
  

 

 

   

 

 

 

Net cash used in operating activities

     (2,107     (1,761
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property, plant and equipment, net

     (359     (57

Other Investments

     (10     (70
  

 

 

   

 

 

 

Net cash used in investing activities

     (369     (127
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of common stock

     188        455   

Payments for stock rescission

     (54     —     

Proceeds from issuance of debt, net of issuance costs

     42        4,350   

Principal repayments of long term debt

     (8     —     

Payments for 1-A costs

     (493     —     
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (324     4,805   
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (2,800     2,917   

Cash and cash equivalents at the beginning of the year

     4,537        118   
  

 

 

   

 

 

 

Cash and cash equivalents at the end of the year

   $ 1,737      $ 3,035   
  

 

 

   

 

 

 

Non-cash transactions:

    

Debt discount due to warrant

   $ —        $ 349   
  

 

 

   

 

 

 

Debt discount due to BCF

   $ 42      $ 21   
  

 

 

   

 

 

 

Stock issued for third-party services rendered

   $ 98      $ —     
  

 

 

   

 

 

 

Stock issued for prepaid services

   $ 100      $ —     
  

 

 

   

 

 

 

Common stock issued for conversion of notes payable

   $ 885      $ —     
  

 

 

   

 

 

 

Supplemental cash flow disclosures:

    

Cash paid for interest expense

   $ 361      $ 121   
  

 

 

   

 

 

 

Cash paid for income taxes

   $ —        $ —     
  

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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Table of Contents

ADOMANI, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Organization and operations

ADOMANI, Inc. (the “Company) was incorporated in Florida in August 2012 and is a green initiative vehicle technology company specializing in new, purpose-built zero-emission vehicles and in gas/diesel to all-electric and gas/electric to plug-in hybrid vehicle conversions to school bus and medium to heavy-duty fleet operators. ADOMANI, Inc. is the parent company of its wholly-owned subsidiaries, ADOMANI California, Inc. and ADOMANI China. The Company is located in Newport Beach, CA.

 

2. Summary of Significant Accounting Policies

Basis of Presentation - The consolidated financial statements and related disclosures as of September 30, 2016 and for the nine months ended September 30, 2016 and 2015, are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. In our opinion, these unaudited financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These unaudited financial statements should be read in conjunction with the audited financial statements for the years ended December 31, 2015 and 2014 included in our 1-A registration statement filed in October 2016. The results of operations for the nine months ended September 30, 2016, are not necessarily indicative of the results to be expected for the full year. Unless the context otherwise requires, all references to “ADOMANI,” “we,” “us,” “our” or the “Company” are to ADOMANI, Inc. and our subsidiaries.

Principles of Consolidation - The accompanying financial statements reflect the consolidation of the individual financial statements of ADOMANI, Inc., ADOMANI California, Inc. and ADOMANI China. All significant intercompany accounts and transactions have been eliminated.

Revenue Recognition – The Company recognizes revenue from the sales of advanced zero-emission electric drivetrain systems for fleet vehicles. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured.

In May 2015, the Company received a deposit of $68,000 from one customer and recorded it as deferred revenue. The revenue was recognized as income in June, 2016 when the customer took delivery of the vehicle. The cost to generate this revenue had been charged to R&D expense previously and has been reclassified to cost of goods sold.

Stock-Based Compensation - The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered.

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered.

 

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Table of Contents
3. Going Concern

As shown in the accompanying unaudited consolidated financial statements, the Company has incurred net losses of $9,153,868 and $3,825,028 during the nine months ended September 30, 2016 and 2015, respectively. Additionally, as of September 30, 2016, a working capital deficit in the amount of $1.587 million exists. These conditions raise substantial doubt as to our ability to continue as a going concern. In response to these conditions, we are currently attempting to raise additional capital through the sale of equity securities through an offering statement pursuant to Regulation A, which will contain these financial statements. The Company also raised modest additional amounts of capital through the private sale of equity securities and the issuance of additional amounts of convertible debt in 2016 as discussed elsewhere in the Notes to Unaudited Consolidated Financial Statements. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

As of September 30, 2016, the Company has incurred $492,706 in costs relating to the preparation and filing of the offering statement pursuant to Regulation A. These costs are currently capitalized on the balance sheet as other current assets.

With respect to the offering discussed above, the Company has entered into a contract with DLA Piper LLP to assist the Company in connection with corporate, securities, and related legal matters. In exchange for its services, the Company provided a $50,000 retainer. This contract was effective February 29, 2016. There is no stipulated term for this contract, however, it may be terminated by either party at any time.

The Company entered into a consulting agreement with Redwood Group International Limited (“Redwood”) in March, 2016. In exchange for its services, Redwood received $5,000 per month retainer payments and was also eligible to receive other fees and warrants as prescribed in the agreement. The initial term was for 12 months, from March 2016 through February 28, 2017 and will continue beyond 12 months unless terminated by either party. The Company executed an additional agreement with Redwood on September 29, 2016, issuing to Redwood an additional 100,000 shares subject to Redwood satisfying certain performance thresholds. If the performance thresholds are not met, the Company has an exclusive option to reacquire all or a portion of the shares at $0.00001 per share. See Note 7 below.

The Company has entered into a contract with Boustead Securities, LLC (“Boustead”) to act as financial advisor to the Company with respect to its pre-IPO and IPO financing activities. In exchange for its services, Boustead will receive success fees and warrants as prescribed in the agreement. The Company paid a $50,000 advisory fee upon execution of the contract, and is required to pay another $50,000 upon the filing of an application for listing on one of the national securities exchanges. The initial term is for 12 months from the execution date of February 12, 2016 and can be extended for an additional six months, under the same terms and conditions, by agreement of the parties.

With respect to the contract with Boustead, the Company agreed to pay for the services of Orrick, Herrington & Sutcliffe LLP to advise Boustead in connection with the corporate, securities, and related legal matters discussed above. In exchange for those services, the Company provided a $50,000 retainer in March, 2016. There is no stipulated term for this contract, however, it may be terminated by either party at any time.

The Company has entered into a contract with TriplePoint, LLC to provide an in-depth industry report, updates to the report, and to assist with the marketing function related to the Company’s IPO financing activities. Assuming the transaction is completed, TriplePoint will provide subsequent support. In exchange for its services, TriplePoint will receive $15,000 per month until the Company completes an IPO transaction, and will receive $10,000 per month thereafter until termination of the agreement. TriplePoint will also receive shares of ADOMANI common stock on the date the transaction is completed. The initial term is for 12 months from the effective date of February 19, 2016, and can be terminated for any reason by either party upon 30 day notice.

 

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Table of Contents
4. Notes Payable

During 2016, 2015 and 2014, the Company issued convertible notes for total proceeds of $42,160, $20,575 and $207,465, respectively, to Acaccia Family Trust (“Acaccia”), a related party. The outstanding balance as of September 30, 2016 and December 31, 2015 was $358,000 and $315,840, respectively. During 2014, the Company issued convertible notes for total proceeds of $286,000 to various third parties. As of September 30, 2016 and December 31, 2015, the aggregate face value of the convertible notes issued to third and related parties was $645,000 and $601,840. The unamortized discount of these convertible notes was $128,594 as of September 30, 2016. All notes have a three year maturity and bear interest at rates of 3% or 5% per annum. All loans and any accrued interest may be converted into common shares, with loans totaling $45,000 convertible at a rate of $0.50 per share and loans totaling $600,000, including the Acaccia notes, convertible at $0.10 per share. A portion of the Acaccia notes expired on March 31, 2016; the maturity date has been extended to December 31, 2016. During the nine months ended September 30, 2016, the Company’s CFO purchased $25,000 of the $645,000 convertible notes outstanding from Acaccia.

As these notes had an effective conversion price that was less than the fair market value of the stock, these notes gave rise to a beneficial conversion feature totaling $42,160, $20,275 and $286,000 as of September 30, 2016 and for the years ended December 31, 2015 and 2014, respectively, which was recognized as an increase to paid-in capital and a corresponding debt discount. The debt discount is being amortized to interest expense on a straight-line basis over the maturity of the notes. For the nine months ended September 30, 2016 and 2015, debt discount amortization associated with these notes was $79,170 and $70,521, respectively, which was recognized as interest expense in the accompanying unaudited consolidated statements of operations. There were no repayments or conversions associated with these notes during 2016.

During 2015, the Company issued promissory notes with a face value of $5,147,525 to a third party entity and related lenders for cash. The notes payable mature at various dates during 2017 and bear interest at 9%. In connection with these notes, the Company incurred debt issuance costs of $514,753 which are being recognized as amortization of finance charges and amortized over the life of the note. During the nine months ended September 30, 2016 and 2015 the debt issuance cost amortization associated with these notes was $243,948, and $77,914, respectively, which was recognized as interest expense in the accompanying unaudited consolidated statement of operations. A $7,500 repayment of principal was issued to a lender in January 2016. In September 2016, the Company authorized the exchange of $884,700 of these notes for 884,700 common shares. There was no gain or loss that resulted from the conversion of the notes to equity.

In January 2015, in connection with the 2015 financing discussed in the preceding paragraph, the Company also issued a two-year convertible, callable subordinated debenture to a third party in the aggregate principal amount of $5,000,000 (“the Debenture”). The Debenture bore interest at the annual rate of 9%, was to come due on

January 31, 2017 unless extended by the parties for six months until July 31, 2017, was convertible into Common

Stock of the Company at a conversion price of $4.00 per share, and was callable upon 30 days’ notice. The

Company did not receive $5,000,000 of loan proceeds for the Debenture, and believes the original intent of the parties was to issue a warrant, exercisable for $5,000,000 of Common Stock of the Company at an exercise price of $4.00 per share. To address such understanding, in September 2016, the Company issued a five-year warrant to purchase 1,250,000 shares of Common Stock of the Company at $4.00 per share. The warrant was issued to the holder of the Debenture in exchange for cancellation of the Debenture, thus reflecting the original intent of the parties. The warrant was valued using the Black Scholes valuation model and the resulting fair market value of $349,042 was recorded in 2015 as debt discount and is being amortized over the term of the notes. Interest expense relating to the amortization of this discount was $131,010 and $126,707 for the nine months ended September 30, 2016 and 2015, respectively.

 

F-24


Table of Contents

Details of debt at September 30, 2016 and December 31, 2015 are as follows:

 

    As of September 30,
2016
    As of December 31,
2015
 

Convertible Debt

   

Principal amount outstanding as of September 30, 2016 and December 31, 2015

  $ 645,000      $ 601,840   

Cumulative discount for notes with beneficial conversion feature

    (349,560     (306,275

Cumulative amortization of debt discount

    220,966        140,670   
 

 

 

   

 

 

 

Subtotal of convertible notes @ $0.10 or $.50/share

    516,406        436,235   

Notes Payable

   

Principal amount outstanding as of September 30, 2016 and December 31, 2015

    4,255,325        5,147,525   

Cumulative discount for finance charges incurred

    (514,753     (514,753

Cumulative discount for warrant

    (349,042     (349,042

Cumulative amortization of finance charges

    401,087        157,138   

Cumulative amortization of warrant expense

    301,706        170,697   
 

 

 

   

 

 

 

Subtotal of notes payable

    4,094,323        4,611,565   
 

 

 

   

 

 

 

Total of debt

  $ 4,610,729      $ 5,047,800   
 

 

 

   

 

 

 

 

5. Common Stock

During the nine months ended September 30, 2016, the Company issued 206,400 shares of its common stock to third party investors for net proceeds of $187,900 and issued 98,000 shares as payment for services. 86,500 of these shares were issued to the Company’s CFO. The CFO also purchased 10,000 shares from Acaccia (see Note 4). During September 2016 an additional 100,000 shares of common stock were issued to Redwood Group International Limited as discussed above in note 3.

In 2012, one of our shareholders advanced the sum of $64,000 for the anticipated purchase of 32,000,000 shares of common stock by one of the Company’s Officers and Directors with the condition that the Officer/Director either pay the Company $64,000 for the shares in which case the $64,000 advanced by the shareholder would be returned to the shareholder by the Company; or the Officer/Director reimburse the shareholder for the $64,000 so advanced. The conditional action by the Officer/Director never occurred and the shareholder rescinded the $64,000 advanced and requested that the Company return the $64,000 so advanced by him. On May 4, 2016, the Board of Directors of the Company approved the rescission and the return of the $64,000 plus statutory interest to the shareholder and to cancel the proposed issuance of the 32,000,000 shares.

On July 8, 2016, the Board of Directors approved a modification to the May 2016 rescission agreement such that 5,000,000 shares were returned to the shareholder, who in turn repaid the Company the pro-rata amount of the payment he received in May. The shareholder subsequently sold the 5 million shares to the CEO at his cost. As a result, $5 million was recorded as stock-based compensation in July, 2016.

 

6. Stock-Based Compensation

The Company has historically granted stock options to officers, employees and consultants as part of its compensation strategies. The grant-date fair value of options were estimated using a Black-Scholes valuation model using the following assumptions for options granted during the years ended December 31, 2015. There were no options issued during the nine months ended September 30, 2016.

 

F-25


Table of Contents

Stock option activity is as follows:

 

     Number of
Shares
     Weighted
Average
Exercise
Price
     Weighted Average
Remaining Contractual
Life (years)
 

Outstanding at December 31, 2015

     33,775,000       $ 0.10      

Granted

     —           —        

Forfeited

     —           —        
  

 

 

    

 

 

    

Outstanding at September 30, 2016

     33,775,000       $ 0.10         4.8   
  

 

 

    

 

 

    

 

 

 

Exercisable at September 30, 2016

     20,435,833       $ 0.10         4.7   
  

 

 

    

 

 

    

 

 

 

Stock based compensation expense was $6,920,231 and $1,891,114 for the nine months ended September 30, 2016 and 2015, respectively and is included in general and administrative expense in the accompanying unaudited consolidated statement of operations. The stock based compensation expense as of September 30, 2016 consists of the $5 million recorded due to the sale of 5,000,000 shares of stock sold to the CEO at his cost (see Note 5 above) and option expense of $1,920,231 for options granted in prior years. As of September 30, 2016, the Company expects to recognize $6,515,713 of stock-based compensation expense for the non-vested outstanding options over a weighted-average period of 2.66 years.

 

7. Subsequent Events

The Company has evaluated subsequent events through November 15, 2016, and has concluded that, other than as disclosed below, no other events or transactions took place which would require disclosure herein.

ADOMANI Inc. applied to be reincorporated in Delaware in November 2016.

Effective November 1, 2016, the Company executed a dealer agreement with Lion Buses, Inc. granting exclusive dealer rights to ADOMANI to sell Type C school buses in Nevada, Oregon, Utah, Arizona, Washington and Idaho for three years. In connection with the agreement, the Company took delivery of a bus they intend to sell.

The original consulting agreement with Redwood Group International Limited (“Redwood”) was cancelled in November 15, 2016 and replaced with a consulting agreement that expires upon thirty days’ written notice by either party following the successful completion of the Company’s initial public offering described above. The new agreement is similar to the original agreement with respect to fees and warrants due to Redwood, requiring an $800,000 fee payment and issuance of warrants to acquire 350,000 shares of common stock.

On November 10, 2016, the Company’s Board of Directors authorized borrowing $500,000 in order to insure adequate working capital through the close of its equity offering under Regulation A. The terms of the loan are not yet negotiated, but the Company intends to borrow the funds, which will be repaid from the proceeds of the offering. On November 2, 2016 the Company paid $310,000 to Lion Bus for the school bus mentioned above, and may owe a similar amount to Green Power Motor Company later this year for a second bus to be sold in California.

In December, 2016, the Company borrowed $500,000 from an unaffiliated third party. The loan matures June 15, 2017. It contains no stipulated interest rate, but the Company is obligated to pay loan fees of $50,000 to the lender. The proceeds of the loan were immediately used to loan $500,000 to Efficient Drivetrains, Inc. (“EDI”), a company in the zero emissions technology industry that specializes in drivetrain solutions for zero emission and hybrid vehicles. The loan to EDI contains the same provisions, including the loan fees payable to the Company, as the note payable discussed above and also matures on June 15,2017. The Company continues to explore ways to partner with EDI.

 

F-26


Table of Contents

PART III

Index to Exhibits

 

Item 17
Number

 

Exhibit

  1.1*   Form of Underwriting Agreement
  2.1   Articles of Incorporation, filed August 6, 2012
  2.2   Articles of Amendment to Articles of Incorporation, filed September 19, 2012
  2.3   Articles of Amendment to Articles of Incorporation, filed December 31, 2012
  2.4   Bylaws of ADOMANI, Inc., a Florida Corporation
  2.5   Amended and Restated Certificate of Incorporation, filed December 2, 2016
  2.6   Bylaws of ADOMANI, Inc., a Delaware Corporation
  3.1   Form of Secured Promissory Note
  3.2   Form of Convertible Promissory Note and Purchase Agreement
  6.1   Commercial Lease Agreement, by and between LAMTA and the Company, dated February 4, 2016
  6.2   Premier Office License Agreement, by and between Premier Office Centers, LLC and the Company, dated December 7, 2015
  6.3   Commercial Lease, by and between North Orange Industrial Park and the Company, dated March 15, 2015
  6.4   2012 Stock Option and Stock Incentive Plan, and forms of agreement thereunder
  6.5   2012 Preferred Stock Option Plan, and forms of agreement thereunder
  6.6   Employment Offer Letter, by and between James L. Reynolds and the Company, dated September 1, 2014
  6.7   Employment Offer Letter, by and between Edward R. Monfort and the Company, effective June 1, 2016
  6.8   Form of Indemnity Agreement
  6.9   Patent License – Use and Manufacturing Agreement, by and between Silicon Turbine Systems, Inc. and the Company, dated November 7, 2014
  6.10   Consulting Agreement, by and between Redwood Group International Limited and the Company, dated November 14, 2016
  6.11   Letter Agreement, by and between Monarch Bay Securities, LLC and the Company, dated July 29, 2016
  6.12   Consulting Services Agreement, by and between TriplePoint, LLC and the Company, dated February 17, 2016
  6.13   Dealer Agreement, by and between Lion Buses Inc. and the Company, dated November 1, 2016
  6.14   Advisor Agreement, by and between Dennis R. Di Ricco and the Company, dated September 1, 2016.
  8.1   Form of Escrow Deposit Agreement
10.1   Power of attorney - reference is made to the signature page of this offering statement
11.1   Consent of MaloneBailey, LLP
11.2*   Consent of DLA Piper LLP (US)
12.1*   Opinion of DLA Piper LLP (US)
13.1*   Testing the Waters materials

 

* To be filed by amendment.

 

II-1


Table of Contents

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 the City of Newport Beach, State of California, on December 21, 2016.

 

ADOMANI, INC.
By:  

*

  James L. Reynolds, President and Chief Executive Officer

This offering statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature    Title   Date

*

James L. Reynolds

   Chief Executive Officer and Director (Principal Executive Officer)  

December 21, 2016

/s/ Michael K. Menerey

Michael K. Menerey

  

Chief Financial Officer (Principal

Financial Officer and Principal

Accounting Officer)

 

December 21, 2016

*

Edward R. Monfort

   Director  

December 21, 2016

*

Robert E. Williams

   Director  

December 21, 2016

*

Kevin G. Kanning

   Director  

December 21, 2016

* By:  

/s/ Michael K. Menerey

 

Michael K. Menerey

Attorney-in-Fact

 

II-2

Exhibit 2.1

Articles of Incorporation

of

ADOMANI, INC.

A Florida Profit Corporation

In compliance with Chapter 607 and/or Chapter 621, Florida Statutes.

ARTICLE I - Name:

The name of the Corporation shall be ADOMANI, INC.

ARTICLE II - Principal Office:

The principal place of business / mailing address is:

36181 East Lake Road, #141

Palm Harbor, FL 34685

ARTICLE III - Purpose:

The purpose(s) for which the corporation is organized is Cryogenic Manufacturing And Processing and for any lawful purpose(s).

ARTICLE IV - Shares:

The number of shares of stock the corporation shall be authorized to issue is 100,000,000 at $0.002 par value per share.

ARTICLE V - Initial Officers and/or Directors:

The name(s) of the initial officer(s); and the name(s) and address(es) of the initial director(s) are:

Officers:

President: Edward Monfort

Vice President:

Treasurer: Edward Monfort

Secretary: Edward Monfort

Directors:

Edward Monfort - 36181 East Lake Road, #141, Palm Harbor, FL 34685

ARTICLE VI - Registered Agent

The name and the Florida street address of the registered agent are:

Edward Monfort

36181 East Lake Road, #141

Palm Harbor, FL 34685

ARTICLE VII - Incorporator:

The name and address information of the incorporator is:

Meghan Record

23586 Calabasas Rd. Suite I 02

Calabasas, CA 91302


Registered Agent Consent:

Having been named as registered agent and to accept service of process for the above stated corporation at the place designated in this certificate, I am familiar with and accept the appointment as registered agent and agree to act in this capacity.

 

/s/ EDWARD MONFORT

      Date:    7-30-12
Edward Monfort, Registered Agent         
Organizer Signature:         

/s/ MEGHAN RECORD

      Date:    8/3/12
Meghan Record, Incorporator         

[FILE STAMP]


FLORIDA DEPARTMENT OF STATE

Division of Corporations

August 7, 2012

CORPORATE ACCESS, INC.

ATTN: GLINDA

The Articles of Incorporation for ADOMANI, INC. were filed on August 6, 2012 and assigned document number P12000067976. Please refer to this number whenever corresponding with this office regarding the above corporation. The certification you requested is enclosed.

PLEASE NOTE: Compliance with the following procedures is essential to maintaining your corporate status. Failure to do so may result in dissolution of your corporation.

To maintain “active” status with the Division of Corporations, an annual report must be filed yearly between January 1st and May 1st beginning in the year following the file date or effective date indicated above. If the annual report is not filed by May 1st, a $400 late fee will be added. It is your responsibility to remember to file your annual report in a timely manner.

A Federal Employer Identification Number (FEI/EIN) will be required when this report is filed. Contact the IRS at 1-800-829-4933 for an SS-4 form or go to www.irs.gov.

Should your corporate mailing address change, you must notify this office in writing, to insure important mailings such as the annual report notices reach you.

Should you have any questions regarding corporations, please contact this office at (850) 245-6052.

 

Tim Burch, Regulatory Specialist II

New Filing Section

   Letter Number: 512A00020409

www.sunbiz.org

Division of Corporations - P.O. BOX 6327 - Tallahassee, Florida 32314

Exhibit 2.2

 

FLORIDA DEPARTMENT OF STATE

Division of Corporations

September 20, 2012

 

MY CORPORATION BUSINESS SERVICES, INC.

23586 CALABASAS RD STE 102

CALABASAS, CA 91302

Re: Document Number P12000067976

The Articles of Amendment to the Articles of Incorporation of ADOMANI, INC., a Florida corporation, were filed on September 19, 2012.

Should you have any questions regarding this matter, please telephone (850) 245-6050, the Amendment Filing Section.

 

Tracy L Lemieux

Regulatory Specialist II

Division of Corporations

   Letter Number: 012A00023642

www.sunbiz.org

Division of Corporations- P.O. BOX 6327 -Tallahassee, Florida 32314


Articles of Amendment

to

Articles of Incorporation

of

 

ADOMANI, INC.

(Name of Corporation as currently filed with the Florida Dept. of State)

P12000067976

(Document Number of Corporation (if known)

Pursuant to the provisions of section 607.1006. Florida Statutes, this Florida Profit Corporation adopts the following amendment(s) to its Articles of Incorporation:

 

A.        If amending name, enter the new name of the corporation:
                             The new name must be distinguishable and contain the word “‘corporation,” “company,” or “‘Incorporated” or the abbreviation “Corp.,” “Inc.,” or “Co.” or the designation “Corp,” “Inc,” or “Co”. A professional corporation name must contain the word “chartered,” “‘professional association,” or the abbreviation “P.A.”
B.    Enter new principal office address, if applicable:
   (Principal office address MUST BE A STREET ADDRESS)   

 

     

 

     

 

C.    Enter new mailing address, if applicable:
   (Mailing address MAY BE A POST OFFICE BOX)   

 

     

 

     

 

D.    If amending the registered agent and/or registered office address in Florida, enter the name of the new registered agent and/or the new registered office address:
        Name of New Registered Agent:   

 

  
   New Registered Office Address:   

 

  
      (Florida street address)   
     

                                                 , Florida                                

                (City)                                                 (Zip Code)

New Registered Agent’s Signature, if changing Registered Agent:

 

  

 

Signature of New Registered Agent, if changing

  
   [FILE STAMP]

 

Page 1 of 3


If amending the Officers and/or Directors. enter the title and name of each officer/director being removed and title, name, and address of each Officer and/or Director being added:

(Attach additional sheets, if necessary)

 

Title

  

Name

  

Address

  

Type of Action

 

  

 

  

 

   ¨ Add
     

 

   ¨ Remove
     

 

  

 

  

 

  

 

   ¨ Add
     

 

   ¨ Remove
     

 

  

 

  

 

  

 

   ¨ Add
     

 

   ¨ Remove
     

 

  

 

E. If amending or adding additional Articles, enter change(s) here:

(attach additional sheets. if necessary).                                                             (Be specific)

Article IV - Shares:

 

The number of shares of stock the corporation shall be authorized to issue is 200,000,000 at $0.002 par value per share.

 

 

 

 

 

 

 

 

 

 

F. If an amendment provides for an exchange, reclassification, or cancellation of issued shares, provisions for implementing the amendment if not contained in the amendment itself:

(if not applicable, indicate N/A)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 2 of 3


The date of each amendment(s) adoption:   

08/30/2012

(date of adoption is required)

 

Effective date if applicable:   

 

   (no more than 90 days after amendment file dote)
Adoption of Amendment(s)    (CHECK ONE)

 

x The amendment(s) was/were adopted by the shareholders. The number of votes cast for the amendment(s) by the shareholders was/were sufficient for approval.

 

¨ The amendment(s) was/were approved by the shareholders through voting groups. The following statement must be separately provided for each voting group entitled to vote separately on the amendment(s):

“The number of votes cast for the amendment(s) was/were sufficient for approval

by                                                                                                                           .”

                                                                                  (voting group)

 

x The amendment(s) was/were adopted by the board of directors without shareholder action and shareholder action was not required.

 

¨ The amendment(s) was/were adopted by the incorporators without shareholder action and shareholder action was not required.

 

                Dated   

Sept 12 2012

                Signature   

/s/ EDWARD MONFORT

(By a director, president or other officer - if directors or officers have not been selected, by an incorporator- if in the hands of a receiver, trustee, or other court appointed fiduciary by that fiduciary)

 

  

Edward Monfort

        (Typed or printed name of person signing)
  

President

   (Title of person signing)

 

Page 3 of 3

Exhibit 2.3

December 26, 2012

Department of State

Division of Corporations

Clifton Building

2661 Executive Center Circle

Tallahassee, FL 32301

 

Re: ARTICLES OF AMENDMENT: Adomani, Inc.

Ladies and Gentlemen:

Please find enclosed for filing duplicate executed originals of the Articles of Amendment for the above-referenced entity.

Also enclosed is a check in the amount of $35.00 as the appropriate filing fee.

Please return any filed copies or receipts to the undersigned.

Thank you very much for your assistance.

Sincerely,

Post-Formation Filings

My Corporation Business Services, Inc.

23586 Calabasas Road, Suite 102

Calabasas, California 91302

PLEASE DIRECT ALL QUESTIONS REGARDING THIS FILING REQUEST TO THE POST FORMATIONS DEPARTMENT AT 888-692-6771.


COVER LETTER

TO:    Amendment Section

          Division of Corporations

NAME OF CORPORATION: ADOMANI, INC.                                                                                                                                   

DOCUMENT NUMBER: P12000067976                                                                                                                                                

The enclosed Articles of Amendment and fee are submitted for filing.

Please return all correspondence concerning this matter to the following:

 

Post Formation Filings

Name of Contact Person

My Corporation Business Services, Inc.

Firm/Company

23586 Calabasas Rd., Suite 102

Address

Calabasas, CA 91302

City/State and Zip Code

processing@mycorporation.com

E-mail address: (to be used for future annual report notification)

For further information concerning this matter, please call:

 

Post Formation Filings

  at   

(877) 692-6772

Name of Contact Person      Area Code & Daytime Telephone Number

Enclosed is a check for the following amount made payable to the Florida Department of State:

 

x       $35 Filing Fee

 

¨       

  $43.75 Filing Fee & Certificate of Status  

¨       

  $43.75 Filing Fee & Certified Copy (Additional copy is enclosed)  

¨       

  $52.50 Filing Fee Certificate of Status Certified Copy (Additional Copy is enclosed)

 

Mailing Address

Amendment Section

Division of Corporations

P.O. Box 6327

Tallahassee, FL 32314

  

Street Address

Amendment Section

Division of Corporations

Clifton Building

2661 Executive Center Circle

Tallahassee, FL 32301

  


Articles of Amendment

to

Articles of Incorporation

of

ADOMANI, INC.

 

(Name of Corporation as currently filed with the Florida Dept. of State)

 

P12000067976

(Document Number of Corporation (if known)
Pursuant to the provisions of section 607.1006, Florida Statutes, this Florida Profit Corporation adopts the following amendment(s) to its Articles of Incorporation:

A.     If amending name, enter the new name of the corporation:

 

                                                              The new name must be distinguishable and contain the word “corporation,” “company,’’ or “incorporated” or the abbreviation “Corp.,” “Inc.,” or “Co.,” or the designation “Corp,” “Inc.” or “Co”. A professional corporation name must contain the word “chartered,” “professional association,” or the abbreviation “P.A.”

B.     Enter new principal office address, if applicable:

  

 

(Principal office address MUST BE A STREET ADDRESS)

  

 

  

 

C.     Enter new mailing address, if applicable:

  

 

(Mailing address MAY BE A POST OFFICE BOX)

  

 

D.     If amending the registered agent and/or registered office address in Florida, enter the name of the new registered agent and/or the new registered office address:

Name of New Registered Agent:             

  

 

New Registered Office Address:

  

 

   (Florida street address)
  

                             , Florida                       

(City)                                 (Zip Code)

New Registered Agent’s Signature, if changing Registered Agent:

I hereby accept the appointment as registered agent. I am familiar with and accept the obligations of the position.

 

 

 

Signature of New Registered Agent, if changing

 

Page 1 of 3


If amending the Officers and/or Directors, enter the title and name of each officer/director being removed and title, name, and address of each Officer and/or Director being added:
(Attach additional sheets, if necessary)      

Title

  

Name

  

Address

  

Type of Action

 

  

 

  

 

   ¨ Add
     

 

   ¨ Remove
     

 

  

 

  

 

  

 

   ¨ Add
     

 

   ¨ Remove
     

 

  

 

  

 

  

 

   ¨ Add
     

 

   ¨ Remove
     

 

  

E.     If amending or adding additional Articles, enter change(s) here:

(attach additional sheets, if necessary). (Be specific).

 

Article IV – Shares: The number of shares of stock the corporation shall be authorized to issue is 2,000,000,000 at $0.00001 par value per share of common stock and 100,000,000 at $0.00001 par value per share of preferred stock.

 

 

 

 

F.     If an amendment provides for an exchange, reclassification, or cancellation of issued shares, provisions for implementing the amendment if not contained in the amendment itself.

(If not applicable, indicate N/A)

 

 

 

 

 

 

Page 2 of 3


The date of each amendments adoption:   

12/21/2012

   (date of adoption is required)
Effective date if applicable:   

 

   (no more than 90 days after amendment file date)

Adoption of Amendment(s)                     (CHECK ONE)

 

¨ The amendment(s) was/were adopted by the shareholders. The number of votes cast for the amendment(s) by the shareholders was/were sufficient for approval.

 

¨ The amendment(s) was/were approved by the shareholders through voting groups. The following statement must be separately provided for each voting group entitled to vote separately on the amendments):

“The number of votes cast for the amendment(s) was/were sufficient for approval

by                                                                                                .

(voting group)

 

x The amendment(s) was/were adopted by the board of directors without shareholder action and shareholder action was not required.

 

¨ The amendment(s) was/were adopted by the incorporators without shareholder action and shareholder action was not required.

 

  Dated 12-27-12
 

Signature

  

                /s/ Edward Monfort

(By a director, president or other officer - if directors or officers have not been selected, by an incorporation - if in the hands of a receiver, trustee, or other court appointed fiduciary by that fiduciary)

  
    

Edward Monfort

(Typed or printed name of person signing)

  
    

CEO

(Title of person signing)

  

Page 3 of 3

Exhibit 2.4

BYLAWS OF

ADOMANI, INC.

A GENERAL FOR PROFIT CORPORATION


BYLAWS

of

ADOMANI, Inc.

A Florida Profit Corporation

ARTICLE I

SHAREHOLDERS

1. Annual Meeting

A meeting of the shareholders shall be held annually for the election of directors and the transaction of other business on such date in each year as may be determined by the Board of Directors, but in no event later than one hundred (100) days after the anniversary of the date of incorporation of the Corporation.

2. Special Meetings

Special meetings of the shareholders may be called by the Board of Directors, Chairman of the Board, Chief Executive Officer, or President and shall be called by the Board upon the written request of the holders of record of a majority of the outstanding shares of the Corporation entitled to vote at the meeting requested to be called. Such request shall state the purpose or purposes of the proposed meeting. At such special meetings the only business that may be transacted is that relating to the purpose or purposes set forth in the notice thereof.

3. Place of Meetings

Meetings of the shareholders shall be held at such place within or outside of the State of Florida as may be fixed by the Board of Directors. If no place is so fixed, such meetings shall be held at the principal office of the Corporation.

4. Notice of Meetings

Notice of each meeting of the shareholders shall be given in writing and shall state the place, date, and hour of the meeting and the purpose or purposes for which the

 

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meeting is called. Notice of a special meeting shall indicate that it is being issued by or at the direction of the person or persons calling or requesting the special meeting.

If, at any meeting, action is proposed to be taken which, if taken, would entitle objecting shareholders to receive payment for their shares, the notice shall include a statement of that purpose and to that effect.

A copy of the notice of each meeting shall be given, personally or by first class mail, not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice shall be deemed to have been given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at his/her/its address as it appears on the record of the shareholders, or, if he/she/it shall have filed with the Secretary of the Corporation a written request that notices to him/her/it be mailed to some other address, then directed to him/her/it at such other address.

When a meeting is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken. At the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. However, if after the adjournment the Board of Directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record on the new record date entitled to notice under this Section 4.

5. Waiver of Notice

Notice of a meeting need not be given to any shareholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him/her/it.

 

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6. Inspectors of Election

The Board of Directors, in advance of any shareholders’ meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at a shareholders’ meeting may, and on the request of any shareholder entitled to vote thereat shall, appoint two (2) inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment in advance of the meeting by the Board or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of such inspector at such meeting with strict impartiality and according to the best of his or her ability.

The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote at the meeting, count and tabulate all votes, ballots or consents, determine the result thereof, 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, or of any shareholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and shall execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated and of any vote certified by them.

7. List of Shareholders at Meetings

A list of the shareholders as of the record date, certified by the Secretary or any Assistant Secretary or by a transfer agent, shall be produced at any meeting of the shareholders upon the request thereat or prior thereto of any shareholder. If the right to vote at any meeting is challenged, the inspectors of election, or the person presiding thereat, shall require such list of the shareholders to be produced as evidence of the right of the persons challenged to vote at such meeting, and all persons

 

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who appear from such list to be shareholders entitled to vote thereat may vote at such meeting.

8. Qualification of Voters

Unless otherwise provided in the Certificate of Incorporation, every shareholder of record shall be entitled at every meeting of the shareholders to one (1) vote for every share standing in his/her/its name on the record of the shareholders.

Treasury shares as of the record date and shares held as of the record date by another domestic or foreign corporation of any kind, if a majority of the shares entitled to vote in the election of directors of such other corporation is held as of the record date by the Corporation, shall not be shares entitled to vote or to be counted in determining the total number of outstanding shares.

Shares held by an administrator, executor, guardian, conservator, committee or other fiduciary, other than a trustee, may be voted by such fiduciary, either in person or by proxy, without the transfer of such shares into the name of such fiduciary. Shares held by a trustee may be voted by him or her, either in person or by proxy, only after the shares have been transferred into his or her name as trustee or into the name of his or her nominee.

Shares standing in the name of another domestic or foreign corporation of any type or kind may be voted by such officer, agent or proxy as the bylaws of such corporation may provide, or, in the absence of such provision, as the board of directors of such corporation may determine.

No shareholder shall sell his/her/its vote, or issue a proxy to vote, to any person for any sum of money or anything of value except as permitted by law.

9. Quorum of Shareholders

The holders of a majority of the shares of the Corporation issued and outstanding and entitled to vote at any meeting of the shareholders shall constitute a quorum at such meeting for the transaction of any business, provided that when a specified item of business is required

 

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to be voted on by a class or series, voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum for the transaction of such specified item of business.

When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders.

The shareholders who are present in person or by proxy and who are entitled to vote may, by a majority of votes cast, adjourn the meeting despite the absence of a quorum.

10. Proxies

Every shareholder entitled to vote at a meeting of the shareholders, or to express consent or dissent without a meeting, may authorize another person or persons to act for him/her/it by proxy.

Every proxy must be signed by the shareholder or his/her/its attorney. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it, except as otherwise provided by law.

The authority of the holder of a proxy to act shall not be revoked by the incompetence or death of the shareholder who executed the proxy, unless before the authority is exercised written notice of an adjudication of such incompetence or of such death is received by the Secretary or any Assistant Secretary.

11. Vote or Consent of Shareholders

Directors, except as otherwise required by law, shall be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election.

Whenever any corporate action, other than the election of directors, is to be taken by vote of the shareholders, it shall, except as otherwise required by law, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon.

 

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Whenever shareholders are required or permitted to take any action by vote, such action may be taken without a meeting on written consent, setting forth the action so taken, signed by the holders of all outstanding shares entitled to vote thereon. Written consent thus given by the holders of all outstanding shares entitled to vote shall have the same effect as a unanimous vote of shareholders.

12. Fixing The Record Date

For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be less than ten (10) nor more than sixty (60) days before the date of such meeting, nor more than sixty (60) days prior to any other action.

When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made as provided in this Section 12, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting.

ARTICLE II

BOARD OF DIRECTORS

1. Power of Board and Qualification of Directors

The business of the Corporation shall be managed by the Board of Directors. Each director shall be at least eighteen (18) years of age.

2. Number of Directors

The number of directors constituting the entire Board of Directors shall be the number, not less than one (1) nor more than ten (10), fixed from time to time by a majority of the total number of directors which the Corporation

 

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would have, prior to any increase or decrease, if there were no vacancies, provided, however, that no decrease shall shorten the term of an incumbent director. Until otherwise fixed by the directors, the number of directors constituting the entire Board shall be one (1).

3. Election and Term of Directors

At each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting and until their successors have been elected and qualified or until their death, resignation or removal in the manner hereinafter provided.

4. Quorum of Directors and Action by the Board

A majority of the entire Board of Directors shall constitute a quorum for the transaction of business, and, except where otherwise provided herein, the vote of a majority of the directors present at a meeting at the time of such vote, if a quorum is then present, shall be the act of the Board.

Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consent thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee.

5. Meetings of the Board

An annual meeting of the Board of Directors shall be held in each year directly after the annual meeting of the shareholders. Regular meetings of the Board shall be held at such times as may be fixed by the Board. Special meetings of the Board may be held at any time upon the call of the Chief Executive Officer, President, or any two directors.

Meetings of the Board of Directors shall be held at such places as may be fixed by the Board for annual and regular meetings and in the notice of meeting for special meetings. If no place is so fixed, meetings of the Board shall be held at the principal office of the Corporation.

 

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Any one or more members of the Board of Directors may participate in meetings by means of a conference telephone or similar communications equipment.

No notice need be given of annual or regular meetings of the Board of Directors. Notice of each special meeting of the Board shall be given to each director either by mail not later than noon, Eastern Standard Time, on the third day prior to the meeting or by telegram, written message, email or orally not later than noon, Eastern Standard Time, on the day prior to the meeting. Notices are deemed to have been properly given if given: by mail, when deposited in the United States mail; by telegram at the time of filing; or by messenger at the time of delivery. Notices by mail, telegram or messenger shall be sent to each director at the address designated by him for that purpose, or, if none has been so designated, at his or her last known residence or business address.

Notice of a meeting of the Board of Directors need not be given to any director who submits a signed waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to any director.

A notice, or waiver of notice, need not specify the purpose of any meeting of the Board of Directors.

A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. Notice of any adjournment of a meeting to another time or place shall be given, in the manner described above, to the directors who were not present at the time of the adjournment and, unless such time and place are announced at the meeting, to the other directors.

6. Resignations

Any director of the Corporation may resign at any time by giving written notice to the Board of Directors or to the Chief Executive Officer, the President, or to the Secretary of the Corporation. Such resignation shall take effect at the time specified therein; and unless otherwise specified therein the acceptance of such resignation shall not be necessary to make it effective.

 

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7. Removal of Directors

Any one or more of the directors may be removed for cause by action of the Board of Directors. Any or all of the directors may be removed with or without cause by vote of the shareholders.

8. Newly Created Directorships and Vacancies

Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board of Directors for any reason except the removal of directors by shareholders may be filled by vote of a majority of the directors then in office, although less than a quorum exists. Vacancies occurring as a result of the removal of directors by shareholders shall be filled by the shareholders. A director elected to fill a vacancy shall be elected to hold office for the unexpired term of his or her predecessor.

9. Executive and Other Committees of Directors

The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members an executive committee and other committees each consisting of two (2) or more directors and each of which, to the extent provided in the resolution, shall have all the authority of the Board, except that no such committee shall have authority as to the following matters: (a) the submission to shareholders of any action that needs shareholders’ approval; (b) the filling of vacancies in the Board or in any committee; (c) the fixing of compensation of the directors for serving on the Board or on any committee; (d) the amendment or repeal of the bylaws, or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the Board which, by its term, shall not be so amendable or repealable; or (f) the removal or indemnification of directors.

The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member or members at any meeting of such committee.

Unless a greater proportion is required by the resolution designating a committee, a majority of the entire authorized number of members of such committee shall

 

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constitute a quorum for the transaction of business, and the vote of a majority of the members present at a meeting at the time of such vote, if a quorum is then present, shall be the act of such committee.

Each such committee shall serve at the pleasure of the Board of Directors.

10. Compensation of Directors

The Board of Directors shall have authority to fix the compensation of directors for services in any capacity.

11. Interest of Directors in a Transaction

Unless shown to be unfair and unreasonable as to the Corporation, no contract or other transaction between the Corporation and one or more of its directors, or between the Corporation and any other corporation, firm, association or other entity in which one or more of the directors are directors or officers, or are financially interested, shall be either void or voidable, irrespective of whether such interested director or directors are present at a meeting of the Board of Directors, or of a committee thereof, which authorizes such contract or transaction and irrespective of whether his or her votes are counted for such purpose. In the absence of fraud any such contract and transaction conclusively may be authorized or approved as fair and reasonable by: (a) the Board of Directors or a duly empowered committee thereof, by a vote sufficient for such purpose without counting the vote or votes of such interested director or directors (although such interested director or directors may be counted in determining the presence of a quorum at the meeting which authorizes such contract or transaction), if the fact of such common directorship, officership or financial interest is disclosed or known to the Board or committee, as the case may be; or (b) the shareholders entitled to vote for the election of directors, if such common directorship, officership or financial interest is disclosed or known to such shareholders.

Notwithstanding the foregoing, no loan, except advances in connection with indemnification, shall be made by the Corporation to any director unless it is authorized by vote of the directors without counting any shares of the director who would be the borrower or unless the director

 

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who would be the borrower is the sole shareholder of the Corporation.

ARTICLE III

OFFICERS

1. Election of Officers

The Board of Directors, as soon as may be practicable after the annual election of directors, shall elect a Chief Executive Officer, a President, a Secretary, and a Treasurer, and from time to time may elect or appoint such other officers as it may determine. Any two (2) or more offices may be held by the same person. The Board of Directors may also elect one (1) or more Vice Presidents, Assistant Secretaries, and Assistant Treasurers.

2. Other Officers

The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board.

3. Compensation

The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors.

4. Term of Office and Removal

Each officer shall hold office for the term for which he or she is elected or appointed, and until his or her successor has been elected or appointed and qualified. Unless otherwise provided in the resolution of the Board of Directors electing or appointing an officer, his or her term of office shall extend to and expire at the meeting of the Board following the next annual meeting of shareholders. An officer may be removed by the Board only with cause. Removal of an officer without cause shall be without prejudice to his contract rights, if any, and the election or appointment of an officer shall not of itself create contract rights.

 

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5. Chief Executive Office and President

The President shall be the Chief Executive Officer of the Corporation if no Chief Executive Officer is appointed, 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. The President shall also preside at all meetings of the shareholders and the Board of Directors.

The Chief Executive Officer shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.

6. Vice Presidents

The Vice Presidents, in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election, during the absence or disability of or refusal to act by the Chief Executive Officer and President, shall perform the duties and exercise the powers of the Chief Executive Officer and the President and shall perform such other duties as the Board of Directors shall prescribe.

7. Secretary and Assistant Secretaries

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 Corporation 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. The Secretary 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, the Chief Executive Officer, or President, under whose supervision the Secretary shall be. The Secretary shall have custody of the corporate seal of the Corporation and the Secretary, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the Secretary’s signature or by the

 

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signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature.

The Assistant Secretary, or if there be more than one (1), the Assistant Secretaries in the order designated by the Board of Directors, or in the absence of such designation then in the order of their election, in the absence of the Secretary or in the event of the Secretary’s inability or refusal to act, shall perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

8. Treasurer and Assistant Treasurers

The Treasurer (also known as the Chief Financial Officer) shall have the custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; and shall deposit all money 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.

The Treasurer shall disburse the funds as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer, 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.

If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of Treasurer, and for the restoration to the Corporation, in the case of the Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the possession or under the control of the Treasurer belonging to the Corporation.

 

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The Assistant Treasurer, or if there shall be more than one (1), the Assistant Treasurers in the order designated by the Board of Directors, or in the absence of such designation, then in the order of their election, in the absence of the Treasurer or in the event of the Treasurer’s inability or refusal to act, shall perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

9. Books and Records

The Corporation shall keep: (a) correct and complete books and records of account; (b) minutes of the proceedings of the shareholders, Board of Directors and any committees of directors; and (c) a current list of the directors and officers and their residence addresses. The Corporation shall also keep at its office in the State of Florida or at the office of its transfer agent or registrar in the State of Florida, if any, a record containing the names and addresses of all shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof.

The Board of Directors may determine whether and to what extent and at what times and places and under what conditions and regulations any accounts, books, records or other documents of the Corporation shall be open to inspection, and no creditor, security holder or other person shall have any right to inspect any accounts, books, records or other documents of the Corporation except as conferred by statute or as so authorized by the Board.

10. Checks, Notes, etc.

All checks and drafts on, and withdrawals from the Corporation’s accounts with banks or other financial institutions, and all bills of exchange, notes and other instruments for the payment of money, drawn, made, endorsed, or accepted by the Corporation, shall be signed on its behalf by the person or persons thereunto authorized by, or pursuant to resolution of, the Board of Directors.

 

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ARTICLE IV

CERTIFICATES AND TRANSFERS OF SHARES

1. Forms of Share Certificates

The shares of the Corporation shall be represented by certificates, in such forms as the Board of Directors may prescribe, signed by the Chief Executive Officer or the President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. The shares may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation or its employee. In case any officer who has signed or whose facsimile signature has been placed upon a 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 issue.

Each certificate representing shares issued by the Corporation shall set forth upon the face or back of the certificate, or shall state that the Corporation will furnish to any shareholder upon request and without charge, a full statement of the designation, relative rights, preferences and limitations of the shares of each class of shares, if more than one (1), authorized to be issued and the designation, relative rights, preferences and limitations of each series of any class of preferred shares authorized to be issued so far as the same have been fixed, and the authority of the Board of Directors to designate and fix the relative rights, preferences and limitations of other series.

Each certificate representing shares shall state upon the face thereof: (a) that the Corporation is formed under the laws of the State of Florida; (b) the name of the person, persons or entity to whom issued; and (c) the number and class of shares, and the designation of the series, if any, which such certificate represents.

2. Transfers of Shares

Shares of the Corporation shall be transferable on the record of shareholders upon presentment to the Corporation

 

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of a transfer agent of a certificate or certificates representing the shares requested to be transferred, with proper endorsement on the certificate or on a separate accompanying document, together with such evidence of the payment of transfer taxes and compliance with other provisions of law as the Corporation or its transfer agent may require.

3. Lost, Stolen or Destroyed Share Certificates

No certificate for shares of the Corporation shall be issued in place of any certificate alleged to have been lost, destroyed or wrongfully taken, except, if and to the extent required by the Board of Directors upon: (a) production of evidence of loss, destruction or wrongful taking; (b) delivery of a bond indemnifying the Corporation and its agents against any claim that may be made against it or them on account of the alleged loss, destruction or wrongful taking of the replaced certificate or the issuance of the new certificate; (c) payment of the expenses of the Corporation and its agents incurred in connection with the issuance of the new certificate; and (d) compliance with other such reasonable requirements as may be imposed.

ARTICLE V

OTHER MATTERS

1. Corporate Seal

The Board of Directors shall adopt a corporate seal, alter such seal at pleasure, and authorize it to be used by causing it or a facsimile to be affixed or impressed or reproduced in any other manner.

2. Fiscal Year

The fiscal year of the Corporation shall be the twelve months ending December 31st, or such other period as may be fixed by the Board of Directors.

3. Amendments

Bylaws of the Corporation may be adopted, amended or repealed by vote of the holders of the shares at the time entitled to vote in the election of any directors. Bylaws may also be adopted, amended or repealed by the Board of

 

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Directors, but any Bylaws adopted by the Board may be amended or repealed by the shareholders entitled to vote thereon as herein above provided.

If any Bylaw regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of shareholders for the election of directors the Bylaw so adopted, amended or repealed, together with a concise statement of the changes made.

4. Indemnification of Directors, Officers and Others

For purposes of this Section 4, the terms “director or officer” shall include a person who, while serving as a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, other enterprise, or employee benefit plan. A director or officer shall be considered to be serving an employee benefit plan at the request of the Corporation if his or her duties to the Corporation also impose duties on or otherwise involve services by him or her to the plan or to participants in or beneficiaries of the plan. The term “director or officer” shall also include the estate or personal representative of a director or officer, unless the context otherwise requires.

The term “proceeding” shall mean any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, whether formal or informal, any appeal in such an action, suit, or proceeding, and any inquiry or investigation that could lead to such an action, suit, or proceeding.

The term “party” includes an individual who is, was, or is threatened to be made a named defendant or respondent in a proceeding.

The term “liability” shall mean any obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expense incurred with respect to a proceeding.

When used with respect to a director, the phrase “official capacity” shall mean the office of director in

 

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the Corporation, and, when used with respect to a person other than a director, shall mean the office in the Corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the Corporation, but in neither case shall include service for any foreign or domestic corporation or for any partnership, joint venture, trust, employee benefit plan, or other enterprise.

The Corporation shall indemnify any person who is or was a party or is threatened to be made a party to any proceeding by reason of the fact that such person is or was a director or officer of the Corporation, against expenses (including attorneys’ fees), liability, judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection with such proceeding if such person [a] conducted himself in good faith, [b] reasonably believed, in the case of conduct in his or her official capacity with the Corporation, that his or her conduct was in the best interests of the Corporation, and, in all other cases, that his or her conduct was at least not opposed to the best interests of the Corporation, and [c] with respect to any criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful. However, no person shall be entitled to indemnification under this Section 4 either [a] in connection with a proceeding brought by or in the right of the Corporation in which the director or officer was adjudged liable to the Corporation or [b] in connection with any other proceeding charging improper personal benefit to the director or officer, whether or not involving action in his or her official capacity, in which he or she is ultimately adjudged liable on the basis that he or she improperly received personal benefit.

Indemnification under this Section 4 in connection with a proceeding brought by or in the right of the Corporation shall be limited to reasonable expenses incurred in connection with the proceeding. The termination of any action, suit, or proceeding by judgment, order, settlement, or conviction or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that the person did not act in good faith or otherwise failed to meet the standard of conduct set forth in this Section 4.

To the extent that a director or officer of the

 

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Corporation has been wholly successful on the merits in defense of any proceeding to which he or she was a party, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with such proceeding.

Any indemnification under this Section 4 of this Article V (unless ordered by a court) shall be made by the Corporation only as authorized in each specific case upon a determination that indemnification of the director or officer is permissible under the circumstances because such person met the applicable standard of conduct set forth in such Section 4. Such determination shall be made [a] by the Board of Directors by a majority vote of a quorum of disinterested directors who at the time of the vote are not, were not, and are not threatened to be made parties to the proceeding, or [b] if such a quorum cannot be obtained, by the vote of a majority of the members of a committee of the Board of Directors designated the board, which committee shall consist of two or more directors who are not parties to the proceeding (directors who are parties to the proceeding may participate in the designation of directors to serve on such committee), or [c] if such a quorum of the Board of Directors cannot be obtained or such a committee cannot be established, or even if such a quorum is obtained or such a committee is so designated, but such quorum or committee so directs, then by independent legal counsel selected by the Board of Directors in accordance with the preceding procedures, or [d] by the members. Authorization of indemnification and evaluation as to the reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that, if the determination that indemnification is permissible is made by independent legal counsel, authorization of indemnification and evaluation of legal expenses shall be made by the body that selected such counsel.

The Corporation shall pay for or reimburse the reasonable expenses (including attorneys’ fees) incurred by a director or officer who is a party to proceeding in advance of the final disposition of the proceeding if [a] the director or officer furnishes the Corporation a written affirmation of his or her good faith belief that he or she conducted himself in good faith, [b] the director or officer furnishes the Corporation with a written undertaking, executed personally or on his or her behalf,

 

ADOMANI BYLAWS

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to repay the advance if it is determined that he or she did not conduct himself in good faith, which undertaking shall be an unlimited general obligation of the director or officer but which need not be secured and which may be accepted without reference to financial ability to make repayment, and [c] a determination is made by the body authorizing indemnification that the facts then known to such body would not preclude indemnification.

In the event that the Corporation indemnifies, or advances the expenses of, a director or officer in accordance with this Section 4 in connection with a proceeding by or on behalf of the Corporation, a report of that fact shall be made in writing to the members with or before the delivery of the notice of the next meeting of the members.

The Corporation shall indemnify or advance the expenses of such other employees, consultants, and agents of the Corporation to the same extent and in the same manner as is provided above in Section 4 with respect to directors and officers, by adopting a resolution by a majority of the members of the Board of Directors specifically identifying by name or by position the employees, consultants or agents entitled to indemnification or the advancement of expenses.

The Board of Directors may exercise the Corporation’s power to purchase and maintain insurance (including without limitation insurance for legal expenses and costs incurred in connection with defending any claim, proceeding, or lawsuit) on behalf of any person who is or was a director or officer of the Corporation against any liability asserted against him or her or 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 this Section 4.

The indemnification provided by this Section 4 shall not be deemed exclusive of any other rights and procedures to which one indemnified may be entitled under the Articles of Incorporation, any bylaw, agreement, resolution of disinterested directors, or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer, and

 

ADOMANI BYLAWS

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shall inure to the benefit of such person’s heirs, executors, and administrators.

Adopted on: August 7, 2012

 

By:  

/s/ Edward Riggs Monfort

  EDWARD RIGGS MONFORT

 

ADOMANI BYLAWS

Page 21 of 21

Exhibit 2.5

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

ADOMANI, INC.

(Pursuant to Sections 242 and 245 of the

General Corporation Law of the State of Delaware)

ADOMANI, 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 ADOMANI, Inc.

SECOND: That this corporation was originally incorporated pursuant to the General Corporation Law on November 29, 2016.

THIRD: That the Certificate of Incorporation of this corporation be amended and restated in its entirety as follows:

ARTICLE I

The name of this corporation is ADOMANI, Inc. (the “Corporation”).

ARTICLE II

The address of the registered office of the Corporation in the State of Delaware is 3500 South DuPont Highway, in the City of Dover, County of Kent, 19901. The name of the registered agent at such address is Incorporating Services, Ltd.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law

ARTICLE IV

The Corporation is authorized to issue two classes of stock to be designated, respectively, “Common Stock,” and “Preferred Stock.” The total number of shares which the Corporation is authorized to issue 2,100,000,000 shares, each with a par value of $0.00001 per share. 2,000,000,000 shares shall be Common Stock and 100,000,000 shares shall be Preferred Stock. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of this Certificate of Incorporation (this “Certificate”)) the affirmative vote of the holders of shares of stock of the Corporation representing a majority of the votes represented by all outstanding shares of stock of


the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law

ARTICLE V

The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. Election of directors need not be by written ballot, unless the Bylaws of the Corporation so provide. Except as otherwise provided in this Certificate, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.

ARTICLE VI

The Board of Directors is authorized to make, adopt, amend, alter or repeal the Bylaws of the Corporation. The stockholders shall also have power to make, adopt, amend, alter or repeal the Bylaws of the Corporation.

ARTICLE VII

7.1 Limitation on Directors’ Liability. To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended, 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. Any repeal or modification of the foregoing provisions of this Article VII by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions occurring prior to, such repeal or modification.

7.2 Indemnification of Corporate Agents. To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which Delaware General Corporation Law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law.

7.3 Repeal or Modification. Any repeal or modification of the foregoing provisions of this ARTICLE VII, or the adoption of any provision of the Certificate of Incorporation inconsistent with this ARTICLE VII, shall not adversely affect any right or protection of a director, officer, agent or other person existing at the time of, or increase the liability of any director, officer, agent or other person with respect to any acts or omissions of such director, officer, agent or other person occurring prior to, such repeal or modification.

*        *        *

 

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FOURTH: This Amended and Restated Certificate of Incorporation has been duly adopted by the Board of Directors and stockholders of the Corporation in accordance with the applicable provisions of Sections 228, 242 and 245 of the General Corporation Law.

 

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IN WITNESS WHEREOF, the undersigned has executed this Amended and Restated Certificate of Incorporation on December 2, 2016.

 

/s/ James L. Reynolds

James L. Reynolds, Chief Executive Officer

 

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Exhibit 2.6

BYLAWS OF

ADOMANI, INC.

ARTICLE I

STOCKHOLDERS

1.1 Place of Meetings. All meetings of stockholders shall be held at such place within or without the State of Delaware as may be designated from time to time by the Board of Directors, the President or Chief Executive Officer.

1.2 Annual Meeting. The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly be brought before the meeting shall be held on a date to be fixed by the Board of Directors at the time and place to be fixed by the Board of Directors and stated in the notice of the meeting.

1.3 Special Meetings. Special meetings of stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President or the holders of record of not less than 10% of all shares entitled to cast votes at the meeting, for any purpose or purposes prescribed in the notice of the meeting and shall be held at such place, on such date and at such time as the Board may fix. Business transacted at any special meeting of stockholders shall be confined to the purpose or purposes stated in the notice of meeting.

1.4 Notice of Meetings.

(a) Written notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or as required by law (meaning here and hereafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation). The notice of any meeting shall state the place, if any, date and hour of the meeting, and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting. The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation.

(b) Notice to stockholders may be given by personal delivery, mail, or, with the consent of the stockholder entitled to receive notice, by facsimile or other means of electronic transmission. If mailed, such notice shall be delivered by postage prepaid envelope directed to each stockholder at such stockholder’s address as it appears in the records of the corporation and shall be deemed given when deposited in the United States mail. Notice given by electronic transmission pursuant to this subsection shall be deemed given: (1) if by facsimile telecommunication, when directed to a facsimile telecommunication number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by posting on an electronic network together with separate notice to the stockholder of such specific

 

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posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder. An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by personal delivery, by mail, or by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

(c) Notice of any meeting of stockholders need not be given to any stockholder if waived by such stockholder either in a writing signed by such stockholder or by electronic transmission, whether such waiver is given before or after such meeting is held. If such a waiver is given by electronic transmission, the electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder.

1.5 Voting List. The officer who has charge of the stock ledger of the corporation shall prepare, at least 10 days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, in the manner provided by law. The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting, and may be inspected by any stockholder who is present. This list shall determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.

1.6 Quorum. Except as otherwise provided by law or these Bylaws, the holders of a majority of the shares of the capital stock of the corporation entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business. Where a separate class vote by a class or classes or series is required, a majority of the shares of such class or classes or series present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.

1.7 Adjournments. Any meeting of stockholders may be adjourned to any other time and to any other place at which a meeting of stockholders may be held under these Bylaws by the Chairman of the meeting or, in the absence of such person, by any officer entitled to preside at or to act as Secretary of such meeting, or by the holders of a majority of the shares of stock present or represented at the meeting and entitled to vote, although less than a quorum. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the date, time and place, if any, thereof, and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than 30 days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting in accordance with Section 4.5, written notice of the place, if any, date and time of the adjourned meeting and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, shall be given in conformity herewith. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting.

 

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1.8 Voting and Proxies. Each stockholder shall have one vote for each share of stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided by law or in the Certificate of Incorporation. Each stockholder of record entitled to vote at a meeting of stockholders may vote in person or may authorize any other person or persons to vote or act for him by written proxy executed by the stockholder or his authorized agent or by a transmission permitted by law and delivered to the Secretary of the corporation. No stockholder may authorize more than one proxy for his shares. Any copy, facsimile transmission or other reliable reproduction of the writing or transmission created pursuant to this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile transmission or other reproduction shall be a complete reproduction of the entire original writing or transmission.

1.9 Action at Meeting.

(a) At any meeting of stockholders for the election of one or more directors at which a quorum is present, the election shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election.

(b) All other matters shall be determined by a majority in voting power of the shares present in person or represented by proxy and entitled to vote on the matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, a majority of the shares of each such class present in person or represented by proxy and entitled to vote on the matter shall decide such matter), provided that a quorum is present, except when a different vote is required by express provision of law, the Certificate of Incorporation or these Bylaws.

(c) All voting, including on the election of directors, but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his proxy, a vote by ballot shall be taken. Each ballot shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. The corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as an alternate inspector to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of his ability.

1.10 Conduct of Business. At every meeting of the stockholders, the Chairman of the Board, or, in his absence, the Chief Executive Officer, or, in his absence, such other person as may be appointed by the Board of Directors, shall act as chairman. The Secretary of the corporation or a person designated by the chairman of the meeting shall act as secretary of the meeting. Unless otherwise approved by the chairman of the meeting, attendance at the stockholders’ meeting is restricted to stockholders of record, persons authorized in accordance with Section 1.8 of these Bylaws to act by proxy, and officers of the corporation.

 

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The chairman of the meeting shall call the meeting to order, establish the agenda, and conduct the business of the meeting in accordance therewith or, at the chairman’s discretion, it may be conducted otherwise in accordance with the wishes of the stockholders in attendance. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.

1.11 Stockholder Action Without Meeting. Any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the actions so taken, is signed by the holders of outstanding shares 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. All such consents shall be filed with the Secretary of the corporation and shall be maintained in the corporate records. Prompt notice of the taking of a corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

An electronic transmission consenting to an action to be taken and transmitted by a stockholder, or by a proxy holder or other person authorized to act for a stockholder, shall be deemed to be written, signed and dated for the purpose of this Section 1.11, provided that such electronic transmission sets forth or is delivered with information from which the corporation can determine (a) that the electronic transmission was transmitted by the stockholder or by a person authorized to act for the stockholder and (b) the date on which such stockholder or authorized person transmitted such electronic transmission. The date on which such electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its principal place of business or an officer or agent of the corporation having custody of the books in which proceedings of meetings of stockholders are recorded.

1.12 Meetings by Remote Communication. If authorized by the Board of Directors, and subject to such guidelines and procedures as the Board may adopt, stockholders and proxy holders not physically present at a meeting of stockholders may, by means of remote communication, participate in the meeting and be deemed present in person and vote at the meeting, whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (a) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxy holder, (b) the corporation shall implement reasonable measures to provide such stockholders and proxy holders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (c) if any stockholder or proxy holder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.

 

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ARTICLE II

BOARD OF DIRECTORS

2.1 General Powers. The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors, who may exercise all of the powers of the corporation except as otherwise provided by law or the Certificate of Incorporation. In the event of a vacancy on the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled.

2.2 Number and Term of Office. Subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, the number of directors shall initially be five (5) and, thereafter, shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). All directors shall hold office until the next annual meeting of stockholders and until their respective successors are elected, except in the case of the death, resignation or removal of any director.

2.3 Vacancies and Newly Created Directorships. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification or other cause (other than removal from office by a vote of the stockholders) may be filled only by a majority vote of the directors then in office, though less than a quorum, or by the sole remaining director, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

2.4 Resignation. Any director may resign by delivering notice in writing or by electronic transmission to the Chief Executive Officer President, Chairman of the Board or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

2.5 Removal. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, with or without cause, by the affirmative vote of the holders of a majority of the voting power of all of the outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class. Vacancies in the Board of Directors resulting from such removal may be filled by a majority of the directors then in office, though less than a quorum, by the sole remaining director, or by the stockholders at the next annual meeting or at a special meeting called in accordance with Section 1.3 above. Directors so chosen shall hold office until the next annual meeting of stockholders.

2.6 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place, either within or without the State of Delaware, as shall be determined from time to time by the Board of Directors; provided that any director who is absent

 

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when such a determination is made shall be given notice of the determination. A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders.

2.7 Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer, the President or two or more directors and may be held at any time and place, within or without the State of Delaware.

2.8 Notice of Special Meetings. Notice of any special meeting of directors shall be given to each director by the Secretary or by the officer or one of the directors calling the meeting. Notice shall be duly given to each director by whom it is not waived by (a) giving notice to such director in person or by telephone, electronic transmission or voice message system at least 24 hours in advance of the meeting, (b) sending a facsimile to his last known facsimile number, or delivering written notice by hand to his last known business or home address, at least 24 hours in advance of the meeting, or (c) mailing written notice to his last known business or home address at least three days in advance of the meeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.

2.9 Participation in Meetings by Telephone Conference Calls or Other Methods of Communication. Directors or any members of any committee designated by the directors may participate in a meeting of the Board of Directors or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting.

2.10 Quorum. A majority of the total number of authorized directors shall constitute a quorum at any meeting of the Board of Directors. In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or at a meeting of a committee which authorizes a particular contract or transaction.

2.11 Action at Meeting. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law, the Certificate of Incorporation or these Bylaws.

2.12 Action by Written Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting if all members of the Board or committee, as the case may be, consent to the action in writing or by electronic transmission, and the writings or electronic transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

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2.13 Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation, with such lawfully delegated powers and duties as it therefor confers, to serve at the pleasure of the Board. 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. In the absence or disqualification of a member of a committee, the member or members of the committee present at any meeting and not disqualified from voting, whether or not he or they 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 and subject to the provisions of the Delaware General Corporation Law, 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. Each such committee shall keep minutes and make such reports as the Board of Directors may from time to time request. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these Bylaws for the Board of Directors.

2.14 Compensation of Directors. Directors may be paid such compensation for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any director from serving the corporation or any of its parent or subsidiary corporations in any other capacity and receiving compensation for such service.

2.15 Nomination of Director Candidates. Subject to the rights of holders of any class or series of Preferred Stock then outstanding, nominations for the election of Directors may be made by (a) the Board of Directors or a duly authorized committee thereof or (b) any stockholder entitled to vote in the election of Directors.

ARTICLE III

OFFICERS

3.1 Enumeration. The officers of the corporation shall consist of a Chief Executive Officer, a President, a Secretary, a Treasurer, a Chief Financial Officer and such other officers with such other titles as the Board of Directors shall determine, including, at the discretion of the Board of Directors, a Chairman of the Board and one or more Vice Presidents and Assistant Secretaries. The Board of Directors may appoint such other officers as it may deem appropriate.

3.2 Election. Officers shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders. Officers may be appointed by the Board of Directors at any other meeting.

3.3 Qualification. No officer need be a stockholder. Any two or more offices may be held by the same person.

 

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3.4 Tenure. Except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, each officer shall hold office until his successor is elected and qualified, unless a different term is specified in the vote appointing the officer, or until his earlier death, resignation or removal.

3.5 Resignation and Removal. Any officer may resign by delivering his written resignation to the corporation at its principal office or to the President or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Any officer elected by the Board of Directors may be removed at any time, with or without cause, by the Board of Directors.

3.6 Chairman of the Board. The Board of Directors may appoint a Chairman of the Board. If the Board of Directors appoints a Chairman of the Board, he shall perform such duties and possess such powers as are assigned to the Chairman by the Board of Directors. Unless otherwise provided by the Board of Directors, he shall preside at all meetings of the Board of Directors.

3.7 Chief Executive Officer. The Chief Executive Officer of the corporation shall, subject to the direction of the Board of Directors, have general supervision, direction and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board, at all meetings of the Board of Directors. He shall have the general powers and duties of management usually vested in the chief executive officer of a corporation, including general supervision, direction and control of the business and supervision of other officers of the corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

3.8 President. Subject to the direction of the Board of Directors and such supervisory powers as may be given by these Bylaws or the Board of Directors to the Chairman of the Board or the Chief Executive Officer, if such titles be held by other officers, the President shall have general supervision, direction and control of the business and supervision of other officers of the corporation. Unless otherwise designated by the Board of Directors, the President shall be the Chief Executive Officer of the corporation. The President shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. He shall have power to sign stock certificates, contracts and other instruments of the corporation which are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the corporation, other than the Chairman of the Board and the Chief Executive Officer.

3.9 Vice Presidents. Any Vice President shall perform such duties and possess such powers as the Board of Directors, the Chief Executive Officer or the President may from time to time prescribe. In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the President and when so performing shall have all the powers of and be subject to all the restrictions upon the President. The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors.

 

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3.10 Secretary and Assistant Secretaries. The Secretary shall perform such duties and shall have such powers as the Board of Directors or the President may from time to time prescribe. In addition, the Secretary shall perform such duties and have such powers as are set forth in these Bylaws and as are incident to the office of the Secretary, including, without limitation, the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to keep a record of the proceedings of all meetings of stockholders and the Board of Directors, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents.

Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the Chief Executive Officer, the President or the Secretary may from time to time prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary.

In the absence of the Secretary or any Assistant Secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary secretary to keep a record of the meeting.

3.11 Treasurer. The Treasurer shall perform such duties and have such powers as are incident to the office of treasurer, including without limitation, the duty and power to keep and be responsible for all funds and securities of the corporation, to maintain the financial records of the corporation, to deposit funds of the corporation in depositories as authorized, to disburse such funds as authorized, to make proper accounts of such funds, and to render as required by the Board of Directors accounts of all such transactions and of the financial condition of the corporation.

3.12 Chief Financial Officer. The Chief Financial Officer shall perform such duties and shall have such powers as may from time to time be assigned to the Chief Financial Officer by the Board of Directors, the Chief Executive Officer or the President. Unless otherwise designated by the Board of Directors, the Chief Financial Officer shall be the Treasurer of the corporation.

3.13 Salaries. Officers of the corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors.

3.14 Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.

 

9


ARTICLE IV

CAPITAL STOCK

4.1 Issuance of Stock. Subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the corporation or the whole or any part of any unissued balance of the authorized capital stock of the corporation held in its treasury may be issued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such consideration and on such terms as the Board of Directors may determine.

4.2 Certificates of Stock. Every holder of stock of the corporation shall be entitled to have a certificate, in such form as may be prescribed by law and by the Board of Directors, certifying the number and class of shares of stock owned by such stockholder in the corporation. Each such certificate shall be signed by, or in the name of the corporation by, the Chairman or Vice Chairman, if any, of the Board of Directors, or the President or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation. Any or all of the signatures on the certificate may be a facsimile.

Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, the Bylaws, applicable securities laws or any agreement among any number of shareholders or among such holders and the corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction.

4.3 Transfers. Except as otherwise established by rules and regulations adopted by the Board of Directors, and subject to applicable law, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or authenticity of signature as the corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, the Certificate of Incorporation or the Bylaws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these Bylaws.

4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a new certificate of stock in place of any previously issued certificate alleged to have been lost, stolen, or destroyed, upon such terms and conditions as the Board of Directors may prescribe, including the presentation of reasonable evidence of such loss, theft or destruction and the giving of such indemnity as the Board of Directors may require for the protection of the corporation or any transfer agent or registrar.

4.5 Record Date. The Board of Directors may fix in advance a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders or to express consent to corporate action in writing without a meeting, or entitled to receive

 

10


payment of any dividend or other distribution or allotment of any rights in respect of any change, concession or exchange of stock, or for the purpose of any other lawful action. Such record date shall not precede the date on which the resolution fixing the record date is adopted and shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action to which such record date relates.

If no record date is fixed by the Board of Directors, the record date for determining the stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the day before the day on which notice is given, or, if notice is waived, the close of business on the day before the day on which the meeting is held. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

ARTICLE V

GENERAL PROVISIONS

5.1 Fiscal Year. The fiscal year of the corporation shall be as fixed by the Board of Directors.

5.2 Corporate Seal. The corporate seal shall be in such form as shall be approved by the Board of Directors.

5.3 Waiver of Notice. Whenever any notice whatsoever is required to be given by law, by the Certificate of Incorporation or by these Bylaws, a waiver of such notice either in writing signed by the person entitled to such notice or such person’s duly authorized attorney, or by electronic transmission or any other method permitted under the Delaware General Corporation Law, whether before, at or after the time stated in such waiver, or the appearance of such person or persons at such meeting in person or by proxy, shall be deemed equivalent to such notice. Neither the business nor the purpose of any meeting need be specified in such a waiver. Attendance at any meeting shall constitute waiver of notice except attendance for the sole purpose of objecting to the timeliness or manner of notice.

5.4 Actions with Respect to Securities of Other Corporations. Except as the Board of Directors may otherwise designate, the Chief Executive Officer or President or any officer of the corporation authorized by the Chief Executive Officer or President shall have the power to vote and otherwise act on behalf of the corporation, in person or by proxy, and may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact to this corporation (with or without power of substitution) at any meeting of stockholders or shareholders (or with respect to any action of stockholders) of any other corporation or

 

11


organization, the securities of which may be held by this corporation and otherwise to exercise any and all rights and powers that this corporation may possess by reason of this corporation’s ownership of securities in such other corporation or other organization.

5.5 Evidence of Authority. A certificate by the Secretary, or an Assistant Secretary, or a temporary Secretary, as to any action taken by the stockholders, directors, a committee or any officer or representative of the corporation shall as to all persons who rely on the certificate in good faith be conclusive evidence of such action.

5.6 Certificate of Incorporation. All references in these Bylaws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the corporation, as amended and in effect from time to time.

5.7 Severability. Any determination that any provision of these Bylaws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these Bylaws.

5.8 Pronouns. All pronouns used in these Bylaws shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require.

5.9 Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent of the corporation shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by commercial courier service, or by facsimile or other electronic transmission, provided that notice to stockholders by electronic transmission shall be given in the manner provided in Section 232 of the Delaware General Corporation Law. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his last known address as the same appears on the books of the corporation. The time when such notice shall be deemed to be given shall be the time such notice is received by such stockholder, director, officer, employee or agent, or by any person accepting such notice on behalf of such person, if delivered by hand, facsimile, other electronic transmission or commercial courier service, or the time such notice is dispatched, if delivered through the mails. Without limiting the manner by which notice otherwise may be given effectively, notice to any stockholder shall be deemed given: (a) if by facsimile, when directed to a number at which the stockholder has consented to receive notice; (b) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (c) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (i) such posting and (ii) the giving of such separate notice; (d) if by any other form of electronic transmission, when directed to the stockholder; and (e) if by mail, when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation.

5.10 Reliance Upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the corporation, including reports made to the corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care.

 

12


5.11 Time Periods. In applying any provision of these Bylaws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.

5.12 Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

5.13 Amendments

5.14 By the Board of Directors. Except as is otherwise set forth in these Bylaws, these Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present.

5.15 By the Stockholders. Except as otherwise set forth in these Bylaws, these Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the affirmative vote of the holders of at least a majority of the voting power of all of the shares of capital stock of the corporation issued and outstanding and entitled to vote generally in any election of directors, voting together as a single class. Such vote may be held at any annual meeting of stockholders, or at any special meeting of stockholders provided that notice of such alteration, amendment, repeal or adoption of new Bylaws shall have been stated in the notice of such special meeting.

ARTICLE VI

INDEMNIFICATION OF DIRECTORS AND OFFICERS

6.1 Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (“proceeding”), by reason of the fact that he or a person of whom he is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer of another corporation, or as a controlling person of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director or officer, or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than such law permitted the corporation to provide prior to such amendment) against all expenses, liability and loss reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a

 

13


person who has ceased to be a director or officer and shall inure to the benefit of his heirs, executors and administrators; provided, however, that except as provided in Section 7.2 of this Article VII, the corporation shall indemnify any such person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person only if (a) such indemnification is expressly required to be made by law, (b) the proceeding (or part thereof) was authorized by the Board of Directors of the corporation, (c) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law, or (d) the proceeding (or part thereof) is brought to establish or enforce a right to indemnification or advancement under an indemnity agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law. The rights hereunder shall be contract rights and shall include the right to be paid expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by a director or officer of the corporation in his capacity as a director or officer (and not in any other capacity in which service was or is tendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately by final judicial decision from which there is no further right to appeal that such director or officer is not entitled to be indemnified under this section or otherwise.

6.2 Right of Claimant to Bring Suit. If a claim under Section 7.1 is not paid in full by the corporation within 60 days after a written claim has been received by the corporation, or 20 days in the case of a claim for advancement of expenses, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if such suit is not frivolous or brought in bad faith, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the corporation shall be entitled to recover such expenses upon a final judicial decision from which there is no further right to appeal that the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, shall be on the corporation.

 

14


6.3 Indemnification of Employees and Agents. The corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and to the advancement of related expenses, to any employee or agent of the corporation to the fullest extent of the provisions of this Article VII with respect to the indemnification of and advancement of expenses to directors and officers of the corporation.

6.4 Non-Exclusivity of Rights. The rights conferred on any person in this Article VII shall not be exclusive of any other right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

6.5 Indemnification Contracts. The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the corporation, or any person serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this Article VII.

6.6 Insurance. The corporation may maintain insurance to the extent reasonably available, at its expense, to protect itself and any such director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

6.7 Effect of Amendment. Any amendment, repeal or modification of any provision of this Article VII shall not adversely affect any right or protection of an indemnitee or his successor in respect of any act or omission occurring prior to such amendment, repeal or modification.

 

15

Exhibit 3.1

SECURED PROMISSORY NOTE

 

Principal:   

$

   , 2015
Interest Rate:    9% annual, interest-only payable monthly    Las Vegas, NV
Loan Term:    24 months from execution date with an option to extend for 6 months.

 

Borrower (Maker):   

ADOMANI INC., a Florida corporation and is the sole-owner of it’s subsidiary

ADOMANI California, Inc., a California corporation

Borrower’s Address:    1811 Cadillac Court
   Milpitas, CA 95035
Holder:    PROVIDENT TRUST GROUP, LLC, a Nevada limited liability company
Holder’s Address:    8880 W. Sunset Rd Suite 250
   Las Vegas, NV 89148

PROMISE TO PAY. The above-named Borrower promises to pay to the above-named Holder in lawful money of the United States of America, the principal amount shown above, at the interest rate shown above, until paid in full.

INTEREST CALCULATION METHODOLOGY. Interest shall be computed on a simple basis, starting on the Effective Date, and is furthermore to be computed by applying the Annual Interest Rate against the unpaid principal amount on the following basis (check one):

☐ Annual basis; that is, by applying the Annual Interest Rate every calendar year

☒ Monthly basis; that is, by applying the Annual Interest Rate, divided by twelve, every month

☐ Daily basis; that is, by applying the Annual Interest Rate, divided by 365, every day

With respect to prepayment, interest for partial years or months shall be computed on a pro-rated basis.

PAYMENT. Borrowers will pay this loan as follows:

 

  1. Periodicity (check one):

☒ Balloon payment of principal, to be paid at end, with monthly interest-only payments

☐ Balloon payment of principal and all accrued interest, to be paid entirely upon final payment

☐ Regular payments of fully amortized principal plus interest

 

  2. Payments:

Borrower shall make 24 equal payments to Holder, each in the amount of $            . The first payment is due on                     , 2015, and on the 1st day of each calendar month thereafter.

 

  3. Application Order:

Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs: then to any late charges; then to any accrued unpaid interest; then to any deferred interest; and then to principal.

 

  4. Payment Address:

Borrower will pay Holder at any such place as Holder may designate.

 

Lender               
Borrower                Page 1            


PAYMENT METHOD. Borrower shall pay this Note on a monthly basis. Borrower shall make payments directly to Holder at Holder’s address.

PREPAYMENT. At any time, Borrower may prepay a portion or the entirety of the principal and interest due under this Note, without penalty or fee. Prepayments will be first applied against accrued interest, then principal. Full prepayment will include payment of all principal plus all interest then due (including partial-month accrued interest) as of the payoff date. Partial prepayments will not, unless agreed to by Holder in writing, relieve Borrower of its obligation to continue to make regular payments under the foregoing payment schedule.

LATE FEE. A 5-day grace period exists. If a scheduled payment is not paid by the Borrower within the grace period, then that payment is deemed delinquent and a 5% late fee on the delinquent payment is assessed.

SECURITY INTEREST. This note is secured by a UCC-1 on all assets of Holder.

DEFAULT EVENT / ACCELERATION. If any scheduled payment remains delinquent and unpaid for 15 days or more, then upon failure of Borrower to cure after the expiration of a 10-day written notice from Holder to Borrower of a delinquency, then said failure to cure constitutes a default event of this note (a “Default Event”). The Holder cannot make itself unavailable, or otherwise refuse to take a payment, in order to cause a Default Event to occur; a Default Event must be non-performance on the Note on the part of the Borrower. If a Default Event does occur, then this Note is accelerated, the entire remaining amount under the Note becomes immediately due. Holder’s failure to exercise any of its remedies in this section, or any other remedy provided by law, upon the occurrence of a Default Event, does not constitute a waiver of the right to exercise any remedy at any subsequent time in respect to the same or any other Default Event.

GENERAL PROVISIONS.

 

    Governing Law. This agreement will be governed by and construed in accordance with the laws of the state of Nevada.

 

    Notices. All notices must be in writing. A notice may be delivered to a party at the following address contained in the preamble to this Note, or to a new address that a party subsequently designates in writing.

 

    Assignment and Succession. Borrower may not assign its rights or delegate their obligations under this Note in whole or in part without the prior written consent of Holder. This Note is binding on and enforceable by each party’s successors and assignees.

 

    Severability. If any court determines that any provision of this Note is invalid or unenforceable, any invalidity or unenforceability will affect only that provision and will not make any other provision of this agreement invalid or unenforceable.

 

    Headings. The section and other headings contained in this Note are for reference purposes only and shall not affect the meaning or interpretations of this Note.

 

    Attorney’s Fees. In the event that litigation results from or arises out of this Note or the performance thereof, the parties agree to reimburse the prevailing party’s reasonable attorney’s fees and costs, in addition to any other relief to which the prevailing party may be entitled.

 

    Modification. This Note may be modified only by a writing signed by both Borrower and Holder.

[Signatures on Next Page]

BORROWER:

 

Lender               
Borrower                Page 2            


ADOMANI, Inc.

 

By:   

 

  
  

Jim, Reynolds, CEO

  

APPROVED

 

By:   

 

  
Print Name:   

 

  
Its:    Lender   

 

Lender               
Borrower                Page 3            

Exhibit 3.2

ADOMANI, Inc.

Convertible Promissory Note & Purchase Agreement

 

Issuer:    ADOMANI, Inc., a Florida corporation (“Company”)
Lender:   
Amount of Financing:    Open Ended Note Up to $        
Type of Security:    Promissory Note (“Note”) convertible into the securities
   Issued by Company at $            per share common stock.
Conversion of Note:    It is contemplated by the Company that the Lender will make a series of loans to the Company in the amount of $            . Each loan will be deemed a separate loan and Note and Lender will have the sole right to convert said loan to securities of the Company. The loan, together with the accrued interest shall, at the option of the Lender, be converted into the equity issued in the Equity Financing at $            per share. (“The Conversion Price”).
Warrants:    No Warrants.
Interest:    Annual interest rate on outstanding principal will be         %, interest payable at the due date of the separate notes.
Term:    Each Loan and the unpaid interest shall be repaid Three years from the date the Lender loans money to the Company
Transferability:    The Note is transferable without the Company’s prior consent.

 

Dated:  

 

     

 

   

 

 
Kevin G. Kanning, COO                 , Lender  
Secretary      

Exhibit 6.1

 

LOGO   

COMMERCIAL LEASE AGREEMENT

(C.A.R. Form CL, Revised 4/13)

   LOGO

Date (For reference only): 02/04/16

LAMTA (“Landlord”) and ADOMANI, Inc. (Kevin Kanning) (“Tenant”) agree as follows:

 

1. PROPERTY: Landlord rents to Tenant and Tenant rents from Landlord, the real property and improvements described as:

146 Main Street #216 (“Premises”), which comprise approximately             % of the total square footage of rentable space in the entire property. See exhibit              for a further description of the Premises.

 

2. TERM: The term begins on (date) 03/01/16 (“Commencement Date”).

(Check A or B):

 

x    A.    Lease: and shall terminate on (date) 02/28/17 at noon ¨ AM ¨ PM. Any holding over after the term of this agreement expires, with Landlord’s consent, shall create a month-to-month tenancy that either party may terminate as specified in paragraph 2B. Rent shall be at a rate equal to the rent for the immediately preceding month, payable in advance. All other terms and conditions of this agreement shall remain in full force and effect.
¨    B.    Month-to-month: and continues as a month-to-month tenancy. Either party may terminate the tenancy by giving written notice to the other at least 30 days prior to the intended termination date, subject to any applicable laws. Such notice may be given on any date.
¨    C.    RENEWAL OR EXTENSION TERMS: See attached addendum                                                  .

 

3. BASE RENT:

 

  A. Tenant agrees to pay Base Rent at the rate of (CHECK ONE ONLY:)

 

x    (1)    $450.00 per month, for the term of the agreement.
¨    (2)    $                     per month, for the first 12 months of the agreement. Commencing with the 13th month, and upon expiration of each 12 months thereafter, rent shall be adjusted according to any increase in the U.S. Consumer Price Index of the Bureau of Labor Statistics of the Department of Labor for All Urban Consumers (“CPI”) for                              (the city nearest the location of the Premises), based on the following formula: Base Rent will be multiplied by the most current CPI preceding the first calendar month during which the adjustment is to take effect, and divided by the most recent CPI preceding the Commencement Date. In no event shall any adjusted Base Rent be less than the Base Rent for the month immediately preceding the adjustment. If the CPI is no longer published, then the adjustment to Base Rent shall be based on an alternate index that most closely reflects the CPI.
¨    (3)    $                      per month for the period commencing                      and ending                      and
      $                      per month for the period commencing                      and ending                      and
      $                      per month for the period commencing                      and ending                      and
¨    (4)    In accordance with the attached rent schedule.
¨    (5)    Other:                                                                                                                                                                             

 

  B. Base Rent is payable in advance on the 1st (or ¨              ) day of each calendar month, and is delinquent on the next day.

 

  C. If the Commencement Date fails on any day other than the first day of the month, Base Rent for the first calendar month shall be prorated based on a 30-day period. If Tenant has paid one full month’s Base Rent in advance of Commencement Date. Base Rent for the second calendar month shall be prorated based on a 30-day period.

 

4. RENT:

 

  A. Definition: (“Rent”) shall mean all monetary obligations of Tenant to Landlord under the terms of this agreement, except security deposit.

 

  B. Payment: Rent shall be paid to (Name) LAMTA at (address) C/O Jay Haynes 461 Hacienda Way, Los Altos 940220, or at any other location specified by Landlord in writing to Tenant.

 

  C. Timing: Base Rent shall be paid as specified in paragraph 3. All other Rent shall be paid within 30 days after Tenant is billed by Landlord.

 

5. EARLY POSSESSION: Tenant is entitled to possession of the Premises on             . If Tenant is in possession prior to the Commencement Date, during this time (i) Tenant is not obligated to pay Base Rent, and (ii) Tenant ¨ is ¨ is not obligated to pay Rent other than Base Rent. Whether or not Tenant is obligated to pay Rent prior to Commencement Date. Tenant is obligated to comply with all other terms of this agreement.

 

6. SECURITY DEPOSIT:

 

  A. Tenant agrees to pay Landlord $450.00 as a security deposit. Tenant agrees not to hold Broker responsible for its return. (IF CHECKED:) ¨ If Base Rent increases during the term of this agreement, Tenant agrees to increase security deposit by the same proportion as the increase in Base Rent.

 

  B. All or any portion of the security deposit may be used, as reasonably necessary, to: (i) cure Tenant’s default in payment of Rent, late charges, non-sufficient funds (“NSF”) fees, or other sums due; (ii) repair damage, excluding ordinary wear and tear, caused by Tenant or by a guest or licensee of Tenant; (iii) broom clean the Premises, if necessary, upon termination of tenancy; and (iv) cover any other unfulfilled obligation of Tenant. SECURITY DEPOSIT SHALL NOT BE USED BY TENANT IN LIEU OF PAYMENT OF LAST MONTH’S RENT. If all or any portion of the security deposit is used during tenancy. Tenant agrees to reinstate the total security deposit within 5 days after written notice is delivered to Tenant. Within 30 days after Landlord receives possession of the Premises. Landlord shall: (i) furnish Tenant an itemized statement indicating the amount of any security deposit received and the basis for its disposition, and (ii) return any remaining portion of security deposit to Tenant However, if the Landlord’s only claim upon the security deposit is for unpaid Rent, then the remaining portion of the security deposit, after deduction of unpaid Rent, shall be returned within 14 days after the Landlord receives possession.

 

  C. No interest will be paid on security deposit, unless required by local ordinance.

 

Landlord’s Initials (JM) (_______)      

Tenant’s Initials (KK) (_______)

                        For Adomani, Inc.

   LOGO

© 2013. California Association of REALTORS®, Inc.

CL REVISED 4/13 (Page 1 of 6)

      Reviewed by              Date            
        
COMMERCIAL LEASE AGREEMENT (CL PAGE 1 OF 6)
Agent:    Phone: 650.94137040                Fax: 650.941.3094   
Broker: Coldwell Banker Residential Brokerage – Los Altos, 161 S. San Antonio rd. Los Altos, CA 94022   


Premises: 146 Main Street #216, Los Altos, CA 94022                    Date 02/04/16                            

 

7. PAYMENTS:

 

     TOTAL DUE      PAYMENT
RECEIVED
     BALANCE DUE      DUE DATE  

A. Rent: From                      to                     

   $ 450.00       $ 450.00       $                         

                               Date                   Date

           

B. Security Deposit                                              

   $ 450.00       $ 450.00       $                         

C. Other: keys dep                                               

   $ 50.00       $ 50.00       $                         

                                 Category

           

D. Other: extra key                                             

   $ 10.00       $ 10.00       $                         

                               Category

           

E. TOTAL:

   $ 960.00       $ 960.00       $                   

 

8. PARKING: Tenant is entitled to              unreserved and              reserved vehicle parking spaces. The right to parking ¨ is ¨ is not included in the Base Rent charged pursuant to paragraph 3. If not included in the Base Rent, the parking rental fee shall be an additional $              per month. Parking space(s) are to be used for parking operable motor vehicles, except for trailers, boats, campers, buses or trucks (other than pick-up trucks). Tenant shall park in assigned space(s) only. Parking space(s) are to be kept clean. Vehicles leaking oil, gas or other motor vehicle fluids shall not be parked in parking spaces or on the Premises. Mechanical work or storage of inoperable vehicles is not allowed in parking space(s) or elsewhere on the Premises. No overnight parking is permitted.

 

9. ADDITIONAL STORAGE: Storage is permitted as follows:             . The right to additional storage space ¨ is ¨ is not included in the Base Rent charged pursuant to paragraph 3. If not included in Base Rent, storage space shall be an additional $              per month. Tenant shall store only personal property that Tenant owns, and shall not store property that is claimed by another, or in which another has any right, title, or interest. Tenant shall not store any improperly packaged food or perishable goods, flammable materials, explosives, or other dangerous or hazardous material. Tenant shall pay for, and be responsible for, the clean-up of any contamination caused by Tenant’s use of the storage area.

 

10. LATE CHARGE; INTEREST; NSF CHECKS: Tenant acknowledges that either late payment of Rent or issuance of a NSF check may cause Landlord to incur costs and expenses, the exact amount of which are extremely difficult and impractical to determine. These costs may include, but are not limited to, processing, enforcement and accounting expenses, and late charges imposed on Landlord. If any installment of Rent due from Tenant is not received by Landlord within 5 calendar days after date due, or if a check is returned NSF, Tenant shall pay to Landlord, respectively, $ 25.00 as late charge, plus 10% interest per annum on the delinquent amount and $25.00 as a NSF fee, any of which shall be deemed additional Rent. Landlord and Tenant agree that these charges represent a fair and reasonable estimate of the costs Landlord may incur by reason of Tenant’s late or NSF payment. Any late charge, delinquent interest, or NSF fee due shall be paid with the current installment of Rent. Landlord’s acceptance of any late charge or NSF fee shall not constitute a waiver as to any default of Tenant. Landlord’s right to collect a Late Charge or NSF fee shall not be deemed an extension of the date Rent is due under paragraph 4, or prevent Landlord from exercising any other rights and remedies under this agreement, and as provided by law.

 

11. CONDITION OF PREMISES: Tenant has examined the Premises and acknowledges that Premise is clean and in operative condition, with the following exceptions: none. Items listed as exceptions shall be dealt with in the following manner: none

 

12. ZONING AND LAND USE: Tenant accepts the Premises subject to all local, state and federal laws, regulations and ordinances (“Laws”). Landlord makes no representation or warranty that Premises are now or in the future will be suitable for Tenant’s use. Tenant has made its own investigation regarding all applicable Laws.

 

13. TENANT OPERATING EXPENSES: Tenant agrees to pay for all utilities and services directly billed to Tenant cleaning in office, internet, phone, insurance.

 

14. PROPERTY OPERATING EXPENSES:

 

  A. Tenant agrees to pay its proportionate share of Landlord’s estimated monthly property operating expenses, including but not limited to, common area maintenance, consolidated utility and service bills, insurance, and real estate taxes, based on the ratio of the square footage of the Premises to the total square footage of the rentable space in the entire property. N/A.

 

OR B. ¨ (If checked) Paragraph 14 does not apply.

 

15. USE: The Premises are for the sole use as office use. No other use is permitted without Landlord’s prior written consent. If any use by Tenant causes an increase in the premium on Landlord’s existing property insurance, Tenant shall pay for the increased cost. Tenant will comply with all Laws affecting its use of the Premises.

 

16. RULES/REGULATIONS: Tenant agrees to comply with all rules and regulations of Landlord (and, if applicable, Owner’s Association) that are at any time posted on the Premises or delivered to Tenant. Tenant shall not, and shall ensure that guests and licensees of Tenant do not, disturb, annoy, endanger, or interfere with other tenants of the building or neighbors, or use the Premises for any unlawful purposes, including, but not limited to, using, manufacturing, selling, storing, or transporting illicit drugs or other contraband, or violate any law or ordinance, or committing a waste or nuisance on or about the Premises.

 

17. MAINTENANCE:

 

  A. Tenant OR x(If checked, Landlord) shall professionally maintain the Premises including heating, air conditioning, electrical, plumbing and water systems, if any, and keep glass, windows and doors in operable and safe condition. Unless Landlord is checked, if Tenant fails to maintain the Premises, Landlord may contract for or perform such maintenance, and charge Tenant for Landlord’s cost.

 

  B. Landlord OR ¨ (If checked, Tenant) shall maintain the roof, foundation, exterior walls, common areas and elevator.

 

 

Landlord’s Initials (JM) (_______)      

Tenant’s Initials (KK) (_______)

                    For Adomani, Inc.

   LOGO

© 2013. California Association of REALTORS®, Inc.

CL REVISED 4/13 (Page 2 of 6)

      Reviewed by              Date            
           
COMMERCIAL LEASE AGREEMENT (CL PAGE 2 OF 6)

 


Premises: 146 Main Street #216, Los Altos, CA 94022                        Date 02/04/16                            

 

18. ALTERATIONS: Tenant shall not make any alterations in or about the Premises, including installation of trade fixtures and signs, without Landlord’s prior written consent, which shall not be unreasonably withheld. Any alterations to the Premises shall be done according to Law and with required permits. Tenant shall give Landlord advance notice of the commencement date of any planned alteration, so that Landlord, at its option, may post a Notice of Non-Responsibility to prevent potential liens against Landlord’s interest in the Premises. Landlord may also require Tenant to provide Landlord with lien releases from any contractor performing work on the Premises.

 

19. GOVERNMENT IMPOSED ALTERATIONS: Any alterations required by Law as a result of Tenant’s use shall be Tenant’s responsibility. Landlord shall be responsible for any other alterations required by Law.

 

20. ENTRY: Tenant shall make Premises available to Landlord or Landlord’s agent for the purpose of entering to make inspections, necessary or agreed repairs, alterations, or improvements, or to supply necessary or agreed services, or to show Premises to prospective or actual purchasers, tenants, mortgagees, lenders, appraisers, or contractors. Landlord and Tenant agree that 24 hours notice (oral or written) shall be reasonable and sufficient notice. In an emergency, Landlord or Landlord’s representative may enter Premises at any time without prior notice.

 

21. SIGNS: Tenant authorizes Landlord to place a FOR SALE sign on the Premises at any time, and a FOR LEASE sign on the Premises within the 90 (or ¨         ) day period preceding the termination of the agreement.

 

22. SUBLETTING/ASSIGNMENT: Tenant shall not sublet or encumber all or any part of Premises, or assign or transfer this agreement or any interest in it, without the prior written consent of Landlord, which shall not be unreasonably withheld. Unless such consent is obtained, any subletting, assignment, transfer, or encumbrance of the Premises, agreement, or tenancy, by voluntary act of Tenant, operation of law, or otherwise, shall be null and void, and, at the option of Landlord, terminate this agreement. Any proposed sublessee, assignee, or transferee shall submit to Landlord an application and credit information for Landlord’s approval, and, if approved, sign a separate written agreement with Landlord and Tenant. Landlord’s consent to any one sublease, assignment, or transfer, shall not be construed as consent to any subsequent sublease, assignment, or transfer, and does not release Tenant of Tenant’s obligation under this agreement.

 

23. POSSESSION: If Landlord is unable to deliver possession of Premises on Commencement Date, such date shall be extended to the date on which possession is made available to Tenant. However, the expiration date shall remain the same as specified in paragraph 2. If Landlord is unable to deliver possession within 60 (or ¨              ) calendar days after the agreed Commencement Date, Tenant may terminate this agreement by giving written notice to Landlord, and shall be refunded all Rent and security deposit paid.

 

24. TENANT’S OBLIGATIONS UPON VACATING PREMISES: Upon termination of agreement, Tenant shall: (i) give Landlord all copies of all keys or opening devices to Premises, including any common areas; (ii) vacate Premises and surrender it to Landlord empty of all persons and personal property; (iii) vacate all parking and storage spaces; (iv) deliver Premises to Landlord in the same condition as referenced in paragraph 11; (v) clean Premises; (vi) give written notice to Landlord of Tenant’s forwarding address; and (vii)             . All improvements installed by Tenant, with or without Landlord’s consent, become the property of Landlord upon termination. Landlord may nevertheless require Tenant to remove any such improvement that did not exist at the time possession was made available to Tenant.

 

25. BREACH OF CONTRACT/EARLY TERMINATION: In event Tenant, prior to expiration of this agreement, breaches any obligation in this agreement, abandons the premises, or gives notice of tenant’s intent to terminate this tenancy prior to its expiration, in addition to any obligations established by paragraph 24, Tenant shall also be responsible for lost rent, rental commissions, advertising expenses, and painting costs necessary to ready Premises for re-rental. Landlord may also recover from Tenant: (i) the worth, at the time of award, of the unpaid Rent that had been earned at the time of termination; (ii) the worth, at the time of award, of the amount by which the unpaid Rent that would have been earned after expiration until the time of award exceeds the amount of such rental loss the Tenant proves could have been reasonably avoided; and (iii) the worth, at the time of award, of the amount by which the unpaid Rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided. Landlord may elect to continue the tenancy in effect for so long as Landlord does not terminate Tenant’s right to possession, by either written notice of termination of possession or by relenting the Premises to another who takes possession, and Landlord may enforce all Landlord’s rights and remedies under this agreement, including the right to recover the Rent as it becomes due.

 

26. DAMAGE TO PREMISES: If, by no fault of Tenant, Premises are totally or partially damaged or destroyed by fire, earthquake, accident or other casualty, Landlord shall have the right to restore the Premises by repair or rebuilding. If Landlord elects to repair or rebuild, and is able to complete such restoration within 90 days from the date of damage, subject to the terms of this paragraph, this agreement shall remain in full force and effect. If Landlord is unable to restore the Premises within this time, or if Landlord elects not to restore, then either Landlord or Tenant may terminate this agreement by giving the other written notice. Rent shall be abated as of the date of damage. The abated amount shall be the current monthly Base Rent prorated on a 30-day basis. If this agreement is not terminated, and the damage is not repaired, then Rent shall be reduced based on the extent to which the damage interferes with Tenant’s reasonable use of Premises. If damage occurs as a result of an act of Tenant or Tenant’s guests, (i) only Landlord shall have the right, at Landlord’s sole discretion, within 30 days after such total or partial destruction or damage to treat the lease as terminated by Tenant, and (ii) Landlord shall have the right to recover damages from Tenant.

 

27. HAZARDOUS MATERIALS: Tenant shall not use, store, generate, release or dispose of any hazardous material on the Premises or the property of which the Premises are part. However, Tenant is permitted to make use of such materials that are required to be used in the normal course of Tenant’s business provided that Tenant complies with all applicable Laws related to the hazardous materials. Tenant is responsible for the cost of removal and remediation, or any clean-up of any contamination caused by Tenant.

 

28. CONDEMNATION: If all or part of the Premises is condemned for public use, either party may terminate this agreement as of the date possession is given to the condemner. All condemnation proceeds, exclusive of those allocated by the condemner to Tenant’s relocation costs and trade fixtures, belong to Landlord.

 

29. INSURANCE: Tenant’s personal property, fixtures, equipment, inventory and vehicles are not insured by Landlord against loss or damage due to fire, theft, vandalism, rain, water, criminal or negligent acts of others, or any other cause. Tenant is to carry Tenant’s own property insurance to protect Tenant from any such loss. In addition, Tenant shall carry liability insurance in an amount of not less than $ TBD. Tenant’s liability insurance shall name Landlord and Landlord’s agent as additional insured. Tenant, upon Landlord’s request, shall provide Landlord with a certificate of insurance establishing Tenant’s compliance. Landlord shall maintain liability insurance insuring Landlord, but not Tenant, in an amount of at least $ TBD, plus property insurance in an amount sufficient to cover the replacement cost of the property. Tenant is advised to carry business interruption insurance in an amount at least sufficient to cover Tenant’s complete rental obligation to Landlord. Landlord is advised to obtain a policy of rental loss insurance. Both Landlord and Tenant release each other, and waive their respective rights to subrogation against each other, for loss or damage covered by insurance.

 

Landlord’s Initials (JM) (_______)   

Tenant’s Initials (KK) (_______)

                    For Adomani, Inc.

 

   LOGO

© 2013. California Association of REALTORS®, Inc.

CL REVISED 4/13 (Page 3 of 6)

   Reviewed by              Date                    
        
COMMERCIAL LEASE AGREEMENT (CL PAGE 3 OF 6)

 


Premises: 146 Main Street #216, Los Altos, CA 94022                        Date 02/04/16                            

 

30. TENANCY STATEMENT (ESTOPPEL CERTIFICATE): Tenant shall execute and return a tenancy statement (estoppel certificate), delivered to Tenant by Landlord or Landlord’s agent, within 3 days after its receipt. The tenancy statement shall acknowledge that this agreement is unmodified and in full force, or in full force as modified, and state the modifications. Failure to comply with this requirement: (i) shall be deemed Tenant’s acknowledgment that the tenancy statement is true and correct, and may be relied upon by a prospective lender or purchaser; and (ii) may be treated by Landlord as a material breach of this agreement. Tenant shall also prepare, execute, and deliver to Landlord any financial statement (which will be held in confidence) reasonably requested by a prospective lender or buyer.

 

31. LANDLORD’S TRANSFER: Tenant agrees that the transferee of Landlord’s interest shall be substituted as Landlord under this agreement. Landlord will be released of any further obligation to Tenant regarding the security deposit, only if the security deposit is returned to Tenant upon such transfer, or if the security deposit is actually transferred to the transferee. For all other obligations under this agreement, Landlord is released of any further liability to Tenant, upon Landlord’s transfer.

 

32. SUBORDINATION: This agreement shall be subordinate to all existing liens and, at Landlord’s option, the lien of any first deed of trust or first mortgage subsequently placed upon the real property of which the Premises are a part, and to any advances made on the security of the Premises, and to all renewals, modifications, consolidations, replacements, and extensions. However, as to the lien of any deed of trust or mortgage entered into after execution of this agreement, Tenant’s right to quiet possession of the Premises shall not be disturbed if Tenant is not in default and so long as Tenant pays the Rent and observes and performs all of the provisions of this agreement, unless this agreement is otherwise terminated pursuant to its terms. If any mortgagee, trustee, or ground lessor elects to have this agreement placed in a security position prior to the lien of a mortgage, deed of trust, or ground lease, and gives written notice to Tenant, this agreement shall be deemed prior to that mortgage, deed of trust, or ground lease, or the date of recording.

 

33. TENANT REPRESENTATIONS; CREDIT: Tenant warrants that all statements in Tenant’s financial documents and rental application are accurate. Tenant authorizes Landlord and Broker(s) to obtain Tenant’s credit report at time of application and periodically during tenancy in connection with approval, modification, or enforcement of this agreement. Landlord may cancel this agreement: (i) before occupancy begins, upon disapproval of the credit report(s); or (ii) at any time, upon discovering that information in Tenant’s application is false. A negative credit report reflecting on Tenant’s record may be submitted to a credit reporting agency, if Tenant fails to pay Rent or comply with any other obligation under this agreement.

 

34. CONSTRUCTION-RELATED ACCESSIBILITY STANDARDS: Landlord states that the Premises ¨ has, or ¨ has not been inspected by a Certified Access Specialist. If so, Landlord States that the Premises ¨ has, or ¨ has not been determined to meet all applicable construction-related accessibility standards pursuant to Civil Code Section 55.53.

 

35. ENERGY DISCLOSURE: If this is a lease of the entire building, Landlord shall provide Tenant, at least 24 hours prior to execution of this Agreement, the Disclosure Summary Sheet, Statement of Energy Performance, data Checklist, and the Facility Summary for the building as required by Public resources Code Section 25402.10 and California Code of Regulations, Title 20, Sections 1680 through 1685. This requirement is effective for a building with total gross floor area square footage as follows: more than 50,000 square feet, July 1, 2013; more than 10,000 square feet and up to 50,000 square feet, January 1, 2014; and at least 5,000 square feet up to 10,000 square feet, July 1, 2014. For more information, see http:www.energy.ca.gov/ab1103/index/html.

 

36. DISPUTE RESOLUTION:

 

  A. MEDIATION: Tenant and Landlord agree to mediate any dispute or claim arising between them out of this agreement, or any resulting transaction, before resorting to arbitration or court action, subject to paragraph 36B(2) below. Paragraphs 36B(2) and (3) apply whether or not the arbitration provision is initialed. Mediation fees, if any, shall be divided equally among the parties involved. If for any dispute or claim to which this paragraph applies, any party commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after a request has been made, then that party shall not be entitled to recover attorney fees, even if they would otherwise be available to that party in any such action. THIS MEDIATION PROVISION APPLIES WHETHER OR NOT THE ARBITRATION PROVISION IS INITIALED.

 

  B. ARBITRATION OF DISPUTES: (1) Tenant and Landlord agree that any dispute or claim in Law or equity arising between them out of this agreement or any resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration, including and subject to paragraphs 36B(2) and (3) below. The arbitrator shall be a retired judge or justice, or an attorney with at least 5 years of real estate transactional law experience, unless the parties mutually agree to a different arbitrator, who shall render an award in accordance with substantive California Law. In all other respects, the arbitration shall be conducted in accordance with Part III, Title 9 of the California Code of Civil Procedure. Judgment upon the award of the arbitrator(s) may be entered in any court having jurisdiction. The parties shall have the right to discovery in accordance with Code of Civil Procedure §1283.05.

 

    (2) EXCLUSIONS FROM MEDIATION AND ARBITRATION: The following matters are excluded from Mediation and Arbitration hereunder: (i) a judicial or non-judicial foreclosure or other action or proceeding to enforce a deed of trust, mortgage, or installment land sale contract as defined in Civil Code §2985; (ii) an unlawful detainer action; (iii) the filing or enforcement of a mechanic’s lien; (iv) any matter that is within the jurisdiction of a probate, small claims, or bankruptcy court; and (v) an action for bodily injury or wrongful death, or for latent or patent defects to which Code of Civil Procedure §337.1 or §337.15 applies. The filing of a court action to enable the recording of a notice of pending action, for order of attachment, receivership, injunction, or other provisional remedies, shall not constitute a violation of the mediation and arbitration provisions.

 

    (3) BROKERS: Tenant and Landlord agree to mediate and arbitrate disputes or claims involving either or both Brokers, provided either or both Brokers shall have agreed to such mediation or arbitration, prior to, or within a reasonable time after the dispute or claim is presented to Brokers. Any election by either or both Brokers to participate in mediation or arbitration shall not result in Brokers being deemed parties to the agreement.

“NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO

 

Landlord’s Initials (JM) (_______)      

Tenant’s Initials (KK) (_______)

                    For Adomani, Inc.

   LOGO

© 2013. California Association of REALTORS®, Inc.

CL REVISED 4/13 (Page 4 of 6)

      Reviewed by              Date            
           
COMMERCIAL LEASE AGREEMENT (CL PAGE 4 OF 6)

 


Premises: 146 Main Street #216, Los Altos, CA 94022                        Date 02/04/16                         

 

  

ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.”

“WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION TO NEUTRAL ARBITRATION.”

 

 

Landlord’s Initials JM /                 Tenant’s Initials KK /                

                                                                              for Adomani, Inc.

 

 

37. JOINT AND INDIVIDUAL OBLIGATIONS: If there is more than one Tenant, each one shall be individually and completely responsible for the performance of all obligations of Tenant under this agreement, jointly with every other Tenant, and individually, whether or not in possession.

 

38. NOTICE: Notices may be served by mail, facsimile, or courier at the following address or location, or at any other location subsequently designated:

 

Landlord: LAMTA

                146 Main St. #103

                Los Alto, CA 94022

 

 

 

  

Tenant: Adomani, Inc.

             171 Main Street #105

             Los Altos, CA 9402

 

 

 

Notice is deemed effective upon the earliest of the following: (i) personal receipt by either party or their agent; (ii) written acknowledgement of notice; or (iii) 5 days after mailing notice to such location by first class mail, postage pre-paid.

 

39. WAIVER: The waiver of any breach shall not be construed as a continuing waiver of the same breach or a waiver of any subsequent breach.

 

40. INDEMNIFICATION: Tenant shall indemnify, defend and hold Landlord harmless from all claims, disputes, litigation, judgments and attorney fees arising out of Tenant’s use of the Premises.

 

41. OTHER TERMS AND CONDITIONS/SUPPLEMENTS:                                                                                                                                                                                                                                                                                                                                                                                                                                                                         The following ATTACHED supplements/exhibits are incorporated in this agreement: ¨ Option Agreement (C.A.R. Form OA)

 

42. ATTORNEY FEES: In any action or proceeding arising out of this agreement, the prevailing party between Landlord and Tenant shall be entitled to reasonable attorney fees and costs from the non-prevailing Landlord or Tenant, except as provided in paragraph 34A.

 

43. ENTIRE CONTRACT: Time is of the essence. All prior agreements between Landlord and Tenant are incorporated in this agreement, which constitutes the entire contract. It is intended as a final expression of the parties’ agreement, and may not be contradicted by evidence of any prior agreement or contemporaneous oral agreement. The parties further intend that this agreement constitutes the complete and exclusive statement of its terms, and that no extrinsic evidence whatsoever may be introduced in any judicial or other proceeding, if any, involving this agreement. Any provision of this agreement that is held to be invalid shall not affect the validity or enforceability of any other provision in this agreement. This agreement shall be binding upon, and inure to the benefit of, the heirs, assignees and successors to the parties.

 

44. BROKERAGE: Landlord and Tenant shall each pay to Broker(s) the fee agreed to, if any, in a separate written agreement. Neither Tenant nor Landlord has utilized the services of, or for any other reason owes compensation to, a licensed real estate broker (individual or corporate), agent, finder, or other entity, other than as named in this agreement, in connection with any act relating to the Premises, including, but not limited to, inquiries, introductions, consultations, and negotiations leading to this agreement. Tenant and Landlord each agree to indemnify, defend and hold harmless the other, and the Brokers specified herein, and their agents, from and against any costs, expenses, or liability for compensation claimed inconsistent with the warranty and representation in this paragraph 44.
45. AGENCY CONFIRMATION: The following agency relationships are hereby confirmed for this transaction:

Listing Agent: no (Print Firm Name) is the agent of (check one):

¨ the Landlord exclusively; or ¨ both the Tenant and Landlord.

Selling Agent: no (Print Firm Name) (if not same as Listing Agent) is the agent of (check one):

¨ the Tenant exclusively; or ¨ the Landlord exclusively; or ¨ both the Tenant and Landlord.

Real Estate Brokers are not parties to the agreement between Tenant and Landlord.

 

Landlord’s Initials (JM) (_______)      

Tenant’s Initials (KK) (_______)

                    For Adomani, Inc.

   LOGO

© 2013. California Association of REALTORS®, Inc.

CL REVISED 4/13 (Page 5 of 6)

     

Reviewed by              Date         

 

  
           
COMMERCIAL LEASE AGREEMENT (CL PAGE 5 OF 6)


Premises: 146 Main Street #26, Los Altos, CA 94022                     Date 02/04/16

 

Landlord and Tenant acknowledge and agree that Brokers: (i) do not guarantee the condition of the Premises; (ii) cannot verify representations made by others; (iii) will not verify zoning and land use restrictions; (iv) cannot provide legal or tax advice; (v) will not provide other advice or information that exceeds the knowledge, education or experience required to obtain a real estate license. Furthermore, if Brokers are not also acting as Landlord in this agreement, Brokers: (vi) do not decide what rental rate a Tenant should pay or Landlord should accept; and (vii) do not decide upon the length or other terms of tenancy. Landlord and Tenant agree that they will seek legal, tax, insurance, and other desired assistance from appropriate professionals.

 

Tenant  

/s/ Kevin Kanning

       Date   02/04/16

Kevin Kanning for ADOMANI, Inc.

            
(Print name)             
Address 171 Main Street #105    City   Los Altos                                     State   CA                    Zip  

94022

Tenant                                                                                           Date  

 

 

       
(Print name)             
Address                                                                                     City                                                   State                          Zip                                   

 

x GUARANTEE: In consideration of the execution of this Agreement by and between Landlord and Tenant and for valuable consideration, receipt of which is hereby acknowledged, the undersigned (“Guarantor”) does hereby: (i) guarantee unconditionally to Landlord and Landlord’s agents, successors and assigns, the prompt payment of Rent or other sums that become due pursuant to this Agreement, including any and all court costs and attorney fees included in enforcing the Agreement; (ii) consent to any changes, modifications or alterations of any term in this Agreement agreed to by Landlord and Tenant; and (iii) waive any right to require Landlord and/or Landlord’s agents to proceed against Tenant for any default occurring under this Agreement before seeking to enforce this Guarantee.

 

Guarantor (Print Name) Kevin Kanning                                       
Guarantor /s/ Kevin Kanning                                                          Date 02/04/16                   
Address 171 Main Street #105        City Los Altos                        State CA                            Zip 94022        
Telephone 650-533-7629                Fax 650-745-7250                E-mail kevinkanning@yahoo.com                        

Landlord agrees to rent the Premises on the above terms and conditions.

Landlord /s/ Authorized Signatory                                                                                                                Date 2/5/16                    

                (owner or agent with authority to enter into this agreement)

 

Address                                                                   City                                                                               State                          Zip

Landlord                                                                                                                                                 Date                                         

                (owner or agent with authority to enter into this agreement)

Address                                                               City                                                                               State                          Zip

Agency relationships are confirmed as above. Real estate brokers who are not also Landlord in this agreement are not a party to the agreement between Landlord and Tenant.

 

Real Estate Broker (Leasing Firm)                                                                                                BRE Lic. #                                 

 

By (Agent)                                                                       BRE Lic. #                                               Date                                         

 

Address                                                                           City                                                         State                  Zip                  

 

Telephone                                                               Fax                                                     E-mail                                                   

  

  

  

  

 

Real Estate Broker (Leasing Firm)                                                                                        BRE Lic. #                                      

 

By (Agent)                                                   BRE Lic. #                                                       Date                                                   

 

Address                                                       City                                                                   State                          Zip                  

 

Telephone                                      Fax                                                       E-mail                                                                          

  

  

  

  

© 2013. California Association of REALTORS®, Inc. United States copyright law (Title 17 U.S. Code) forbids the unauthorized distribution, display and reproduction of this form or any portion thereof, by photocopy machine or any other means, including facsimile or computerized formats.

THIS FORM HAS BEEN APPROVED BY THE CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). NO REPRESENTATION IS MADE AS TO THE LEGAL VALIDITY OR ACCURACY OF ANY PROVISION IN ANY SPECIFIC TRANSACTION. A REAL ESTATE BROKER IS THE PERSON QUALIFIED TO ADVICE ON REAL ESTATE TRANSACTIONS. IF YOU DESIRE LEGAL OR TAX ADVICE, CONSULT AN APPROPRIATE PROFESSIONAL.

    

     

LOGO

  

Published and Distributed by

REAL ESTATE BUSINESS SERVICES, INC.

A subsidiary of the California Association of REALTORS®

525 South Virgil Avenue, Los Angeles, California 90020

     LOGO     

CL REVISED 4/13 (Page 7 of 8)

   Reviewed by                       Date                   United   
        
COMMERCIAL LEASE AGREEMENT (CL PAGE 6 OF 6)   

Exhibit 6.2

 

LOGO   

                                 NEWPORT CENTER

                                 620 Newport Center Drive, Suite 1100

                                 Newport Beach, CA 92660

                                 Phone: (949) 721-6696 / Fax: (949) 721-6650

  

Agreement #: 38613

 

www.pbcenters.com

 

PREMIER OFFICE LICENSE AGREEMENT    Page 1 of 1

 

Date of Agreement: 12/7/15            Initial Term: 12                    Initial Term Start Date1/1/16    Initial Term Expiration Date12/31/16

 

Client Name:  

Jim

      Billing Address:  

ADOMANI, INC.

Contact Name:  

Jim Reynolds

        171 Main Street
Phone Number:  

714-814-6900

        Suite 105
E-mail Address:  

jim.r@adomanielectric.com

        Los Altos, CA 94022

 

PREMIER OFFICE PLAN(S) SELECTED  

Office Number

   Office Type      Square
Footage1
     Basic
Monthly Rent
     Term in
Months
     Free Months2      Amortized
Basic
Monthly
Rent3
     Number of
Occupants
 

3

     Window         247       $ 3,458.00         12         3       $ 2,593.50         1   

 

MONTHLY COSTS  

Basic Monthly Rent

   $ 3,458.00   

Amortized Basic Monthly Rent

   $ 2,593.50   

Elective Support Services

   $ 475.00   

CAM Fee

   $ 61.75   

Kitchen Amenities Fee

   $ 25.00   

Total Monthly Costs

   $ 3,155.25   

Amortized Total Monthly Costs

   $ 3,155.25   
ONE-TIME COSTS        

Service Commencement Fee

   $ 149.00   

Security Deposit

   $ 6,310.50   

Total One-Time Costs

   $ 6,459.50   

TOTAL DUE AT SIGNING

   $ 9,614.75   

 

PROMOTION

     3 Months Free Amortized Over Term   
 

 

1  Approximation
2  Free months do not apply to renewal terms
3  Amortized Basic Monthly Rent/Total Monthly Cost equals the value of tree months divided over initial term

 

Miscellaneous:

 

This Premier Office License Agreement (“Agreement”) consists of this cover page and the attached Premier Elective Support Services page and Terms and Conditions. Sales tax be charged where applicable Premier has not had the Center Inspected by a Certified Access Specialist, nor has Premier received notice of such inspection of the Building by the Building Landlord.
CLIENT:       PREMIER OFFICE CENTERS, LLC a

California Limited Liability company

LOGO

     

 

                                     Signature

  

 

Signature

     

 

By: Jeffrey H. Reinstein

Chief Executive Officer

12/7/15                                                                                   
            Date                Date      

 

   © 2013 Premier Business Centers All Rights Reserved


LOGO

  

                                 NEWPORT CENTER

                                 620 Newport Center Drive, Suite 1100

                                 Newport Beach, CA 92660

                                 Phone: (949) 721-6696 / Fax: (949) 721-6650

  

Agreement #: 38613

 

www.pbcenters.com

 

PREMIER ELECTIVE SUPPORT SERVICES

 

Business support solutions you can count on Whenever, Wherever, However.

 

• Support & Office Facilities • Building Amenities • IT & Telecom • Vendor Benefits

  

 

Effective Start Date: 01/01/2016

Expiration Date: 12/31/2016

 

ONGOING SUPPORT SERVICES

 

SUPPORT & OFFICE FACILITIES

 

Title

  

Description

   #      Cost  

Office Furniture Rental

   $ Upon request      

Unlimited Scanning

   $25 per month      

Premier Concierge - Bronze

   $65 per month/per person      

Premier Concierge-Silver

   $125 per month/per person      

Premier Concierge - Gold

   $240 per month/per person      

Premier Concierge - Platinum

  

$450 per month/per person

 

     

BUILDING AMENITIES

 

Title

  

Description

   #      Cost  

Parting - Unreserved

        2       $ 180.00   

Parting - Reserved

        

Parting-Valet

 

        

IT & TELECOM

 

Title

  

Description

   #      Cost  

Premier Internet

   $99 per month/per person; Broadband Internet Connection      

Premier Connect

   $195 per month/per person; Internet, Free LC/LD*, 2 Phone Lines, Voice Mail and M/Line Ans.      1       $ 195.00   

Premier Connect Plus

   $50 per month/per person; Call Screening & Voice-to-Cell/Email      

VoIP Capability

   $150 per month      

Premier Dedicated Bandwidth

   $150 per month/per 1 mbps      

Static IP Address

   $30 per month      

411 Directory Assistance Listing

   $15 per month      

Fax Line

   $25 per month      

Additional DID

   $25 per month/per number      

Additional Voice Mail Box/Tree

   $25 per month/per VM box      

Call Patching and Notifications

  

$65 per month

 

     
VENDOR BENEFITS  

Title

  

Description

   #      Cost  

LexisNexis

   $250 per month/per person      

SUPPORT AS YOU NEED IT

 

SUPPORT & OFFICE FACILITIES

Title

  

Description

Premier Support Services    $40 per hr at 15 min intervals
Catering    $ Upon request
Conference Rooms – Large    $75.00 per hr
Conference Rooms – Medium    $50.00 per hr
Conference Rooms – Small    $40.00 per hr
Copy& Print    $0.15 per pg. b/w; $1 00 per pg. color
Scanning    $0.15 per pg.
Fax    $1 per page (Domestic)
Mail Forwarding Day/Week/Month    $50p mth/$25p mth/$10p mth + cost
Postage    Admin time + materials + 30%
FedEx**   

Admin time + materials + 50%/25%

 

BUILDING AMENITIES

Title

  

Description

Additional/Replacement Access Card    $50 per card
Additional/Replacement Key    $25 per key
Parking – Validation    Cost + 30%

Signage – Lobby Listing

 

  

IT & TELECOM

Title

  

Description

Consulting On-Site/Remote    $125 per hour/$95 per hour
Local Calls    $0.05 per minute
Local Long Distance Calls    $0.18 per minute
Domestic Long Distance    $0.34 per minute
International    $1.45 per minute

 

MISCELLANEOUS

 

Title

  

Description

   #      Cost  

Furniture Set

        1       $ 100.00   
 

 

PREMIER CUSTOMER APPROVAL

TOTAL MONTHLY EFFECTIVE ELECTIVE SUPPORT SERVICES FEES

   $475.00

Company:

  

Name: Jim Reynolds

   Signature:   LOGO

 

* Domestic Long Distance Only.
** International FedEx Express limited to envelop only, value of $20 or less. Shipping costs will be charged a markup of 50%, if less than $25, or 25% if greater.
You may cancel your reservation at no charge any time prior to 24 hours of your scheduled reservation. Your account will be charged if cancelation is after the 24 hour deadline.

 

   © 2013 Premier Business Centers All Rights Reserved


TERMS AND CONDITIONS

1. SERVICES LICENSED. Pursuant to this Agreement, you have a license to use the office(s) assigned to you. You also have shared use of common areas in the Center including lobby and kitchen areas (but excluding use of conference rooms and day offices except as set forth in the Rules and Regulations). You have access to your office(s) 24 hours a day, 7 days a week. Our building provides office cleaning, maintenance services, electric, lighting, heating and air conditioning to the Center during normal business hours as determined by the landlord for the building (“Building Landlord”). In addition to your office(s), we will provide you with certain services on an as requested basis. The current schedule of services available on a requested basis and the fees for such services is set forth under the “Support As You Need It” column on the Premier Elective Support Services page of this Agreement The services/fee schedule will be updated from time to time. You will be obligated to pay for the recurring services selected under the “Ongoing Support Services” column on the Premier Elective Support Services page of this Agreement throughout the term of this Agreement (as may be extended). The fees for such services are charged to your account and are payable on the first day of the next calendar month following the end of the most recent billing cycle for such services (which billing cycle is currently from the 13th day of the month to the 12th day of the next month). You agree to pay all charges authorized by you or your employees. Premier Office Centers, LLC dba Premier Business Centers (Premier) and vendors designated by Premier are the only service providers authorized to provide services in the Center. You agree that neither you nor your employees will solicit other clients of the Center to provide any service provided by Premier or its designated vendors, or otherwise. Any square footage listed on the first page of this Agreement for your office(s) are approximations and may include a portion of the common area of the Center. If you are assigned cubicle space pursuant to this Agreement or any amendment hereto, then for purposes of this Agreement and the Rules and Regulations attached hereto the terms “office” or “office(s)’ shall be deemed to include the cubicle(s) assigned to you, including, without limitation, for purposes of Paragraph 11 below. If you have a Premier Concierge Plan, then you may elect to use in any monthly billing cycle some or all of the concierge support time (“Concierge Support Time’) allocated to you based on the Premier Concierge Plan selected by you; you will incur additional charges for Concierge Support Time used by you in excess of the Concierge Support Time allocated pursuant to the Premier Concierge Plan selected by you. Client may not carry over unused time to future months. If Client is entitled to monthly credits per billing cycle for meeting room use time pursuant to this Agreement, (i) the application of the credits will be based on the hourly usage rates established by Premier for the type of meeting room used, (ii) the credits shall apply only during the initial term of this Agreement, and (iii) Client may not carry over unused credits to future months.

2. PAYMENTS. You agree to pay, without offset or demand, the Basic Monthly Fee and all other monthly recurring fees in advance on the first day of each month. You also agree to pay monthly, at the same time as the Basic Monthly Fee and other monthly recurring fees (unless another time is specified herein for such payment), additional service fees, CAM Charges (as defined below) and all applicable sales or use taxes. If you dispute any portion of the charges on your bill, you agree to pay the undisputed portion on the first day of the calendar month. You agree that charges must be disputed within 30 days or you waive your right to dispute such charges. If any payments are not received by the third day of the month, you may be charged a service charge of 10% of the late payment or $50, whichever is greater, for bookkeeping and administrative expenses. You will also be charged interest at 1.5% per month on late payments, or the highest rate permitted by applicable law, whichever is less. When you sign this Agreement you are required to pay the “Total Due at Move-ln’ amount shown on the first page of this Agreement. You acknowledge that the Basic Monthly Fee is based upon the number of persons occupying or using the office(s) assigned to you on the first page of this Agreement. If the number of persons that regularly uses or occupies the office(s) increases, an excess occupant fee may be charged for each such additional person. No acceptance of a lesser amount than the amounts payable by Client under this Agreement shall be deemed a waiver of Premier’s right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Premier may accept such check or payment without prejudice to Premier’s right to recover the full amount due. Upon termination of this Agreement, you will be responsible for paying a cleaning fee equal to $200 per office assigned to you. Upon termination of this Agreement, you will be responsible for paying an office reconditioning fee equal to a flat rate of $200 for an office measuring up to 150 square feet. A further charge of $0.50 will be payable by you for each square foot over 150 square feet per office assigned to you.

3. CAM CHARGES. You will pay, as an additional charge, a monthly amount equal to $0.25 per square foot of office space assigned to you as your share of the common area maintenance and building operating costs and charges (“CAM Charges”) payable by Premier under its lease with the Building Landlord. Your share of CAM Charges, as specified in the immediately preceding sentence, will not change notwithstanding the actual amount of CAM Charges paid by Premier to the Building Landlord.

4. SECURITY DEPOSIT. Client shall deposit with Premier upon execution of this Agreement the Security Deposit specified on the first page of this Agreement as security for Client’s faithful performance of Clients obligations hereunder. If at any time during the term of this Agreement (or any renewal or extension term), your Basic Monthly Fee and/or other monthly recurring fees are increased, then the amount of the Security Deposit will be increased by 200% of such increase in the Basic Monthly Fee and/or other monthly recurring fees, which increase shall be payable to Premier upon request. The Security Deposit will not be kept in a separate account from other funds of Premier and no interest will be paid to you on this amount. The Security Deposit may be applied to outstanding fees or charges at any time, at our discretion. Premier has the right to require that you replace any portion of the Security Deposit that we apply to your fees or charges. At the end of the term of this Agreement, if you have satisfied all of your payment obligations, we will refund the unapplied portion of the Security Deposit within 60 days.

5. RULES AND REGULATIONS; FIRST CLASS USE. You agree to comply with the rules and regulations of the Center (“Center Rules’), a copy of which you acknowledge having received upon your execution of this Agreement You also agree to comply with the rules and regulations of the Building Landlord, and such rules and regulations shall constitute Center Rules for purposes of this Agreement Premier has the right to reasonably amend the Rules and supplement the same with other reasonable Rules, and all such amendments or new Rules shall be binding upon you after 5 days notice to you. Nothing herein shall be construed to give you or any other person or entity any claim, demand or cause of action against Premier arising out of the violation of such Rules by any other client, occupant or visitor of the Center, or out of the enforcement or waiver of the Rules by Premier in any particular instance To the extent there is a conflict between the Rules and this Agreement this Agreement will control Your use of your office(s) must be for a first class office use.

6. HIRING PREMIER’S EMPLOYEES; NO SOLICITING OTHER CLIENTS TO RELOCATE. Our employees are an essential part of our ability to deliver our services. You acknowledge this and agree that, if during the term of this Agreement and for 6 months afterward, you hire any of our employees (including, without limitation, any former employees hired by you within six months after the termination of their employment with Premier), you will pay Premier a commission for the hiring in an amount equal to one-half of the sum of (i) the annual base salary of the employee you hire, plus (ii) any bonus and/or commissions allocable to such employee on an annual basis. You agree that the obligation to pay a commission and the amount of the commission payable is fair and reasonable. You agree not to solicit or otherwise cause any other clients of the Center to move.

7. LICENSE AGREEMENT. THIS AGREEMENT IS NOT A LEASE OR ANY OTHER INTEREST IN REAL PROPERTY. IT IS A CONTRACTUAL ARRANGEMENT THAT CREATES A REVOCABLE LICENSE. We retain legal possession and control of the Center and the office(s) assigned to you. This Agreement and our obligation to provide you office space and services are subject and subordinate to the terms of our lease with the Building Landlord. This Agreement terminates automatically upon any termination of our lease with the Building Landlord or the termination of the operation of the Center for any reason. Additionally, Premier has the right to terminate this Agreement if the Building Landlord requires such termination due to your use of the office(s) or the nature or type of your business or organization. As our client you do not have any rights under our lease with the Building Landlord. When this Agreement is terminated because the term has expired or otherwise, your license to occupy the Center is revoked. You agree to remove your personal property and leave the office(s) as of the date of termination. We are not responsible for property left in the office(s) after termination. If you do not remove any property belonging to you after termination, you shall be conclusively deemed to have abandoned and conveyed such property to Premier, or, at Premier’s option, Premier may remove and store the same and you shall pay to Premier upon demand all costs of such removal and storage. No act or thing done by Premier or any agent or employee of Premier during the initial or renewal term of this Agreement shall be deemed to constitute an acceptance by Premier of a surrender of the office(s) licensed by Client unless such intent is specifically acknowledged in writing by Premier The delivery of keys to the office(s) to Premier or any agent or employee of Premier shall not constitute a surrender of the office(s) licensed by Client or effect a termination of this Agreement, whether or not the keys are thereafter retained by Premier, and notwithstanding such delivery Client shall be entitled to the return of such keys at any reasonable time upon request until this Agreement shall have been properly terminated.

8. DAMAGES AND INSURANCE. You are responsible for any damage you cause to the Center or your office(s) beyond normal wear and tear. Additionally, you are responsible for any damage you cause to the building or its parking facilities or common areas. We have the right to inspect the condition of the office(s) from time to time and make any necessary repairs. You are responsible for insuring your personal property against all risks. You have the risk of loss with respect to all of your personal property irrespective of whether it is in our possession or yours. You agree to waive any right of recovery against Premier and the Building Landlord, and their respective officers, directors, employees, shareholders, members, partners, agents and representatives, for any damage or loss to your property under your control. It is understood that all property in your office(s) or anywhere else in the Center is under your control. Without limiting the foregoing, Premier is not responsible, and shall have no liability, for any lost packages or mail, it being the understanding that Client, at Client’s sole cost, is responsible for obtaining insurance to insure against the risk of lost packages or mail. You are also responsible for obtaining business interruption insurance insuring you in the event there are any issues or problems with the building in which the Center is located (the “Building”), including, without limitation, heating, ventilation and air conditioning problems, water leakage or utility disruptions.

9. DEFAULT; TERMINATION. You are in default under this Agreement if (i) you fail to abide by, or to cause your employees or invitees to abide by, the Rules of the Center; (ii) you do not pay any amount payable by you hereunder on the designated payment date and after written notice of your failure to pay you do not pay within 3 days after the date of such notice; or (iii) you do not otherwise comply with the terms of this Agreement. If the default is unrelated to payment you will be given written notice of the default and you will have 10 days from the date of such notice to correct the default (unless the default cannot be corrected, in which event no cure period will apply). Premier has the right to terminate this


Agreement early: (1) if you fail to correct a default within the applicable cure period or if the default cannot be corrected; (2) if you repeatedly default under this Agreement, in which case no cure period shall apply; or (3) if you use the Center for any illegal operations or purposes. Premier has the right to treat a violation of any of the Rules of the Center as a default which cannot be corrected; alternatively, Premier has the right to assess a penalty charge against Client for a violation of any of the Rules in an amount of up to $500 per violation, which penalty charge will be payable by Client immediately upon demand by Premier. If this Agreement is terminated due to your default, then you will nevertheless remain liable for the Monthly Basic Fee and other monthly recurring fees which would have been payable for the remainder of the term had this Agreement not been terminated. If you default on your obligations under this Agreement, you agree that Premier may cease to provide any and all services, including without limitation access to your office(s), parking, telephone and internet services, without notice or the need to initiate legal process. You shall pay to Premier upon demand any costs, including without limitation reasonable legal fees, incurred by Premier in enforcing the terms of this Agreement. If Client or a company affiliated with Client enters into, or has already entered into, one or more separate agreements) with Premier or its affiliated entities for the use of other space in, or the provision of services at, the Center or any other center operated by Premier or its affiliated entities, then a default by Client under this Agreement shall, at Premier’s option, also constitute a default by Client or its affiliate under such other agreement(s), and any default by Client or its affiliate under any such other agreement(s) shall, at Premier’s option, also constitute a default by Client under this Agreement. Premier will not be liable for any default or breach by Premier under this Agreement unless you deliver written notice of such default or breach to Premier in accordance with the notice provisions of Paragraph 15 below and Premier fails to cure such default or breach within thirty (30) days after Premier’s receipt of such notice.

10. OUR LIMITATION OF LIABILITY. You acknowledge and agree that due to the imperfect nature of verbal, written and electronic communications, neither Premier nor the Building Landlord or any of their respective officers, directors, employees, shareholders, members, partners, agents or representatives shall be responsible for damages, direct or consequential, that may result from the failure of Premier to furnish any service, including but not limited to the service of conveying messages, communications (including but not limited to telephone and internet service), concierge services or any other utility or services. You also acknowledge and agree that Premier shall not be responsible for any damages or losses, direct or consequential, resulting from any error or omission in providing, any failure to provide or any delay in providing, any computer or information technology services. Your sole remedy and Premier’s sole obligation for any failure to render any service to be provided by Premier, any error or omission, or any delay or interruption of any service to be provided by Premier, is limited to an adjustment to your bill in an amount equal to the charge for such service for the period during which the failure, delay or interruption continues. No such adjustment shall apply with respect to, and you will not be entitled to an offset against or reduction of any amounts payable by you under this Agreement in the event of, any delay or interruption of any service provided by the Building Landlord or other building issues or problems, including, without limitation, heating, ventilation and air conditioning problems, water leakage or utility disruptions. Without in any way limiting the foregoing, Premier will work with the Building Landlord in an effort to have the temperature in your office(s) at a comfortable range during normal business hours; however, you will not be entitled to an offset against or reduction of any amounts payable by you under this Agreement, nor will you have any other remedy against Premier or the Building Landlord, in the event you are not satisfied with the temperature range. WITH THE SOLE EXCEPTION OF THE REMEDY DESCRIBED ABOVE, YOU EXPRESSLY AND SPECIFICALLY AGREE TO WAIVE, AND AGREE NOT TO MAKE, AND YOU AGREE TO INDEMNIFY AND HOLD PREMIER AND THE BUILDING LANDLORD HARMLESS FROM AND AGAINST, ANY CLAIM FOR DAMAGES OR LOSSES, DIRECT OR CONSEQUENTIAL. INCLUDING, WITHOUT LIMITATION, LOST BUSINESS OR PROFITS (WHETHER IN AN ACTION IN CONTRACT, WARRANTY, TORT, INCLUDING, WITHOUT LIMITATION, NEGLIGENCE, OR STRICT LIABILITY (COLLECTIVELY, “DAMAGES”), EVEN IF PREMIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LIABILITIES), ARISING FROM ANY FAILURE TO FURNISH ANY SERVICE, ANY ERROR, ACT OR OMISSION WITH RESPECT THERETO, ANY DELAY OR INTERRUPTION OF SERVICES OR ANY ISSUES OR PROBLEMS WITH THE BUILDING, INCLUDING, WITHOUT LIMITATION, HEATING, VENTILATION AND AIR CONDITIONING PROBLEMS, WATER LEAKAGE OR UTILITY DISRUPTIONS. WITH REGARD TO ANY SERVICES PROVIDED BY PREMIER, PREMIER DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ADDITIONALLY, PREMIER MAKES NO REPRESENTATIONS OR WARRANTIES REGARDING THE AVAILABILITY OF PARKING AT THE CENTER, AND CLIENT SHALL INDEMNIFY AND HOLD PREMIER HARMLESS FROM ANY PARKING CHARGES OR PENALTIES THAT MAY BE IMPOSED BY BUILDING LANDLORD DUE TO CLIENTS USE OF PARKING AT THE CENTER. If you have a Premier Concierge Plan, the concierge services will be provided by Portero Concierge Inc. (“Portero”) on an independent contractor basis. Portero is not affiliated with Premier, and Premier disclaims, and shall have no responsibility whatsoever for, any Damages that may arise from the provision of concierge services. In this regard, Client shall indemnify and hold provisions of concierge services to Client.

            JR             

Initial

11. RENEWAL/NOTICE REQUIREMENT. UNLESS CANCELLED AS PROVIDED BELOW, THIS AGREEMENT WILL AUTOMATICALLY RENEW ON A CONTINUING BASIS FOR THE SAME PERIOD OF TIME AS THE INITIAL TERM AT PREMIER S THEN CURRENT LIST PRICE FOR THE OFFICE(S) AND/OR SERVICES IF YOU HAVE LESS THAN 3 OFFICES, YOU MUST GIVE WRITTEN NOTICE 60 DAYS PRIOR TO THE DATE YOUR AGREEMENT IS SCHEDULED TO TERMINATE IN ORDER TO CANCEL YOUR RENEWAL. IF YOU HAVE 3 OFFICES OR MORE. YOU MUST GIVE WRITTEN NOTICE 90 DAYS PRIOR TO THE DATE YOUR AGREEMENT IS SCHEDULED TO TERMINATE IN ORDER TO CANCEL YOUR RENEWAL SUCH NOTICE MAY ONLY BE DELIVERED ON THE FIRST DAY OF ANY GIVEN MONTH. IF SUCH NOTICE IS DELIVERED ON ANY OTHER DAY. IT SHALL BE DEEMED TO HAVE BEEN DELIVERED ON THE FIRST DAY OF THE FOLLOWING MONTH. THE AUTOMATIC RENEWAL PROVISIONS OF THIS PARAGRAPH APPLY TO OFFICES WHICH ARE LICENSED ON A MONTH-TO-MONTH BASIS, AS WELL AS TO OFFICES LICENSED ON A LONGER BASIS NOTWITHSTANDING THE FOREGOING, PREMIER MAY TERMINATE THIS AGREEMENT AFTER EXPIRATION OF THE INITIAL TERM FOR ANY REASON WITH 30 DAYS NOTICE TO YOU. BY INITIALING IN THE PLACE PROVIDED BELOW, YOU HEREBY ACKNOWLEDGE YOUR AGREEMENT TO THE RENEWAL PROVISIONS OF THIS PARAGRAPH 11.

            JR             

Initial

12. RELOCATION; RENOVATIONS. We reserve the right to relocate you to another office in the Center from time to time. If we exercise this right it will only be to an office of equal or larger square footage This relocation will be at our expense. We reserve the right to show the office(s) to prospective clients and will use reasonable efforts not to disrupt your business. Client acknowledges that Premier may from time to time renovate, improve, alter, or modify (collectively, the “Renovations’) the Center. Client agrees that such Renovations shall in no way constitute a constructive eviction of Client nor entitle Client to any abatement of the Monthly Basic Fee or other amounts payable by Client under this Agreement. Premier shall have no responsibility and shall not be liable to Client for any injury to or interference with Client’s business arising from the Renovations, nor shall Client be entitled to any compensation or damages from Premier for loss of the use of the whole or any part of the office(s) being licensed by Client resulting from the Renovations, or for any inconvenience or annoyance occasioned by such Renovations.

13. INTERNET SERVICES. At Client’s election and for an additional cost, Premier will provide Client with shared access to a high-speed Internet connection (Internet Service). Premier’s basic Internet Service will be provided through a dynamic NAT (Network Address Translation) IP address, which change over time. The NAT IP addresses are behind Premier’s firewall and do not provide direct inbound access. At Client’s election, Premier will provide a static IP address for a further additional charge Only one device may be connected to the Internet Service for each ‘internet Access’ connection subscribed to by Client. Premier will provide a single wall mounted Ethernet jack per office for physical connection to the Internet Service. If Client needs additional jacks, Client can either purchase a hub at its cost or, for an additional charge, request that Premier install an additional jack or relocate the existing jack. Client will be responsible for connecting its computer to the wall mounted Ethernet jack. PREMIER SHALL NOT BE RESPONSIBLE FOR ANY LOSS, DAMAGE, LIABILITY, CLAIM OR EXPENSE ARISING FROM ANY DEVICE THAT IS CONNECTED TO THE INTERNET SERVICE. Except for the Ethernet jack provided by Premier as specified above, Client shall be responsible at its cost for obtaining and installing all other equipment and operating systems necessary to connect Client’s device to the Internet Service. Some equipment may be available for purchase from Premier at an additional charge to Client. Client shall have sole responsibility for the installation, testing and operation of Internet facilities, services and equipment (other than installation specifically provided by Premier) CLIENT SHALL BE RESPONSIBLE FOR USER ACCESS SECURITY AND NETWORK ACCESS, SUCH AS CONTROL OVER WHICH USERS USE THE INTERNET SERVICE AND INSTALLATION OF PASSWORDS. Client acknowledges that Premier will not be providing user access security or virus protection of any kind, and Client agrees that Client shall have the sole responsibility for detecting and preventing against any network security breaches and computer viruses. In all cases, Premier shall in no way be responsible for external attacks, security breaches or computer viruses made on Client’s computer or other devices. Client shall use the Internet Service only for accessing the Internet, and Client shall not use the Internet Service as a server site for ftp, telnet, chat, video conferencing, e-mail hosting, web hosting or other similar Internet services without Premier’s prior written approval, which approval may be withheld in Premier’s sole and absolute discretion. To protect client workstations, inbound access to the internal LAN is blocked at the firewall. However, if Client requires usage of inbound remote control software or Virtual Private Networks, Premier, at its election and at an additional charge to Client, may allow this type of inbound access on an as requested basis. Client is allowed to access the Internet Service utilizing only IP addresses issued by Premier, unless otherwise agreed to by Premier. Client will be charged for any unauthorized access to the Internet from the date of initial move in. Premier shall have the right to terminate Internet Service to Client for any unauthorized use of or access to the Internet by Client Upon the expiration or earlier termination of this Agreement. Client must relinquish and discontinue use of any IP address(s) and e-mail accounts assigned to Client. Premier may elect to reassign new IP address(s) at any time. If Premier detects inordinate amounts of bandwidth consumption and/or connections in excess of one connection for each “internet Access” connection subscribed to by Client. Premier reserves the right to either (a) temporarily block services; (b) disallow usage above a pre-determined threshold; or (c) charge client for the excess bandwidth or additional connections used. Any such election by Premier shall not constitute a waiver of Premier’s right to terminate this Agreement due to any breach by Client of the provisions of this Paragraph. After 2 warnings of inordinate bandwidth consumption by Client, Premier shall have the right to terminate Internet Service to Client. Voice over IP telephones are not allowed, and Client shall lot connect voice over IP telephones to the Internet Service. Client shall be subject to, and Client’s use of Internet Service shall be limited by, any rules and regulations that Premier


may impose in connection with use of the Internet Service. Premier shall have the right to terminate Internet Service to Client if Client violates any such rules and regulations. If Premier is informed by government authorities of inappropriate or illegal use by Client of Premier’s facilities or other networks accessed through Premier, Premier may terminate Client’s Internet Service. CLIENT SHALL INDEMNIFY, DEFEND AND HOLD PREMIER HARMLESS FROM AND AGAINST ANY LOSS, LIABILITY, CLAIM, ACTION OR EXPENSE ARISING FROM CONTENT DISSEMINATED BY CLIENTS EQUIPMENT, SOFTWARE AND/OR USERS OF THE INTERNET SERVICE. PREMIER MAKES NO REPRESENTATIONS OR WARRANTIES REGARDING BANDWIDTH SPEEDS FOR THE INTERNET SERVICE.

14. HANDING OF MAIL UPON TERMINATION. Upon expiration or earlier termination of this Agreement, you must notify all parties with whom you do business of your change of address. You agree not to file a change of address form with the postal service. Filing of a change of address form may forward all mail addressed to the Center to your new address In addition, all telephone and facsimile numbers and IP addresses are the property of Premier. These numbers will not be transferred to you at the end of the term. Upon termination of the Agreement you will pay a termination fee of $200 per office to cover the cost of providing your new telephone number and address to all incoming callers, holding your mail and facsimiles for a period of 30 days after termination. After 30 days you may request the continuation of these services at our current rates.

15. NOTICES. All notices are to be in writing and may be given by registered or certified mail, postage prepaid, overnight mail service or hand delivered with proof of delivery. Notices to Premier, to be effective, must be sent to the address of the Center listed on the first page of this Agreement and addressed to the attention of the Center’s General Manager, with a copy addressed to Premier Business Centers, 2102 Business Center Drive, Attention: Director of Operations, Irvine, CA 92612. Notices to Client may be sent to Client at the address listed on the first page of this Agreement.

16. MEDIATION; GOVERNING LAW. In the event a dispute arises under this Agreement, you agree to submit the dispute to mediation pursuant to the procedure established by the American Arbitration Association; if the amount of your claim is less than $10,000, then the AAA Online Mediation procedure shall apply. If mediation does not resolve the dispute, you agree that the matter will be submitted to arbitration pursuant to the procedure established by the American Arbitration Association in Orange County, California, unless Premier elects to not have the dispute resolved through arbitration. The decision of the arbitrator will be binding on the parties. The non-prevailing party as determined by the arbitrator shall pay the prevailing parties’ attorneys’ fees and costs of the arbitration. Furthermore, if a court decision prevents or Premier elects not to submit this matter to arbitration, then the non-prevailing party as determined by the court shall pay the prevailing parties’ reasonable attorneys’ fees and costs. Nothing in this paragraph will prohibit Premier from seeking equitable relief, including without limitation, any action for removal of Client from the Center after the license has been terminated or revoked. This Agreement is governed by the laws of the State of California.

17. MISCELLANEOUS. Client may not assign this Agreement without Premier’s prior written consent, which consent will not be unreasonably withheld. No assignment shall release Client from Client’s liability under this Agreement. This Agreement is the entire agreement between you and Premier. It supersedes all prior agreements. This Agreement may not be modified, except in writing signed by both parties. If more than one party signs this Agreement as Client, the obligations of such parties shall be joint and several. The terms of this Agreement are confidential. Neither Premier nor Client may disclose the terms of this Agreement to a third party without the other’s consent, unless in connection with legal proceedings or unless required to do so by law or an official authority. Disclosure of the terms of this Agreement to another client of Premier or a third party without our written approval may result in the immediate termination of this Agreement This Agreement is not binding on Premier unless it is executed by the Chief Executive Officer of Premier.

 

PREMIER OFFICE CENTERS, LLC

a California limited liability company

       
By:   

 

       
  Jeffrey H. Reinstein, Chief Executive Officer        
CLIENT        

Adomani, Inc. A Florida Corp

Print Company Name and Type (i.e. a California corporation)

       
By:   LOGO       By :  

 

                  Signature                         Signature

J Reynolds, President & CEO

     

 

                    Print Name and Title                           Print Name and Title

Exhibit 6.3

 

LOGO

  

AIR COMMERCIAL REAL ESTATE ASSOCIATION

STANDARD INDUSTRIAL/COMMERCIAL

MULTI-TENANT LEASE - GROSS

  

 

1. Basic Provisions (“Basic Provisions”).

1.1 Parties: This Lease (“Lease”), dated for reference purposes only March 4, 2015, is made by and between North Orange Industrial Park (“Lessor”) and Adomani, Inc., a Florida Corporation (“Lessee”), (collectively the “Parties”, or individually a “Party”).

1.2(a) Premises: That certain portion of the Project (as defined below), including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by the street address of 1243 West Trenton Avenue, located in the City of Orange, County of Orange, State of California, with zip code 92867, as outlined on Exhibit A attached hereto (“Premises”) and generally described as (describe briefly the nature of the Premises): industrial end-unit consisting of approximately 3,915 sq ft (part of a large building)

In addition to Lessee’s rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to any utility raceways of the building containing the Premises (“Building”)and to the Common Areas (as defined in Paragraph 2.7 below), but shall not have any rights to the roof, or exterior walls of the Building or to any other buildings in the Project. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the “Project.” (See also Paragraph 2)

1.2(b) Parking: seven (7) unreserved vehicle parking spaces. (See also Paragraph 2.6)

1.3 Term: One (1) years and          months (“Original Term”) commencing March 15, 2015 (“Commencement Date”) and ending March 14, 2016 (“Expiration Date”). (See also Paragraph 3)

1.4 Early Possession: If the Premises are available Lessee may have non-exclusive possession of the Premises commencing (SEE ADDENDUM) (“Early Possession Date”). (See also Paragraphs 3.2 and 3.3)

1.5 Base Rent: $3,523.50 per month (“Base Rent”), payable on the 15th day of each month commencing March 15, 2015 (SEE ADDENDUM). (See also Paragraph 4)

x If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. See Paragraph 50.3

1.6 Lessee’s Share of Common Area Operating Expenses:             percent (            %) (“Lessee’s Share”). In the event that the size of the Premises and/or the Project are modified during the term of this Lease, Lessor shall recalculate Lessee’s Share to reflect such modification.

1.7 Base Rent and Other Monies Paid Upon Execution: (SEE ADDENDUM).

(a) Base Rent: $42,282.00 for the period March 15, 2015 thru March 14, 2016.

(b) Common Area Operating Expenses: $ N/A for the period N/A.

(c) Security Deposit: $3,523.50 (“Security Deposit”). (See also Paragraph 5)

(d) Other: $ N/A for N/A.

(e) Total Due Upon Execution of this Lease: $45,805.50.

1.8 Agreed Use: General and administrative offices and warehouse for research and development of hybrid and electric vehicles. (See also Paragraph 6)

1.9 Insuring Party. Lessor is the “Insuring Party”. (See also Paragraph 8)

1.10 Real Estate Brokers: (See also Paragraph 15 and 25)

(a) Representation: The following real estate brokers (the “Brokers”) and brokerage relationships exist in this transaction (check applicable boxes):

x Ted E. Bean of Real Estate Enterprises represents Lessor exclusively (“Lessor’s Broker”);

x Jared Carver & Colin Keith of Strata Realty, Inc. represents Lessee exclusively (“Lessee’s Broker”); or

¨                     represents both Lessor and Lessee(“Dual Agency”).

(b) Payment to Brokers: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Brokers for the brokerage services rendered by the Brokers the fee agreed to in the attached separate written agreement. or if no such agreement is attached, the sum of — — or — — % of the total base Rent payable for the Original Term, the sum of         or         of the total Base Rent payable during any period of time that the Lessee occupies the Premises subsequent to the Original Term, and/or the sum of or         %         of the purchase price in the event that the Lessee or anyone affiliated with Lessee acquires from Lessor any rights to the Premises.

1.11 Guarantor. The obligations of the Lessee under this Lease are to-be guaranteed by (“Guarantor”). (See also Paragraph 37)

1.12 Attachments. Attached hereto are the following, all of which constitute a part of this Lease:

x an Addendum consisting of Paragraphs 50.1 through 50.6 ;

 

                        

                        

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x a site plan depicting the Premises;

x a site plan depicting the Project;

¨ a current set of the Rules and Regulations for the Project;

¨ a current set of the Rules and Regulations adopted by the owners’ association;

¨ a Work Letter;

 

¨ other (specify):                                                                                                                                                                                          
                                                                                                                                                                                                                         
                                                                                                                                                                                                                         .

 

2. Premises.

2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. While the approximate square footage of the Premises may have been used in the marketing of the Premises for purposes of comparison, the Base Rent stated herein is NOT tied to square footage and is not subject to adjustment should the actual size be determined to be different. NOTE: Lessee is advised to verify the actual size prior to executing this Lease.

2.2 Condition. Lessor shall deliver that portion of the Premises contained within the Building (“Unit”) to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs (“Start Date”), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“HVAC”), loading doors, sump pumps, if any, and all other such elements in the Unit, other than those constructed by Lessee, shall be in good operating condition on said date, that the structural elements of the roof, bearing walls and foundation of the Unit shall be free of material defects, and that the Unit does not contain hazardous levels of any mold or fungi defined as toxic under applicable state or federal law. If a non-compliance with such warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor’s sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor’s expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Unit. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee’s sole cost and expense (except for the repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls—see Paragraph 7).

2.3 Compliance. Lessor warrants that to the best of its knowledge the improvements on the Premises and the Common Areas comply with the building codes that were in effect at the time that each such improvement, or portion thereof, was constructed, and also with all applicable laws, covenants or restrictions of record, regulations, and ordinances in effect on the Start Date (“Applicable Requirements”). Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 49), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee’s sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Unit, Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building (“Capital Expenditure”), Lessor and Lessee shall allocate the cost of such work as follows:

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to 6 months’ Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor shall pay for such Capital Expenditure and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease or any extension thereof, on the date that on which the Base Rent is due, an amount equal to 1/144th of the portion of such costs reasonably attributable to the Premises. Lessee shall pay Interest on the balance but may prepay its obligation at any time. If, however, such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor’s share of such costs have been fully paid. If Lessee is unable to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not have any right to terminate this Lease.

2.4 Acknowledgements. Lessee acknowledges that: (a) it has been given an opportunity to inspect and measure the Premises, (b) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the size and condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee’s intended use, (c) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, (d) it is not relying on any representation as to the size of the Premises made by Brokers or Lessor, (e) the square footage of the Premises was not material to Lessee’s decision to lease the Premises and pay the Rent stated herein, and (f) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee’s ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

 

                        

                        

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2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.

2.6 Vehicle Parking. Lessee shall be entitled to use the number of Parking Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called “Permitted Size Vehicles.” Lessor may regulate the loading and unloading of vehicles by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles other than Permitted Size Vehicles may be parked in the Common Area without the prior written permission of Lessor. In addition:

(a) Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee’s employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities.

(b) Lessee shall not service or store any vehicles in the Common Areas.

(c) If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

2.7 Common Areas - Definition. The term “Common Areas” is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and interior utility raceways and installations within the Unit that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other tenants of the Project and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, walkways, driveways and landscaped areas.

2.8 Common Areas - Lessee’s Rights. Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Project. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor’s designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

2.9 Common Areas - Rules and Regulations. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations (“Rules and Regulations”) for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their invitees. Lessee agrees to abide by and conform to all such Rules and Regulations, and shall use its best efforts to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said Rules and Regulations by other tenants of the Project.

2.10 Common Areas - Changes. Lessor shall have the right, in Lessor’s sole discretion, from time to time:

(a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways;

(b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available;

(c) To designate other land outside the boundaries of the Project to be a part of the Common Areas;

(d) To add additional buildings and improvements to the Common Areas;

(e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project, or any portion thereof; and

(f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Project as Lessor may, in the exercise of sound business judgment, deem to be appropriate.

 

3. Term.

3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

3.2 Early Possession. Any provision herein granting Lessee Early Possession of the Premises is subject to and conditioned upon the Premises being available for such possession prior to the Commencement Date. Any grant of Early Possession only conveys a non-exclusive right to occupy the Premises. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such Early Possession. All other terms of this Lease (including but not limited to the obligations to pay Lessee’s Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such Early Possession shall not affect the Expiration Date.

3.3 Delay In Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or change the Expiration Date. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession is not delivered within 60 days after the Commencement Date, as the same may be extended under the terms of any Work Letter executed be Parties, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessee’s right to cancel shall terminate. If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

3.4 Lessee Compliance. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

 

4. Rent.

4.1 Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are

 

                        

                        

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deemed to be rent (“Rent”).

4.2 “Common Area Operating Expenses”. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee’s Share (as specified in Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions:

(a) The following costs relating to the ownership and operation of the Project are defined as “Common Area Operating Expenses”:

(i) Costs relating to the Operation, repair and maintenance, in neat, clean, good order and condition, but not the replacement (see subparagraph (e)), of the following;

(aa) The Common Areas and Common Area improvements, including parking areas, loading and unloading areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, exterior walls of the buildings, building systems and roof drainage systems.

(bb) Exterior signs and any tenant directories.

(cc) Any fire sprinkler systems.

(dd) All other areas and improvements that are within the exterior boundaries of the Project but outside of the Premises and/or any other space occupied by a tenant.

(ii) The cost of water, gas, electricity and telephone to Service the Common Areas and any utilities not separately metered.

(iii) The cost of trash disposal, pest control services, property management, security services, owner’s association dues and fees, the cost to repaint the exterior of any structures and the cost of any environmental inspections.

(iv) Reserves set aside for maintenance and repair of Common Areas and Common Area equipment.

(v) Any increase above the Base Real Property Taxes (as defined in Paragraph 10).

(vi) Any “Insurance Cost Increase” (as defined in Paragraph 8).

(vii) Any deductible portion of an insured loss concerning the Building or the Common Areas.

(viii) Auditors’, accountants’ and attorneys’ fees and costs related to the operation, maintenance, repair and replacement of the Project.

(ix) The cost of any capital improvement to the Building or the Project not covered under the provisions of Paragraph 2.3 provided; however, that Lessor shall allocate the cost of any such capital improvement over a 12 year period and Lessee shall not be required to pay more than Lessee’s Share of 1/444th of the cost of such capital improvement in any given month.

(x) The cost of any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense.

(b) Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Unit, the Building or to any other building in the Project or to the Operation, repair and maintenance thereof, shall be allocated entirely to such Unit, Building, or other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project.

(c) The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Project already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them.

(d) Lessee’s Share of Common Area Operating Expenses is payable monthly on the same day as the Base Rent is due hereunder. The amount of such payments shall be based on Lessor’s estimate of the annual Common Area Operating Expenses. Within 60 days after written request (but not more than once each year) Lessor shall deliver to Lessee a reasonably detailed statement showing Lessee’s Share of the actual Common Area Operating Expenses for the preceding year. If Lessee’s payments during such year exceed Lessee’s Share, Lessor shall credit the amount of such over payment against Lessees future payments. If Lessee’s payments during such year were less that Lessee’s Share, Lessee shall pay to Lessor the amount of deficiency within 10 days after delivery by Lessor to Lessee of the statement.

(e) Common Area Operating Expenses shall not include the cost of replacing equipment or capital components such as the roof, foundations, exterior walls or Common Area capital improvements, such as the parking lot paving, elevators, fences that have a useful life for accounting purposes of 5 years or more.

(f) Common Area Operating Expenses shall not include any expenses paid by any tenant directly to third parties; or as to which Lessor is otherwise reimbursed by any third party, other tenant, or insurance proceeds.

4.3 Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. All monetary amounts shall be rounded to the nearest whole dollar. In the event that any statement or invoice prepared by Lessor is inaccurate such inaccuracy shall not constitute a waiver and Lessee shall be obligated to pay the amount set forth in this Lease. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future Rent be paid by cashier’s check. Payments will be applied first to accrued late charges and attorney’s fees, second to accrued interest, then to Base Rent and Common Area Operating Expenses, and any remaining amount to any other outstanding charges or costs.

5.         Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount already due Lessor, for Rents which will be due in the future, and/ or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 90 days after the expiration or termination of this Lease, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid

 

                        

                        

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by Lessee under this Lease.

 

6. Use. (SEE ADDENDUM).

6.1 Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Other than guide, signal and seeing eye dogs, Lessee shall not keep or allow in the Premises any pets, animals, birds, fish, or reptiles. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the Building or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Project. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in the Agreed Use.

6.2 Hazardous Substances.

(a) Reportable Uses Require Consent. The term “Hazardous Substance” as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessees expense) with all Applicable Requirements. “Reportable Use” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

(c) Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

(d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from areas outside of the Project not caused or contributed to by Lessee). Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

(e) Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which suffered as a direct result of Hazardous Substances on the Premises prior to Lessee taking possession or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor’s obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(f) Investigations and Remediations. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee taking possession, unless such remediation measure is required as a result of Lessee’s use (including “Alterations”, as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.

(g) Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor’s rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee’s commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor’s notice of termination.

6.3 Lessee’s Compliance with Applicable Requirements. Except as otherwise provided in this Lease, Lessee shall, at Lessee’s

 

                        

                        

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sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to such Requirements, without regard to whether said Requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor’s written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. Likewise, Lessee shall immediately give written notice to Lessor of: (i) any water damage to the Premises and any suspected seepage, pooling, dampness or other condition conducive to the production of mold; or (ii) any mustiness or other odors that might indicate the presence of mold in the Premises.

6.4 Inspection; Compliance. Lessor and Lessor’s “Lender” (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance Condition (see Paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of written request therefor.

 

7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.

7.1 Lessee’s Obligations.

(a) In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises, Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.

(b) Service Contracts. Lessee shall, at Lessee’s sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels, and (iii) clarifiers. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and Lessee shall reimburse Lessor, upon demand, for the cost thereof.

(c) Failure to Perform. If Lessee fails to perform Lessee’s obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee’s behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

(d) Replacement. Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay Interest on the unamortized balance but may prepay its obligation at any time.

7.2 Lessor’s Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee’s Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

7.3 Utility Installations; Trade Fixtures; Alterations.

(a) Definitions. The term “Utility Installations” refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises. The term “Alterations” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. “Lessee Owned Alterations and/or Utility Installations” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

(b) Consent. Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent. Lessee may, however, make non-structural Alterations or Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month’s Base Rent in the aggregate or a sum equal to one month’s Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee’s: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month’s Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal

 

                        

                        

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to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessees posting an additional Security Deposit with Lessor.

(c) Liens; Bonds. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor’s attorneys’ fees and costs.

7.4 Ownership; Removal; Surrender; and Restoration.

(a) Ownership. Subject to Lessor’s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(b) Removal. By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

(c) Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall also completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

 

8. Insurance; Indemnity.

8.1 Payment of Premium Increases.

(a) As used herein, the term “Insurance Cost Increase” is defined as any increase in the actual cost of the insurance applicable to the Building and/or the Project and required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a) and 8.3(b), (“Required Insurance”), over and above the Base Premium, as hereinafter defined, calculated on an annual basis. Insurance Cost Increase shall include, but not be limited to, requirements of the holder of a mortgage or deed of trust covering the Premises, Building and/or Project, increased valuation of the Premises, Building and/or Project, and/or a general premium rate increase. The term Insurance Cost Increase shall not, however, include any premium increases resulting from the nature of the occupancy of any other tenant of the Building. The “Base Premium” shall be the annual premium applicable to the 12 month period immediately preceding the Start Date. If, however, the Project was not insured for the entirety of such 12 month period, then the Base Premium shall be the lowest annual premium reasonably obtainable for the Required Insurance as of the Start Date, assuming the most nominal use possible of the Building. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $2,000,000 procured under Paragraph 8.2(b).

(b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Start Date or Expiration Date.

8.2 Liability Insurance.

(a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000. Lessee shall add Lessor as an additional insured by means of an endorsement at least as broad as the Insurance Service Organization’s “Additional Insured-Managers or Lessors of Premises” Endorsement. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “insured contract” for the performance of Lessee’s indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. Lessee shall provide an endorsement on its liability policy(ies) which provides that its insurance shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

(b) Carried by Lessor. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

8.3 Property Insurance—Building, Improvements and Rental Value.

(a) Building and Improvements. Lessor shall obtain and keep in force a policy or policies of insurance in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full insurable replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee not by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $5,000 per occurrence.

(b) Rental Value. Lessor shall also obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days (“Rental Value

 

                        

                        

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insurance”). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period.

(c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

(d) Lessee’s Improvements. Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease.

8.4 Lessee’s Property; Business Interruption Insurance; Worker’s Compensation Insurance.

(a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

(b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

(c) Worker’s Compensation Insurance. Lessee shall obtain and maintain Worker’s Compensation Insurance in such amount as may be required by Applicable Requirements.

(d) No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

8.5 Insurance Policies. Insurance required herein shall be by companies maintaining during the policy term a “General Policyholders Rating” of at least A-, VII, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates with copies of the required endorsements evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 10 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

8.7 Indemnity. Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.

8.8 Exemption of Lessor and its Agents from Liability. Notwithstanding the negligence or breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable under any circumstances for: (i) injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, indoor air quality, the presence of mold or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places, (ii) any damages arising from any act or neglect of any other tenant of Lessor or from the failure of Lessor or its agents to enforce the provisions of any other lease in the Project, or (iii) injury to Lessee’s business or for any loss of income or profit therefrom. Instead, it is intended that Lessee’s sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Lessee is required to maintain pursuant to the provisions of paragraph 8.

8.9 Failure to Provide Insurance. Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater. The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee’s failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

 

9. Damage or Destruction.

9.1 Definitions.

(a) “Premises Partial Damage” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 3 months or less from the date of the damage or destruction, and the cost thereof does not exceed a sum equal to 6 month’s Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total. Notwithstanding the foregoing, Premises Partial Damage shall not include damage to windows, doors, and/or other similar items which Lessee has the responsibility to repair or replace pursuant to the provisions of Paragraph 7.1.

(b) “Premises Total Destruction” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 3 months or less from the date of the damage or destruction and/or the cost thereof exceeds a sum equal to 6 month’s Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(c) “Insured Loss” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d) “Replacement Cost” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence

 

                        

                        

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to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e) “Hazardous Substance Condition” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance, in, on, or under the Premises which requires restoration.

9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3 Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s damages from Lessee, except as provided in Paragraph 8.6.

9.5 Damage Near End of Term. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

9.6 Abatement of Rent; Lessee’s Remedies.

(a) Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(b) Remedies. If Lessor is obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7 Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

 

10. Real Property Taxes.

10.1 Definitions.

(a) “Real Property Taxes.” As used herein, the term “Real Property Taxes” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Project, Lessor’s right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Project address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Project is located. The term “Real Property Taxes” shall also include any tax, fee, levy, assessment or charge, or any increase therein: (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Project, (ii) a change in the improvements thereon, and/or (iii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.

(b) “Base Real Property Taxes.” As used herein, the term “Base Real Property Taxes” shall be the amount of Real Property Taxes, which are assessed against the Premises, Building, Project or Common Areas in the calendar year during which the Lease is executed. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common.

 

                        

                        

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10.2 Payment of Taxes. Except as otherwise provided in Paragraph 10.3, Lessor shall pay the Real Property Taxes applicable to the Project, and said payments shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2.

10.3 Additional Improvements. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor’s records and work sheets as being caused by additional improvements placed upon the Project by other tenants or by Lessor for the exclusive enjoyment of such other Tenants. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at the time common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee’s request or by reason of any alterations or improvements to the Premises made by Lessor subsequent to the execution of this Lease by the Parties.

10.4 Joint Assessment. If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available. Lessor’s reasonable determination thereof, in good faith, shall be conclusive.

10.5 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee’s said property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

11. Utilities and Services. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. Notwithstanding the provisions of Paragraph 4.2, if at any time in Lessor’s sole judgment, Lessor determines that Lessee is using a disproportionate amount of water, electricity or other commonly metered utilities, or that Lessee is generating such a large volume of trash as to require an increase in the size of the trash receptacle and/or an increase in the number of times per month that it is emptied, then Lessor may increase Lessee’s Base Rent by an amount equal to such increased costs. There shall be no abatement of Rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

 

12. Assignment and Subletting.

12.1 Lessor’s Consent Required.

(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment”) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent.

(b) Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.

(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. “Net Worth of Lessee” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(d) An assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

(e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

(f) Lessor may reasonably withhold consent to a proposed assignment or subletting if Lessee is in Default at the time consent is requested.

(g) Notwithstanding the foregoing, allowing a de minimis portion of the Premises, ie. 20 square feet or less, to be used by a third party vendor in connection with the installation of a vending machine or payphone shall not constitute a subletting.

12.2 Terms and Conditions Applicable to Assignment and Subletting.

(a) Regardless of Lessor’s consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b) Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

(c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor’s considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (See also Paragraph 36)

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment, entering into such sublease, or entering into possession of the Premises or any portion thereof, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

(g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)

 

                        

                        

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12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee’s then outstanding obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.

(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

 

13. Default; Breach; Remedies.

13.1 Default; Breach. A “Default” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A “Breach” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee. THE ACCEPTANCE BY LESSOR OF A PARTIAL PAYMENT OF RENT OR SECURITY DEPOSIT SHALL NOT CONSTITUTE A WAIVER OF ANY OF LESSOR’S RIGHTS, INCLUDING LESSOR’S RIGHT TO RECOVER POSSESSION OF THE PREMISES.

(c) The failure of Lessee to allow Lessor and/or its agents access to the Premises or the commission of waste, act or acts constituting public or private nuisance, and/or an illegal activity on the Premises by Lessee, where such actions continue for a period of 3 business days following written notice to Lessee.

(d) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate or financial statements, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 41, (viii) material data safety sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

(e) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof, other than those described in subparagraphs 13.1(a), (b), (c) or (d), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

(f) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. § 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(g) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

(h) If the performance of Lessee’s obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2 Remedies. If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

(a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises,

 

                        

                        

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reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

13.3 Inducement Recapture. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee’s entering into this Lease, all of which concessions are hereinafter referred to as “Inducement Provisions”, shall be deemed conditioned upon Lessee’s full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due and payable quarterly in advance.

13.5 Interest. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest (“Interest”) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6 Breach by Lessor.

(a) Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished to Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

(b) Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such offset shall not exceed an amount equal to the greater of one month’s Base Rent or the Security Deposit, reserving Lessee’s right to reimbursement from Lessor for any such expense in excess of such offset. Lessee shall document the cost of said cure and supply said documentation to Lessor.

14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation”), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the Unit, or more than 25% of the parking spaces is taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation paid by the condemnor for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

 

15. Brokerage Fees.

15.1 Additional Commission. If a separate brokerage fee agreement is attached then in addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee or anyone affiliated with Lessee acquires from Lessor any rights to the Premises or other premises owned by Lessor and located within the Project, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule attached to such brokerage fee agreement.

15.2 Assumption of Obligations. Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s

 

                        

                        

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obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor’s Broker for the limited purpose of collecting any brokerage fee owed.

15.3 Representations and Indemnities of Broker Relationships. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.

 

16. Estoppel Certificates.

(a) Each Party (as “Responding Party”) shall within 10 days after written notice from the other Party (the “Requesting Party”) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the AIR Commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall within 10 days after written notice from Lessor deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17. Definition of Lessor. The term “Lessor” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease. In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19. Days. Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

20. Limitation on Liability. The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

21. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party.

 

23. Notices.

23.1 Notice Requirements. All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

23.2 Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 72 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

 

24. Waivers.

(a) No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent.

(b) The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of monies or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

(c) THE PARTIES AGREE THAT THE TERMS OF THIS LEASE SHALL GOVERN WITH REGARD TO ALL MATTERS RELATED THERETO AND HEREBY WAIVE THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE TO THE EXTENT THAT SUCH STATUTE

 

                        

                        

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IS INCONSISTENT WITH THIS LEASE.

 

25. Disclosures Regarding The Nature of a Real Estate Agency Relationship.

(a) When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

(i) Lessor’s Agent. A Lessor’s agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor’s agent or subagent has the following affirmative obligations: To the Lessor. A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor. a. Diligent exercise of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(ii) Lessee’s Agent. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessors agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor. a. Diligent exercise of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(iii) Agent Representing Both Lessor and Lessee. A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: a. A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional.

(b) Brokers have no responsibility with respect to any default or breach hereof by either Party. The Parties agree that no lawsuit or other legal proceeding involving any breach of duty, error or omission relating to this Lease may be brought against Broker more than one year after the Start Date and that the liability (including court costs and attorneys’ fees), of any Broker with respect to any such lawsuit and/or legal proceeding shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

(c) Lessor and Lessee agree to identify to Brokers as “Confidential” any communication or information given Brokers that is considered by such Party to be confidential.

26. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28. Covenants and Conditions; Construction of Agreement. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

 

30. Subordination; Attornment; Non-Disturbance.

30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “Security Device”), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “Lender”) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

30.2 Attornment. In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Devise to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of the new owner, this Lease will automatically become a new lease between Lessee and such new owner, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor’s obligations, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month’s rent, or (d) be liable for the return of any security deposit paid to any prior lessor which was not paid or credited to such new owner.

30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “Non-Disturbance Agreement”) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall, if requested by Lessee, use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or

 

                        

                        

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Non-Disturbance Agreement provided for herein.

31. Attorneys’ Fees. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, “Prevailing Party” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred. In addition, Lessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

32. Lessor’s Access; Showing Premises; Repairs. Showing Premises; Repairs. Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect on Lessee’s use of the Premises. All such activities shall be without abatement of rent or liability to Lessee.

33. Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34. Signs. Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary “For Lease” signs during the last 6 months of the term hereof. Except for ordinary “For Sublease” signs which may be placed only on the Premises, Lessee shall not place any sign upon the Project without Lessor’s prior written consent. All signs must comply with all Applicable Requirements.

35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

36. Consents. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

 

37. Guarantor.

37.1 Execution. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association,.

37.2 Default. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor’s behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

38. Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39. Options. If Lessee is granted an option, as defined below, then the following provisions shall apply.

39.1 Definition. “Option” shall mean: (a) the right to extend or reduce the term of or renew this Lease or to extend or reduce the term of or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase, the right of first offer to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2 Options Personal To Original Lessee. Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4 Effect of Default on Options.

(a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.

40. Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

41. Reservations. Lessor reserves the right: (I) to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, (ii) to cause the recordation of parcel maps and restrictions, and (iii) to create and/or install new utility raceways, so long as such easements, rights, dedications, maps, restrictions, and utility raceways do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate such rights.

 

                        

                        

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42. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. A Party who does not initiate suit for the recovery of sums paid “under protest” within 6 months shall be deemed to have waived its right to protest such payment.

43. Authority.; Multiple Parties; Execution.

(a) If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each Party shall, within 30 days after request, deliver to the other Party satisfactory evidence of such authority.

(b) If this Lease is executed by more than one person or entity as “Lessee”, each such person or entity shall be jointly and severally liable hereunder. It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

(c) This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

44. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

45. Offer. Preparation of this Lease by either party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

46. Amendments. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

47. Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

48. Arbitration of Disputes. An Addendum requiring the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease ¨ is x is not attached to this Lease.

49. Americans with Disabilities Act. Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

 

Executed at: Encino, CA 91316                                                                 Executed:                                                                                   
On:                                                                                                          On:                                                                                             
By LESSOR:       By LESSEE:
Leonora Horwin and Claire Gordon                                                    Adomani, Inc.                                                                           
      a Florida Corporation                                                               
Co-Tenants in Common dba North Orange Industrial Park      
By: /s/ Leonora Horwin                                                                         By: /s/ Jim L. Reynolds                                                             
Name Printed: Leonora Horwin                                                            Name Printed: Jim L. Reynolds                                                
Title: Trustee, Horwin NOIP, LLC                                                       Title: CEO/President                                                                 
By:                                                                                                          By:                                                                                              
Name Printed: Claire Gordon                                                               Name Printed:                                                                           
Title: Manager, North Orange Industrial Park, LLC                           Title:                                                                                           

 

Address: c/o Ted E. Bean                                                              

     

 

Address: 160 W. Foothill Parkway #54                                   

Real Estate Enterprises                                                                         Corona, CA 92882                                                                    
901 Dover Drive, Suite 216                                                                  and/or 7610 Hillsborough Ave Tampa, FL 33515                  
Telephone: (949) 631-0900                                                                  Telephone: (714) 814-6900 or (714) 855-5335                       
Facsimile: (949) 631-3620                                                                   Facsimile: (    )                                                                          
Email: tedbean@att.net                                                                        Email:                                                                                         

 

                        

                        

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Email:                                                                                                    Email:                                                                                         
Federal ID No. 26-3991412       Federal ID No.                                                                          
BROKER:       BROKER:
Real Estate Enterprises                                                                         Strata Realty, Inc.                                                                      

 

Att: Ted E. Bean                                                                            

     

 

Att: Jared Carver Colin Keith                                                   

Title: Broker                                                                                         Title: Sales Associate Asst. Sales Associate                           
Address: 901 Dover Drive, Suite 216                                                   Address: 2433 Pomona Road                                                   
Newport Beach, CA 92660                                                                   Corona, CA 92680                                                                    
Telephone: (949) 631-0900                                                                  Telephone: (951) 280-1733                                                      
Facsimile: (949) 631-3620                                                                    Facsimile: (951) 280-1739                                                       
Email: tedbean@att.net                                                                        Email: jcarver@stratarealty.com ckeith@stratarealty.com    
Federal ID No.                                                                                      Federal ID No.                                                                          
Broker/Agent DRE License #: 00928151                                           Broker/Agent DRE License #: 01934036                               

NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AIR Commercial Real Estate Association, 800 W 6th Street, Suite 800, Los Angeles, CA 90017. Telephone No. (213) 687-8777. Fax No.: (213) 687-8616.

(c)Copyright 1998 By AIR Commercial Real Estate Association.

All rights reserved.

No part of these works may be reproduced in any form without permission in writing.

 

                        

                        

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ADDENDUM

TO

AIR STANDARD INDUSTRIAL/COMMERCIAL LEASE DATED

March 4, 2015

FOR THE PREMISES LOCATED AT

1243 WEST TRENTON AVENUE, ORANGE, CALIFORNIA

50.1 Advanced Rent Payment. Lessor and Lessee agree that rent for the initial 12-month term of this Lease shall be paid in full in advance at the time of Lease execution. Subsequent rent payments for option period(s) if exercised in accordance with Paragraph 50.3, shall be subject to Lessor’s review and approval of Lessee’s financial credibility.

50.2 Early Possession. Upon execution of the Lease, payment of monies due and proof of general liability insurance policy naming Lessor as additional insured, Lessee shall be granted early possession of the Premises without additional base rent through March 15, 2015.

50.3 Option to Extend. Provided Lessee is not in default of any terms of the Lease, upon sixty (60) days prior written notice to Lessor, Lessee shall have the option to extend the Lease term for two (2) additional one-year terms. Base rental rate shall be as follows:

Option Period 1 (If exercised)

March 2016 through February 2017 $3,629.00 per month

Option Period 2 (If exercised)

March 2017 through February 2018 $3,738.00 per month

50.4 Premise Condition. Lessor shall deliver the Premises broom clean with the electrical, plumbing, doors, HVAC systems in good working order. Otherwise, Lessee has made its own independent inspection and accepts the Premises as is.

50.5 Tenant Improvements. Lessee, at Lessee’s sole expense and responsibility shall be allowed to upgrade the existing electric service at the Premises to a capacity of 220V. Any and all electrical work shall be performed by a licensed and insured electrical contractor approved in advance by Lessor.

50.6 Use. During the term of the Lease and any extension thereto Lessee shall ensure that the performance of all work activity is performed within the Premises and not in any common area of the property. Further, in accordance with paragraph 6.2(a) of this Lease, Lessee may be required to obtain a Hazardous Materials Business Emergency Plan and Inventory Certification Statement (HMBEP) from the City of Orange Fire Department for certain materials used and stored on the Premises. If required by governing authorities, Lessee shall furnish Lessor copies of the approved HMBEP.

 

                        

                        

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LOGO


LOGO

Exhibit 6.4

ADOMANI, Inc.

2012 Stock Option and Stock Incentive Plan

1. Purpose and Eligibility. The purpose of this 2012 Stock Option and Stock Incentive Plan (the “Plan”) of ADOMANI, Inc. (the “Company”) is intended to promote the future success and growth of the Company by providing stock options and other equity interests in the Company (each an “Award”) to employees, officers, directors, consultants and advisors of the Company and its Subsidiaries, all of whom are eligible to receive Awards under the Plan. Any person to whom an Award has been granted under the Plan is called a “Participant”. Additional definitions are contained in Section 8 hereof.

2. Types of Awards and Administration.

a. Types of Awards. This Plan is intended to provide to:

(i) officers and other employees of the Company opportunities to purchase shares of common stock, par value $0.001, of the Company (the “Common Stock”) pursuant to options granted hereunder which qualify as “incentive stock options” under Section 422(b) of the Internal Revenue Code of 1986 (“the Code”) and any amendments thereto (“Incentive Stock Options”);

(ii) directors, officers, employees, consultants and advisors of the Company opportunities to purchase Common Stock pursuant to options granted hereunder which do not qualify as Incentive Stock Options (“Non-Qualified Options” and, together with Incentive Stock Options, “Options”); and

(iii) directors, officers, employees, consultants and advisors of the Company by providing them with awards of Common Stock (“Stock Awards”).

b. Administration by Board of Directors. The Plan will be administered by the Board of Directors of the Company (the “Board”) or by a committee appointed under the Board (“the Committee”) as provided by subsection (c) hereunder, whose construction and interpretation of the terms and provisions of the Plan shall be final and conclusive on all parties. The Board, in its sole discretion, shall have the authority to:

(i) grant and amend Awards;

 

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(ii) adopt, amend and repeal rules relating to him Plan;

(iii) interpret and correct the provisions of the Plan and any Award; and

(iv) amend the Plan and any Award issued hereunder in order to assure that such Awards do not provide a deferral of compensation that would be subject to Section 409A of the Code, and otherwise to administer the Plan so as to comply with applicable provisions of §409A of the Code or any Treasury Regulations or IRS guidance issued thereunder. All decisions by the Board shall be final and binding on all interested persons. Neither the Company nor any member of the Board shall be liable for any action or determination relating to the Plan.

c. Appointment of Committees. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board. All references in the Plan to the “Board” shall mean such Committee or the Board.

d. Delegation to Executive Officers. To the extent permitted by applicable law, the Board may delegate to one or more executive officers of the Company the power to grant Awards and exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the maximum number of Awards to be granted and the maximum number of shares issuable to any one Participant pursuant to Awards granted by such executive officers.

3. Stock Available for Awards.

a. Number of Shares. Subject to adjustment under Section 3(b) hereof, the maximum number of shares of Common Stock that may be issued pursuant to the Plan is thirty million (30,000,000) shares. If any Award expires, or is terminated, surrendered or forfeited, in whole or in part, the unissued Common Stock covered by such Award shall again be available for the grant of Awards under the Plan. If shares of Common Stock issued pursuant to the Plan are repurchased by, or are surrendered or forfeited to, the Company at no more than cost, such shares of Common Stock shall again be available for the grant of Awards under the Plan; provided that the cumulative number of such shares that may be so reissued under the Plan will not exceed thirty million (30,000,000) shares. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.

 

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b. Adjustment to Common Stock. In the event of any stock split, stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off, split-up, or other similar change in capitalization or event,

(i) the number and class of securities available for Awards under the Plan and the per Participant share limit,

(ii) the number and class of securities, vesting schedule and exercise price per share subject to each outstanding Option,

(iii) the repurchase price per security subject to repurchase, and

(iv) the terms of each other outstanding stock-based Award shall be adjusted by the Company (or substituted Awards may be made) to the extent the Board shall determine, in good faith, that such an adjustment (or substitution) is appropriate.

If Section 7(e)(i) hereof applies for any event, this Section 3(b) shall not be applicable. Notwithstanding the foregoing, these adjustments shall be made to the extent necessary, in such a manner as to avoid any Award granted hereunder being classified as a deferral of compensation within the meaning of §409A of the Code, and the Treasury Regulations or IRS guidance issued thereunder.

4. Stock Options.

a. General. The Board may grant Options and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option and the Common Stock issued upon the exercise of each Option, including vesting provisions, repurchase provisions and restrictions relating to applicable federal or state securities laws, as it considers advisable.

b. Incentive Stock Options. An Option that the Board intends to be an Incentive Stock Option shall be granted only to employees and officers of the Company and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. The Board and the Company shall have no liability if an Option or any part thereof that is intended to be an Incentive Stock Option does not qualify as such. An Option or any part thereof that does not qualify as an Incentive Stock Option shall be a Non-Qualified Option. Incentive Stock Options granted under the Plan shall be subject to the following additional terms and conditions:

 

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(i) each Incentive Stock Option granted under the Plan shall, at the time of grant, be specifically designated as such in the Award Agreement (as such term is defined herein) covering such Incentive Stock Option.

(ii) If any individual to whom an Incentive Stock Option is to be granted under the Plan is, at the time of the grant of such Incentive Stock Option, the owner of stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company (after taking into account the attribution of stock ownership rules of Section 424(d) of the Code), then the following special provisions shall be applicable to the Incentive Stock Option granted to such individual:

The purchase price per share of the Common Stock subject to such Incentive Stock Option shall Ten Cents ($0.10) per share; and the Option exercise period shall not exceed eight (8) years from the date of grant.

(iii) For as long as the Code shall so provide, Options granted to any individual under the Plan which are intended to constitute Incentive Stock Options shall not constitute Incentive Stock Options to the extent that such Options, in the aggregate, become exercisable for the first time in any one (1) calendar year for shares of Common Stock with an aggregate Fair Market Value (determined as of the respective date or dates of grant) of more than One Hundred Thousand Dollars ($100,000.00).

(iv) No Incentive Stock Option may be exercised unless, at the time of such exercise, the Participant is, and has been continuously since the date of grant of his or her Option, employed by the Company, except that an Incentive Stock Option may be exercised within the period of three (3) months after the date the Participant ceases to be an employee or officer of the Company (or within such lesser period as may be specified in the applicable Award Agreement) if and only to the extent that the Incentive Stock Option was exercisable at the date of employment termination, provided that the agreement with respect to such Option may designate a longer exercise period, and any exercise after such three-month period shall be treated as the exercise of a Non-Qualified Option under the Plan; if the Participant dies while in the employ of the Company, or within three (3) months after the Participant ceases to be in such employ, the

 

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Incentive Stock Option may be exercised by the person to whom it is transferred by will or the laws of descent and distribution within the period of one year after the date of death (or within such lesser period as may be specified in the applicable Award Agreement) if and only to the extent that the Incentive Stock Option was exercisable at the date of death; and, if the Participant becomes disabled (within the meaning of Section 22(e)(3) or any successor Section of the Code) while in the employ of the Company, the Incentive Stock Option may be exercised within the period of one (1) year after the date the Participant ceases to be in such employ because of such disability (or within such lesser period as may be specified in the applicable Award Agreement) if and only to the extent that the Incentive Stock Option was exercisable at the date of employment termination. Notwithstanding the foregoing provisions, no Incentive Stock Option may be exercised after its expiration date.

c. Exercise Price. The Board shall establish the exercise price (the “Exercise Price”) at the time each Option is granted and specify it in the applicable Award Agreement. Notwithstanding the immediately preceding sentence, the Exercise Price shall not be less than the Fair Market Value of a share of the Common Stock on the date of grant of such option. Notwithstanding anything in this Plan to the contrary, the price per share of Common Stock shall be determined in such a manner as not to be a deferral of compensation within the meaning of Code Section 409A and the Treasury Regulations or IRS guidance issued thereunder. For purposes of this Agreement, the price set for Stock Options shall be $0.10 per common stock option.

d. Duration of Options. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable Award Agreement, except that, in the case of an Incentive Stock Option, such date shall not be later than five (5) years after the date on which the Option is granted and, in all cases, Options shall be subject to earlier termination as provided in the Plan. The period of exercitation shall be sixty (60) months and the recipient shall vest 1/60th for every month working as an employee, advisor, consultant or member of the Board of Directors

e. Exercise of Option. Options may be exercised in full or in installments. Options may be exercised only by delivery to the Company of

(i) a written notice of exercise signed by the proper person, and

 

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(ii) payment in full as specified in Section 4(f) hereof for the number of shares for which the Option is exercised.

f. Payment upon Exercise. Common Stock purchased upon the exercise of an Option shall be paid for by one or any combination of the following forms of payment:

(i) by check payable to the order of the Company;

(ii) except as otherwise explicitly provided in the applicable Award Agreement, and only if the Common Stock is then publicly traded, delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price, or delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price; or

(iii) to the extent explicitly provided in the applicable Award Agreement, by (A) delivery of shares of Common Stock owned by the Participant valued at Fair Market Value, (B) delivery of a promissory note of the Participant to the Company (and delivery to the Company by the Participant of a check in an amount equal to the par value of the shares purchased), or (C) payment of such other lawful consideration as the Board may determine.

5. Restricted Stock.

a. Grants. The Board may grant Awards entitling recipients to acquire shares of Common Stock, subject to

(i) delivery to the Company by the Participant of a check in an amount at least equal to the par value of the shares purchased, and

(ii) the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price from the Participant in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award (each, a “Restricted Stock Award”).

 

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b. Terms and Conditions. The Board shall determine the terms and conditions of any such Restricted Stock Award. Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). After the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or, if the Participant has died, to the beneficiary designated by a Participant, in a manner determined by the Board, to receive amounts due or exercise rights of the Participant in the event of the Participant’s death (the “Designated Beneficiary”). In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant’s estate.

c. Rights of Participants. Participants shall have full stockholder rights with respect to Restricted Stock Awards shares upon issuance and delivery of a stock certificate representing such shares, whether or not a Participant’s interest in such shares is vested. Accordingly, Participants shall have the right to vote such shares and, subject to this Section 5, to receive any dividends or non-cash distributions with respect to such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date any such stock certificate is issued.

6. Other Stock-Based Awards. The Board shall have the right to grant other Awards based upon the Common Stock having such terms and conditions as the Board may determine, including, without limitation, the grant of shares based upon certain conditions, the grant of securities convertible into Common Stock and the grant of stock appreciation rights, phantom stock awards or stock units.

7. General Provisions Applicable to Awards.

a. Transferability of Awards. Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the Participant, shall be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.

 

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b. Documentation. Each Award under the Plan shall be evidenced by a written instrument (an “Award Agreement”) in such form as the Board shall determine or as executed by an officer of the Company pursuant to authority delegated by the Board. Each Award Agreement may contain terms and conditions in addition to those set forth in the Plan provided that such terms and conditions do not contravene the provisions of the Plan. The Board may amend or modify each Award Agreement in any manner to the extent that the Board would have had the authority to grant such Award under the Award Agreement as so modified or amended, including without limitation changing the dates as of which an Award becomes exercisable or restrictions on shares of the Common Stock lapse. The foregoing notwithstanding, no modification of an Award Agreement may be made that would materially, adversely affect a Participant without the approval of the Participant; provided that the Board may modify any Award Agreement if such modification is required by applicable law or as necessary or appropriate in order to assure that no Award granted hereunder would be classified as a deferral of compensation under Code Section 409A and the Treasury Regulations or IRS guidance issued thereunder.

c. Board Discretion. The terms of each type of Award need not be identical, and the Board need not treat Participants uniformly.

d. Termination of Status. The Board shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant’s legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award. Notwithstanding the foregoing, if a Participant’s employment or other relationship with the Company is terminated for “Cause”, the Options issued to such Participant shall terminate on the date of such termination and shall thereupon not be exercisable to any extent whatsoever. For purposes of the Plan, “Cause” is conduct, as determined by the Board, involving one or more of the following:

(i) willful misconduct by the Participant which is injurious to the Company; or

(ii) the commission of an act of embezzlement, fraud or deliberate disregard of the rules or policies of the Company which results in economic loss, damage or injury to the Company; or

 

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(iii) the unauthorized disclosure of any trade secret or confidential information of either the Company or any third party who has a business relationship with the Company; or

(iv) a violation of any noncompetition covenant or assignment of inventions obligation with the Company; or

(v) the commission of an act which induces any party to break a contract with the Company or to decline to do business with the Company; or

(vi) the conviction of the Participant of a felony during the period of the granting of the Option and the exercitation of the Option; or

(vii) the failure of the Participant to perform in any material respect his or her employment or engagement obligations without proper cause therefor.

e. Acquisition of the Company.

(i) Consequences of an Acquisition.

(A) Acquisition Defined. An “Acquisition” shall mean: the sale of the Company by merger in which the shareholders of the Company in their capacity as such no longer own a majority of the outstanding equity securities of the Company (or its successor); or any sale of all or substantially all of the assets or capital stock of the Company (other than in a spin-off or similar transaction); or any other acquisition of the business of the Company, as determined by the Board.

(B) Acquisition Consequences. Unless otherwise expressly provided in the applicable Award Agreement, upon the occurrence of an Acquisition, the Board or the board of directors of the surviving or acquiring entity (as used in this Section 7(e)(i)(B), also the Board), shall, as to outstanding Awards (on the same basis or on different basis, as the Board shall specify), make appropriate provision for the continuation of such Awards by the Company or the assumption of such Awards by the surviving or acquiring entity and by substituting on an equitable basis for the shares then subject to such Awards either (a) the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition, (b) shares of stock of the surviving or acquiring corporation or (c) such other securities as the Board deems appropriate, the fair market value of which (as determined by the Board in its sole discretion) shall not materially differ

 

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from the Fair Market Value of the shares of Common Stock subject to such Awards immediately preceding the Acquisition. In addition to, or in lieu of the foregoing, with respect to outstanding Options, the Board may, upon written notice to the affected optionees, provide that one or more Options then outstanding shall become immediately exercisable in full and that such Options must be exercised within a specified number of days of the date of such notice, at the end of which period such Options shall terminate; or provide that one or more Options then outstanding shall become immediately exercisable in full and shall be terminated in exchange for a cash payment equal to the excess of the Fair Market Value for the shares subject to such Options over the exercise price thereof. Any conversion described in subsections (a), (b) or (c) hereof, shall conform to the requirements of Treasury Regulation §1.424-1, construed as if the options under the Plan were statutory options, and any other requirements the satisfaction of which the Board determines to be necessary or appropriate to avoid classification as a deferral of compensation under Code Section 409A and the Treasury Regulations or IRS guidance issued thereunder.

(C) Assumption of Awards upon Certain Events. In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Awards under the Plan in substitution for stock and stock based awards issued by such entity or an affiliate thereof. The substitute Awards shall be granted on such terms and conditions as the Board considers appropriate in the circumstances.

(D) Parachute Awards. Notwithstanding the provisions of Section 7(e)(i)(B) hereof, if, in connection with an Acquisition described therein, a tax under §4999 of the Code would be imposed on the Participant (after taking into account the exceptions set forth in §§280G(b) (4) and 280G(b) (5) of the Code), then the number of Awards which shall become exercisable, realizable or vested as provided in such section shall be reduced (or delayed), to the minimum extent necessary, so that no such tax would be imposed on the Participant (the Awards not becoming so accelerated, realizable or vested, the “Parachute Awards”); provided that if the “aggregate present value” of the Parachute Awards would exceed the tax that, but for this sentence, would be imposed on the Participant under §4999 of the Code in connection with the Acquisition, then the Awards shall become immediately exercisable, realizable and vested without regard to the provisions of this sentence. For purposes of the

 

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preceding sentence, the “aggregate present value” of an Award shall be calculated on an after-tax basis (other than taxes imposed by §4999 of the Code) and shall be based on economic principles rather than the principles set forth under §280G of the Code and the Treasury Regulations promulgated thereunder. All determinations required to be made under this Section 7(e)(iii) shall be made by the Company.

f. Withholding. Each Participant shall pay to the Company, or make provisions satisfactory to the Company for payment of, any taxes required by law to be withheld in connection with Awards to such Participant no later than the date of the event creating the tax liability. The Board may allow Participants to satisfy such tax obligations in whole or in part by transferring shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value. The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant.

g. Amendment of Awards. The Board may amend, modify or terminate any outstanding Award including, but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Non-Qualified Option, provided that, the Participant’s consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant.

h. Conditions on Delivery of Stock. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until

(i) all conditions of the Award have been met or removed to the satisfaction of the Company,

(ii) in the opinion of the Company’s counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and

(iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.

 

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i. Acceleration. The Board may at any time provide that any Options shall become immediately exercisable in full or in part, that any Restricted Stock Awards shall be free of some or all restrictions, or that any other stock-based Awards may become exercisable in full or in part or free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be, despite the fact that the foregoing actions may

(i) cause the application of Sections 280G and 4999 of the Code if a change in control of the Company occurs, or

(ii) disqualify all or part of the Option as an Incentive Stock Option.

j. Maintenance of Exemption from Code Section 409A. Awards issued under this Plan are intended to meet the requirements for exemption from coverage under Code Section 409A and all grants shall be construed and administered accordingly.

8. Miscellaneous.

a. Definitions.

(i) Company. For purposes of eligibility under the Plan, Company shall include any present or future subsidiary corporations of ADOMANI, Inc., as defined in §424(f) of the Code (a “Subsidiary”), and any present or future parent corporation of ADOMANI, Inc., as defined in §424(e) of the Code. For purposes of Awards other than Incentive Stock Options, the term “Company” shall include any other business venture in which the Company has a direct or indirect significant interest, as determined by the Board in its sole discretion.

(ii) Code. Means the Internal Revenue Code of 1986, as amended, and any Treasury Regulations promulgated thereunder.

(iii) Employee. For purposes of eligibility under the Plan (but not for purposes of Section 4(b) hereof) shall include a person to whom an offer of employment has been extended by the Company.

(iv) Fair Market Value. If shares of the Common Stock are not then publicly traded, the fair market value shall be determined by any reasonable method chosen by the Board, including, for example, any valuation method described in Treasury Regulation §20.2031-2, or as determined pursuant to the applicable Award Agreement.

 

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b. No Right to Employment or Other Status. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant, with or without cause, free from any liability or claim under the Plan.

c. No Rights as Stockholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder thereof.

d. Effective Date and Term of Plan. The Plan shall become effective on the date on which it is adopted by the Board and the stockholders of the Company (the “Effective Date”). No Awards shall be granted under the Plan after the completion of ten (10) years from the Effective Date, but Awards previously granted may extend beyond that date.

e. Amendment of Plan.

(i) The Board may amend, suspend or terminate the Plan or any portion thereof at any time, except that if at any time the approval of the stockholders of the Company is required for any modification or amendment under §422 or any successor section of the Code with respect to Incentive Stock Options or under Rule 16b-3 (“Rule 16b-3”) or any successor rule promulgated under the Securities Exchange Act of 1934, as amended, or otherwise under applicable law or regulations, the Board may not effect such modification or amendment without such approval;

(ii) The termination or any modification or amendment of the Plan shall not, without the consent of a Participant, affect his or her rights under Awards previously granted to him or her. With the consent of the affected Participant, the Board may amend outstanding Award Agreements in a manner not inconsistent with the Plan. The Board shall have the right to amend or modify (i) the terms and provisions of the Plan and of any outstanding Incentive Stock Options granted under the Plan, to the extent necessary to qualify any or all such Options for such favorable federal income tax treatment (including deferral of taxation upon exercise) as may be afforded incentive stock options under §422 of the Code; and

 

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(iii) The terms and provisions of the Plan and of any outstanding Option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3.

f. Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Florida, without regard to any applicable conflicts of law.

Dated: September 1, 2012

 

ADOMANI, Inc.

 

/s/ Edward Riggs Monfort

Edward Riggs Monfort

Secretary

 

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Incentive Stock Option Agreement Letter

ADOMANI, Inc.

To:

We are pleased to inform you that you have been selected by the Board of Directors of ADOMANI, Inc., a Florida corporation (the “Company”), to receive a stock option (the “Option”) for the purchase of                      shares (            ) (the “Option Shares”) of the Company’s Common Stock at an exercise price of $0.10 per share. The terms of the Option are set forth in this Agreement and in the Company’s 2012 Common Stock Option Plan (the “Plan”), a copy of which is attached hereto and incorporated herein by reference. This Agreement is limited by and subject to the express terms and provisions of the Plan. Unless otherwise provided in this Agreement, defined terms will have the meaning given to such terms in the Plan.

1. DATE OF GRANT: The Option is granted effective as of                     , 20    .

2. STATUS OF OPTION: The Option is intended to be an incentive stock option as described in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), but the Company does not represent or warrant that the Option qualifies as such.

3. TERMS: The term of the Option is eight (8) years from the date of grant, unless sooner terminated as a result of termination of your employment or services with the Company or upon a terminating event (the “Terminating Event”), as described in the Plan and Paragraph 12 of this Agreement.

4. VESTING: The Option shall vest according to the following schedule:

1/60th from the Date of Grant

Any Option Shares that have not yet vested according to the schedule set forth above shall be considered unvested shares (the “Unvested Shares”). Upon cessation of your employment or services on behalf of the Company for any reason, no further vesting of the Option will occur and any unvested portion of the Option with terminated.

 

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4.1 ACCELERATION OF VESTING: In the event of a “transfer of Control” the vesting schedule set forth above shall accelerate automatically for each remaining unvested installment of the Option. Such acceleration shall not be contingent upon any change in employment status, role, or responsibility level occurring in connection with such an event. For this purpose, a Transfer of Control shall be deemed to have occurred in the event of any of the following events with respect to the Company: (a) the direct or indirect sale or exchange by the stockholders of the Company of all or substantially all of the stock of the Company where the stockholders of the Company before such sale or exchange do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the Company after such sale or exchange; (b) a merger in which the Company is not the surviving corporation; (c) a merger in which the Company is the surviving corporation where the stockholders of the Company before such merger do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the Company after the merger; (d) the sale, exchange, or transfer of all or substantially all of the Company’s assets; or (e) a liquidation or dissolution of the Company.

5. RIGHT TO EXERCISE: The Option shall be immediately exercisable for any or all of the Option Shares, subject to your agreement that any unvested shares of stock purchased upon exercise are subject to the Company’s repurchase rights set forth in Paragraph 6 below. Notwithstanding the foregoing, except as provided in Paragraph 15 below, the aggregate fair market value of the stock with respect to which you may exercise the Option for the first time during any calendar year, together with any other incentive stock options which are exercisable by you for the first time under any Company plan during any such year, as determined in accordance with Section 422 of the Code, shall not exceed Five Million Dollars ($5,000,000) (the “Exercise Limitation”). To the extent the exercisability of the Option is deferred by any reason of the $5,000,000 Exercise Limitation, the deferred portion of the Option will first become exercisable in the calendar year or years thereafter in which the $5,000,000 Exercise Limitation would not be contravened.

6. COMPANY REPURCHASE RIGHT:

(a) By accepting the Option, you hereby grant to the Company an option (the “Repurchase Option”) to repurchase any Option Shares that remain Unvested Shares on the earlier of (i) the

 

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date you cease to be employed by or provide services to the Company (including a parent or subsidiary of the Company) for any reason whatsoever; including, without limitation, termination with or without cause, death or permanent disability; and (ii) the date you or your legal representative attempts to sell, exchange, transfer, pledge or otherwise dispose of any Unvested Shares (other than pursuant to a Terminating Event, as that term is defined in the Plan.

(b) The Company may exercise the Repurchase Option by giving you written notice within sixty (60) days after (i) such termination of employment or services (or exercise of the Option if later) or (ii) the Company has received notice of the attempted disposition. It the Company fails to give notice within such 60-day period, the repurchase Option shall terminate, unless you and the Company have extended the time for the exercise of the Repurchase Option. The Repurchase Option must me exercised, if at all, for all the Unvested Shares, except as you and the Company otherwise agree.

(c) Payment to you by the Company shall; be made in cash within thirty (30) days after the date of the mailing of the written notice of exercise of the Repurchase Option. For purposes of the foregoing, cancellation of any indebtedness you owe to the Company shall be treated as payment to you in cash to the extent of the unpaid principal and any accrued interest canceled. The purchase price per share being repurchased by the Company shall be an amount equal to your original cost per share, as adjusted as provided in the Plan. You shall deliver the shares of stock being repurchased to the Company at the same time as the Company delivers the purchase price to you.

(d) You hereby authorize and direct the Company’s Chief Financial Officer or transfer agent to transfer to the Company any Unvested Shares as to which the Repurchase Option is exercised.

(e) The Company shall have the right to assign the Repurchase Option at any time, whether or not the Repurchase Option is then exercisable, to one or more personas as may be selected by the Company.

(f) The Repurchase Option shall remain in full force and effect in the event of a Terminating Event, provided that if the Administrative Committee determines that an assumption or substitution of options outstanding under the Plan will not be

 

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made in connection with the Terminating event and the vesting of such options is therefore accelerated pursuant to the Plan, the Repurchase Option shall terminate and all Unvested Shares shall immediately vest in full.

(g) Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a parent or a subsidiary of the Company, to terminate your employment or services on behalf of the Company, for any reason, with or without cause.

(h) Subject to the terms and conditions of this Agreement, the Invested Shares may not be sold, transferred, pledged, encumbered or disposed of under any circumstances, whether voluntarily, by operation of law, by gift or by the applicable laws of descent and distribution. Any attempted transfer of any Unvested Shares in conflict with this Agreement shall be null and void.

7. MARKET STANDOFF: By accepting the Option, you hereby agree that, in connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Federal Securities At of 1933, as amended (the “Securities Act”), including the Company’s initial public offering, you shall not sell or make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose of or transfer for value or otherwise agree to engage in any of the foregoing transaction with respect to, any Option Shares without the prior written consent of the Company or its underwriters. Such limitations (the “Market Standoff”) shall be in effect only if and to the extent and for such period of times as may be required by the Company or such underwriters and agreed to by the Company’s officers and directors; provided, however, that in no event shall the weighted average number of days in such period exceed 180 days. The Market Standoff shall in all events terminate two years after the effective date of the Company’s initial public offering. In order to enforce the Market Standoff, the Company may impose stop-transfer instructions with respect to the Option Shares until the end of the applicable Market Standoff period.

8. SHAREHOLDERS AGREEMENT: By accepting the Option you hereby agree to execute, on the date you exercise the Option, a shareholders agreement (the “Shareholders Agreement”), if any, in the form in use at such time (unless at such time the Company’s stock is publicly traded or the Shareholders

 

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Agreement has otherwise terminated), whereby under certain circumstances you grant the Company and certain of its other shareholders a right of first offer to purchase the Option shares and agree not to dispose of the Option Shares until after May 31, 2016 without the Company’s prior written consent.

9. CAPITAL ADJUSTMENTS: In the event of any stock dividend, stock split, stock issuance by the Board of Directors to all outstanding shareholders, or consolidation of shares of any capital adjustment of any of the outstanding securities of the Company, any and all new, substituted or additional securities or other property to which you are entitled be reason of ownership of the Options Shares shall be immediately subject to this Agreement and shall be included in the definition of the Option Shares for all purposes and shall be subject to the Repurchase Option, the Shareholders Agreement, and the Market Standoff and other terms of this Agreement. While the aggregate repurchase price for Unvested Shares shall remain the same after each event, the repurchase price per Unvested Share upon execution of the Repurchase Option shall be appropriately adjusted.

10. METHOD OF EXERCISE: The Option may be exercised by written notice to the Company, in the form and substance satisfactory to the Company, which must state the election to exercise the Option, the number of shares of stock for which the Option is being exercised and such other representations and agreements as to your investment intent with respect to such shares as may be required pursuant to the provisions of this Agreement and the Plan. The written notice must be accompanied by full payment of the exercise price for the number of shares of stock being purchased.

11. FORM OF PAYMENT: The Option exercise price may be paid, in whole or in part, in cash, by check, or by cash equivalent, or in any other form of payment permitted by the Plan Administrator.

12. EARLY TERINATION: The Option will terminate in its entirety three months after cessation of employment or services on behalf of the Company or its affiliated companies, unless cessations is due to (a) disability, in which case the Option shall terminate one year after cessation of employment or services on behalf of the Company, or (b) death, in which case the Option shall terminate one year after death.

 

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13. LIMITED TRANSFERABILITY: The Option is not transferable except by will or by the applicable laws of descent and distribution. During your lifetime only you can exercise the Option. The Plan provides for exercise of the Option by the personal representative of your estate or he beneficiary thereof following your death.

14. NOTICE OF DISQUALIFYING DISPOSITION: To obtain certain tax benefits afforded to incentive stock options under Section 422 of the Code, an optionee must hold the shares issued upon the exercise of the incentive stock option for two years after the date of grant and one year from the date of exercise. An optionee may be subject to the alternative minimum tax at the time of exercise. Tax advice should ne obtained when exercising any option and prior to the disposition of the shares issued upon the exercise of any option. By accepting the Option, you hereby agree to promptly notify the Company’s Chief Financial Officer if you dispose of any of the Option Shares within one year from the date you exercise all or part of the Option or within two years of the date of grant of the Option.

15. EXCEPTION TO $5,000,000 EXERCISE LIMITATION: Notwithstanding any other provision of this Agreement, if compliance with the above $5,000,000 Exercise Limitation as set forth above in Paragraph 5 above will result in the exercisability of any vested shares being delayed more than 30 days beyond the vesting date for such shares, the Option shall be deemed to be two options. The first Option shall be for the maximum number of shares subject to the Option that can comply with the $5,000,000 Exercise Limitation without causing the Option to be unexercisable as to vested shares. The second Option, which shall not be treated as an incentive stock option, shall be for the balance of the shares subject to the Option and shall be exercisable on the same terms and conditions and at the same time as set fort in this Agreement; provided, however, that the second sentence of Paragraph 4 above shall not apply to the second option and such shares shall become vested shares on the same date or dates as set forth in this agreement without regard to this paragraph. Unless you specifically elect to the contrary in your written notice of exercise, the first option shall be deemed to be exercised first to the maximum possible extent and then the second option shall be deemed exercised.

16. REGISTRATION: YOUR PARTICULAR ATTENTION IS DIRECTED TO THE PLAN WHICH DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING

 

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TO FEDERAL AND STATE SECURITIES LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE COMPANY CAN ISSUE SHARES TO YOU. By accepting the Option, you hereby acknowledge that you have read the Plan and that you are hereby making the representations and acknowledgments to the Company, and entering into the indemnity and other obligations to the Company, therein specified.

17. BINDING EFFECT: This Agreement shall inure to the benefit of the successors and assigns of the Company and be binding upon you and your heirs, executors, administrators, successors, and assigns.

Please execute the following Acceptance and Acknowledgment and return to the undersigned.

Sincerely,

Edward Riggs Monfort

Chief Executive Officer

ACCEPTANCE AND ACKNOWLEDGMENT

I,                     , a resident of the State of California, accept the incentive stock option described in this agreement and in ADOMANI. Inc.’s 2012 Common Stock Option Plan, and acknowledges receipt of a copy of this Agreement and a copy of the Plan. I have read and understand the Plan, and I hereby make the representations, warranties and acknowledgments, and undertake the indemnity and other obligations, therein specified. As a condition to my exercise of this stock option, I agree to execute the Company’s Shareholders Agreement and Stock Purchase Agreement in effect at such time.

Dated:                    , 20    

 

 

  

 

   Taxpayer Identification

By his or her signature below, the spouse of the Optionee, if such Optionee is legally married as of the date of his or her

 

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execution of this Agreement, acknowledges that he or she has read this agreement, acknowledges that he or she is familiar with the terms and provisions thereof, and agrees to be bound by al the terms and conditions of this Agreement and the Plan.

Date:                     , 20    

 

 

Spouse

 

 

Printed Name

 

8

Exhibit 6.5

ADOMANI, Inc.

2012 Preferred Stock Option Plan

1. Purpose and Eligibility. The purpose of this 2012 Preferred Stock Option Plan (the “Plan”) of ADOMANI, Inc. (the “Company”) is intended to promote the future success and growth of the Company by providing stock options and other equity interests in the Company (each an “Award”) to employees, officers, directors, consultants and advisors of the Company and its Subsidiaries, all of whom are eligible to receive Awards under the Plan. Any person to whom an Award has been granted under the Plan is called a “Participant”. Additional definitions are contained in Section 8 hereof.

2. Types of Awards and Administration.

a. Types of Awards. This Plan is intended to provide to:

(i) officers and other employees of the Company opportunities to purchase shares of Preferred stock, par value $0.001, of the Company (the “Preferred Stock”) pursuant to options granted hereunder which qualify as “incentive stock options” under Section 422(b) of the Internal Revenue Code of 1986 (“the Code”) and any amendments thereto (“Incentive Stock Options”);

(ii) directors, officers, employees, consultants and advisors of the Company opportunities to purchase Preferred Stock pursuant to options granted hereunder which do not qualify as Incentive Stock Options (“Non-Qualified Options” and, together with Incentive Stock Options, “Options”); and

(iii) directors, officers, employees, consultants and advisors of the Company by providing them with awards of Preferred Stock (“Stock Awards”).

b. Administration by Board of Directors. The Plan will be administered by the Board of Directors of the Company (the “Board”) or by a committee appointed under the Board (“the Committee”) as provided by subsection (c) hereunder, whose construction and interpretation of the terms and provisions of the Plan shall be final and conclusive on all parties. The Board, in its sole discretion, shall have the authority to:

 

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(i) grant and amend Awards;

(ii) adopt, amend and repeal rules relating to him Plan;

(iii) interpret and correct the provisions of the Plan and any Award; and

(iv) amend the Plan and any Award issued hereunder in order to assure that such Awards do not provide a deferral of compensation that would be subject to Section 409A of the Code, and otherwise to administer the Plan so as to comply with applicable provisions of §409A of the Code or any Treasury Regulations or IRS guidance issued thereunder. All decisions by the Board shall be final and binding on all interested persons. Neither the Company nor any member of the Board shall be liable for any action or determination relating to the Plan.

c. Appointment of Committees. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board. All references in the Plan to the “Board” shall mean such Committee or the Board.

d. Delegation to Executive Officers. To the extent permitted by applicable law, the Board may delegate to one or more executive officers of the Company the power to grant Awards and exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the maximum number of Awards to be granted and the maximum number of shares issuable to any one Participant pursuant to Awards granted by such executive officers.

3. Stock Available for Awards.

a. Number of Shares. Subject to adjustment under Section 3(b) hereof, the maximum number of shares of Preferred Stock that may be issued pursuant to the Plan is ten million (10,000,000) shares. If any Award expires, or is terminated, surrendered or forfeited, in whole or in part, the unissued Preferred Stock covered by such Award shall again be available for the grant of Awards under the Plan. If shares of Preferred Stock issued pursuant to the

 

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Plan are repurchased by, or are surrendered or forfeited to, the Company at no more than cost, such shares of Preferred Stock shall again be available for the grant of Awards under the Plan; provided that the cumulative number of such shares that may be so reissued under the Plan will not exceed thirty million (30,000,000) shares. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.

b. Adjustment to Preferred Stock. In the event of any stock split, stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off, split-up, or other similar change in capitalization or event,

(i) the number and class of securities available for Awards under the Plan and the per Participant share limit,

(ii) the number and class of securities, vesting schedule and exercise price per share subject to each outstanding Option,

(iii) the repurchase price per security subject to repurchase, and

(iv) the terms of each other outstanding stock-based Award shall be adjusted by the Company (or substituted Awards may be made) to the extent the Board shall determine, in good faith, that such an adjustment (or substitution) is appropriate.

If Section 7(e)(i) hereof applies for any event, this Section 3(b) shall not be applicable. Notwithstanding the foregoing, these adjustments shall be made to the extent necessary, in such a manner as to avoid any Award granted hereunder being classified as a deferral of compensation within the meaning of §409A of the Code, and the Treasury Regulations or IRS guidance issued thereunder.

 

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4. Stock Options.

a. General. The Board may grant Options and determine the number of shares of Preferred Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option and the Preferred Stock issued upon the exercise of each Option, including vesting provisions, repurchase provisions and restrictions relating to applicable federal or state securities laws, as it considers advisable.

b. Incentive Stock Options. An Option that the Board intends to be an Incentive Stock Option shall be granted only to employees and officers of the Company and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. The Board and the Company shall have no liability if an Option or any part thereof that is intended to be an Incentive Stock Option does not qualify as such. An Option or any part thereof that does not qualify as an Incentive Stock Option shall be a Non-Qualified Option. Incentive Stock Options granted under the Plan shall be subject to the following additional terms and conditions:

(i) each Incentive Stock Option granted under the Plan shall, at the time of grant, be specifically designated as such in the Award Agreement (as such term is defined herein) covering such Incentive Stock Option.

(ii) If any individual to whom an Incentive Stock Option is to be granted under the Plan is, at the time of the grant of such Incentive Stock Option, the owner of stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company (after taking into account the attribution of stock ownership rules of Section 424(d) of the Code), then the following special provisions shall be applicable to the Incentive Stock Option granted to such individual:

The purchase price per share of the Preferred Stock subject to such Incentive Stock Option shall be Ten Cents ($0.10) per share; and the Option exercise period shall not exceed eight (8) years from the date of grant.

(iii) For as long as the Code shall so provide, Options granted to any individual under the Plan which are intended to constitute Incentive Stock Options shall not constitute Incentive Stock Options to the extent that such Options, in the aggregate, become exercisable for the first time in any one (1) calendar year for shares of Preferred Stock with an aggregate Fair Market Value (determined as of the respective date or dates of grant) of more than One Hundred Thousand Dollars ($100,000.00).

 

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(iv) No Incentive Stock Option may be exercised unless, at the time of such exercise, the Participant is, and has been continuously since the date of grant of his or her Option, employed by the Company, except that an Incentive Stock Option may be exercised within the period of three (3) months after the date the Participant ceases to be an employee or officer of the Company (or within such lesser period as may be specified in the applicable Award Agreement) if and only to the extent that the Incentive Stock Option was exercisable at the date of employment termination, provided that the agreement with respect to such Option may designate a longer exercise period, and any exercise after such three-month period shall be treated as the exercise of a Non-Qualified Option under the Plan; if the Participant dies while in the employ of the Company, or within three (3) months after the Participant ceases to be in such employ, the Incentive Stock Option may be exercised by the person to whom it is transferred by will or the laws of descent and distribution within the period of one year after the date of death (or within such lesser period as may be specified in the applicable Award Agreement) if and only to the extent that the Incentive Stock Option was exercisable at the date of death; and, if the Participant becomes disabled (within the meaning of Section 22(e)(3) or any successor Section of the Code) while in the employ of the Company, the Incentive Stock Option may be exercised within the period of one (1) year after the date the Participant ceases to be in such employ because of such disability (or within such lesser period as may be specified in the applicable Award Agreement) if and only to the extent that the Incentive Stock Option was exercisable at the date of employment termination. Notwithstanding the foregoing provisions, no Incentive Stock Option may be exercised after its expiration date.

c. Exercise Price. The Board shall establish the exercise price (the “Exercise Price”) at the time each Option is granted and specify it in the applicable Award Agreement. Notwithstanding the immediately preceding sentence, the Exercise Price shall not be less than the Fair Market Value of a share of the Preferred Stock on the date of grant of such option. Notwithstanding anything in

 

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this Plan to the contrary, the price per share of Preferred Stock shall be determined in such a manner as not to be a deferral of compensation within the meaning of Code Section 409A and the Treasury Regulations or IRS guidance issued thereunder. For purposes of this Agreement, the price set for Stock Options shall be $0.10 per Preferred stock option.

d. Duration of Options. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable Award Agreement, except that, in the case of an Incentive Stock Option, such date shall not be later than eight (8) years after the date on which the Option is granted and, in all cases, Options shall be subject to earlier termination as provided in the Plan. The period of exercitation shall be sixty (60) months and the recipient shall vest 1/60th for every month working as an employee, advisor, consultant or member of the Board of Directors

e. Exercise of Option. Options may be exercised in full or in installments. Options may be exercised only by delivery to the Company of

(i) a written notice of exercise signed by the proper person, and

(ii) payment in full as specified in Section 4(f) hereof for the number of shares for which the Option is exercised.

f. Payment upon Exercise. Preferred Stock purchased upon the exercise of an Option shall be paid for by one or any combination of the following forms of payment:

(i) by check payable to the order of the Company;

(ii) except as otherwise explicitly provided in the applicable Award Agreement, and only if the Preferred Stock is then publicly traded, delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price, or delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price; or

 

 

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(iii) to the extent explicitly provided in the applicable Award Agreement, by (A) delivery of shares of Preferred Stock owned by the Participant valued at Fair Market Value, (B) delivery of a promissory note of the Participant to the Company (and delivery to the Company by the Participant of a check in an amount equal to the par value of the shares purchased), or (C) payment of such other lawful consideration as the Board may determine.

5. Restricted Stock.

a. Grants. The Board may grant Awards entitling recipients to acquire shares of Preferred Stock, subject to

(i) delivery to the Company by the Participant of a check in an amount at least equal to the par value of the shares purchased, and

(ii) the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price from the Participant in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award (each, a “Restricted Stock Award”).

b. Terms and Conditions. The Board shall determine the terms and conditions of any such Restricted Stock Award. Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). After the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or, if the Participant has died, to the beneficiary designated by a Participant, in a manner determined by the Board, to receive amounts due or exercise rights of the Participant in the event of the Participant’s death (the “Designated Beneficiary”). In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant’s estate.

 

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c. Rights of Participants. Participants shall have full stockholder rights with respect to Restricted Stock Awards shares upon issuance and delivery of a stock certificate representing such shares, whether or not a Participant’s interest in such shares is vested. Accordingly, Participants shall have the right to vote such shares and, subject to this Section 5, to receive any dividends or non-cash distributions with respect to such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date any such stock certificate is issued.

6. Other Stock-Based Awards. The Board shall have the right to grant other Awards based upon the Preferred Stock having such terms and conditions as the Board may determine, including, without limitation, the grant of shares based upon certain conditions, the grant of securities convertible into Preferred Stock and the grant of stock appreciation rights, phantom stock awards or stock units.

7. General Provisions Applicable to Awards.

a. Transferability of Awards. Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the Participant, shall be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.

b. Documentation. Each Award under the Plan shall be evidenced by a written instrument (an “Award Agreement”) in such form as the Board shall determine or as executed by an officer of the Company pursuant to authority delegated by the Board. Each Award Agreement may contain terms and conditions in addition to those set forth in the Plan provided that such terms and conditions do not contravene the provisions of the Plan. The Board may amend or modify each Award Agreement in any manner to the extent that the Board would have had the authority to grant such Award under the Award Agreement as so modified or amended, including without limitation changing the dates as of which

 

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an Award becomes exercisable or restrictions on shares of the Preferred Stock lapse. The foregoing notwithstanding, no modification of an Award Agreement may be made that would materially, adversely affect a Participant without the approval of the Participant; provided that the Board may modify any Award Agreement if such modification is required by applicable law or as necessary or appropriate in order to assure that no Award granted hereunder would be classified as a deferral of compensation under Code Section 409A and the Treasury Regulations or IRS guidance issued thereunder.

c. Board Discretion. The terms of each type of Award need not be identical, and the Board need not treat Participants uniformly.

d. Termination of Status. The Board shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant’s legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award. Notwithstanding the foregoing, if a Participant’s employment or other relationship with the Company is terminated for “Cause”, the Options issued to such Participant shall terminate on the date of such termination and shall thereupon not be exercisable to any extent whatsoever. For purposes of the Plan, “Cause” is conduct, as determined by the Board, involving one or more of the following:

(i) willful misconduct by the Participant which is injurious to the Company; or

(ii) the commission of an act of embezzlement, fraud or deliberate disregard of the rules or policies of the Company which results in economic loss, damage or injury to the Company; or

(iii) the unauthorized disclosure of any trade secret or confidential information of either the Company or any third party who has a business relationship with the Company; or

 

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(iv) a violation of any noncompetition covenant or assignment of inventions obligation with the Company; or

(v) the commission of an act which induces any party to break a contract with the Company or to decline to do business with the Company; or

(vi) the conviction of the Participant of a felony during the period of the granting of the Option and the exercitation of the Option; or

(vii) the failure of the Participant to perform in any material respect his or her employment or engagement obligations without proper cause therefor.

e. Acquisition of the Company.

(i) Consequences of an Acquisition.

(A) Acquisition Defined. An “Acquisition” shall mean: the sale of the Company by merger in which the shareholders of the Company in their capacity as such no longer own a majority of the outstanding equity securities of the Company (or its successor); or any sale of all or substantially all of the assets or capital stock of the Company (other than in a spin-off or similar transaction); or any other acquisition of the business of the Company, as determined by the Board.

(B) Acquisition Consequences. Unless otherwise expressly provided in the applicable Award Agreement, upon the occurrence of an Acquisition, the Board or the board of directors of the surviving or acquiring entity (as used in this Section 7(e)(i)(B), also the Board), shall, as to outstanding Awards (on the same basis or on different basis, as the Board shall specify), make appropriate provision for the continuation of such Awards by the Company or the assumption of such Awards by the surviving or acquiring entity and by substituting on an equitable basis for the shares then subject to such Awards either (a) the consideration payable with respect to the outstanding shares of Preferred Stock in connection with the Acquisition, (b) shares of stock of the surviving or acquiring corporation or (c) such other securities as the Board deems appropriate, the fair market value of which (as determined by the Board in its sole discretion) shall not

 

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materially differ from the Fair Market Value of the shares of Preferred Stock subject to such Awards immediately preceding the Acquisition. In addition to, or in lieu of the foregoing, with respect to outstanding Options, the Board may, upon written notice to the affected optionees, provide that one or more Options then outstanding shall become immediately exercisable in full and that such Options must be exercised within a specified number of days of the date of such notice, at the end of which period such Options shall terminate; or provide that one or more Options then outstanding shall become immediately exercisable in full and shall be terminated in exchange for a cash payment equal to the excess of the Fair Market Value for the shares subject to such Options over the exercise price thereof. Any conversion described in subsections (a), (b) or (c) hereof, shall conform to the requirements of Treasury Regulation §1.424-1, construed as if the options under the Plan were statutory options, and any other requirements the satisfaction of which the Board determines to be necessary or appropriate to avoid classification as a deferral of compensation under Code Section 409A and the Treasury Regulations or IRS guidance issued thereunder.

(C) Assumption of Awards upon Certain Events. In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Awards under the Plan in substitution for stock and stock based awards issued by such entity or an affiliate thereof. The substitute Awards shall be granted on such terms and conditions as the Board considers appropriate in the circumstances.

(D) Parachute Awards. Notwithstanding the provisions of Section 7(e)(i)(B) hereof, if, in connection with an Acquisition described therein, a tax under §4999 of the Code would be imposed on the Participant (after taking into account the exceptions set forth in §§280G(b)(4) and 280G(b)(5) of the Code), then the number of Awards which shall become exercisable, realizable or vested as provided in such section shall be reduced (or delayed), to the minimum extent necessary, so that no such tax would be imposed on the Participant (the Awards not becoming so accelerated, realizable or vested, the “Parachute Awards”); provided that if the “aggregate present value” of the Parachute Awards would exceed the tax that, but for this

 

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sentence, would be imposed on the Participant under §4999 of the Code in connection with the Acquisition, then the Awards shall become immediately exercisable, realizable and vested without regard to the provisions of this sentence. For purposes of the preceding sentence, the “aggregate present value” of an Award shall be calculated on an after-tax basis (other than taxes imposed by §4999 of the Code) and shall be based on economic principles rather than the principles set forth under §280G of the Code and the Treasury Regulations promulgated thereunder. All determinations required to be made under this Section 7(e)(iii) shall be made by the Company.

f. Withholding. Each Participant shall pay to the Company, or make provisions satisfactory to the Company for payment of, any taxes required by law to be withheld in connection with Awards to such Participant no later than the date of the event creating the tax liability. The Board may allow Participants to satisfy such tax obligations in whole or in part by transferring shares of Preferred Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value. The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant.

g. Amendment of Awards. The Board may amend, modify or terminate any outstanding Award including, but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Non-Qualified Option, provided that, the Participant’s consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant.

h. Conditions on Delivery of Stock. The Company will not be obligated to deliver any shares of Preferred Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until

(i) all conditions of the Award have been met or removed to the satisfaction of the Company,

 

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(ii) in the opinion of the Company’s counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and

(iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.

i. Acceleration. The Board may at any time provide that any Options shall become immediately exercisable in full or in part, that any Restricted Stock Awards shall be free of some or all restrictions, or that any other stock-based Awards may become exercisable in full or in part or free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be, despite the fact that the foregoing actions may

(i) cause the application of Sections 280G and 4999 of the Code if a change in control of the Company occurs, or

(ii) disqualify all or part of the Option as an Incentive Stock Option.

j. Maintenance of Exemption from Code Section 409A. Awards issued under this Plan are intended to meet the requirements for exemption from coverage under Code Section 409A and all grants shall be construed and administered accordingly.

8. Miscellaneous.

a. Definitions.

(i) Company. For purposes of eligibility under the Plan, Company shall include any present or future subsidiary corporations of ADOMANI, Inc., as defined in §424(f) of the Code (a “Subsidiary”), and any present or future parent corporation of ADOMANI, Inc., as defined in §424(e) of the Code. For purposes of Awards other than Incentive Stock Options, the term “Company” shall include any other business venture in which the Company has a direct or indirect significant interest, as determined by the Board in its sole discretion.

 

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(ii) Code. Means the Internal Revenue Code of 1986, as amended, and any Treasury Regulations promulgated thereunder.

(iii) Employee. For purposes of eligibility under the Plan (but not for purposes of Section 4(b) hereof) shall include a person to whom an offer of employment has been extended by the Company.

(iv) Fair Market Value. If shares of the Preferred Stock are not then publicly traded, the fair market value shall be determined by any reasonable method chosen by the Board, including, for example, any valuation method described in Treasury Regulation §20.2031-2, or as determined pursuant to the applicable Award Agreement.

b. No Right to Employment or Other Status. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant, with or without cause, free from any liability or claim under the Plan.

c. No Rights as Stockholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Preferred Stock to be distributed with respect to an Award until becoming the record holder thereof.

d. Effective Date and Term of Plan. The Plan shall become effective on the date on which it is adopted by the Board and the stockholders of the Company (the “Effective Date”). No Awards shall be granted under the Plan after the completion of ten (10) years from the Effective Date, but Awards previously granted may extend beyond that date.

 

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e. Amendment of Plan.

(i) The Board may amend, suspend or terminate the Plan or any portion thereof at any time, except that if at any time the approval of the stockholders of the Company is required for any modification or amendment under §422 or any successor section of the Code with respect to Incentive Stock Options or under Rule 16b-3 (“Rule 16b-3”) or any successor rule promulgated under the Securities Exchange Act of 1934, as amended, or otherwise under applicable law or regulations, the Board may not effect such modification or amendment without such approval;

(ii) The termination or any modification or amendment of the Plan shall not, without the consent of a Participant, affect his or her rights under Awards previously granted to him or her. With the consent of the affected Participant, the Board may amend outstanding Award Agreements in a manner not inconsistent with the Plan. The Board shall have the right to amend or modify (i) the terms and provisions of the Plan and of any outstanding Incentive Stock Options granted under the Plan, to the extent necessary to qualify any or all such Options for such favorable federal income tax treatment (including deferral of taxation upon exercise) as may be afforded incentive stock options under §422 of the Code; and

(iii) The terms and provisions of the Plan and of any outstanding Option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3.

f. Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Florida, without regard to any applicable conflicts of law.

Dated: December 30, 2012

 

ADOMANI, Inc.

 

/s/ Edward Riggs Monfort            

Edward Riggs Monfort

Secretary

 

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Incentive Stock Option Agreement Letter

ADOMANI, Inc.

To:

We are pleased to inform you that you have been selected by the Board of Directors of ADOMANI, Inc., a Florida corporation (the “Company”), to receive a stock option (the “Option”) for the purchase of                      shares (            ) (the “Option Shares”) of the Company’s Preferred Stock at an exercise price of $0.10 per share. The terms of the Option are set forth in this Agreement and in the Company’s 2012 Preferred Stock Option Plan (the “Plan”), a copy of which is attached hereto and incorporated herein by reference. This Agreement is limited by and subject to the express terms and provisions of the Plan. Unless otherwise provided in this Agreement, defined terms will have the meaning given to such terms in the Plan.

1. DATE OF GRANT: The Option is granted effective as of             , 20    .

2. STATUS OF OPTION: The Option is intended to be an incentive stock option as described in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), but the Company does not represent or warrant that the Option qualifies as such.

3. TERMS: The term of the Option is eight (8) years from the date of grant, unless sooner terminated as a result of termination of your employment or services with the Company or upon a terminating event (the “Terminating Event”), as described in the Plan and Paragraph 12 of this Agreement.

4. VESTING: The Option shall vest according to the following schedule:

1/60th from the Date of Grant

Any Option Shares that have not yet vested according to the schedule set forth above shall be considered unvested shares (the “Unvested Shares”). Upon cessation of your employment or services on behalf of the Company for any reason, no further vesting of the Option will occur and any unvested portion of the Option with terminated.

 

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4.1 ACCELERATION OF VESTING: In the event of a “transfer of Control” the vesting schedule set forth above shall accelerate automatically for each remaining unvested installment of the Option. Such acceleration shall not be contingent upon any change in employment status, role, or responsibility level occurring in connection with such an event. For this purpose, a Transfer of Control shall be deemed to have occurred in the event of any of the following events with respect to the Company: (a) the direct or indirect sale or exchange by the stockholders of the Company of all or substantially all of the stock of the Company where the stockholders of the Company before such sale or exchange do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the Company after such sale or exchange; (b) a merger in which the Company is not the surviving corporation; (c) a merger in which the Company is the surviving corporation where the stockholders of the Company before such merger do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the Company after the merger; (d) the sale, exchange, or transfer of all or substantially all of the Company’s assets; or (e) a liquidation or dissolution of the Company.

5. RIGHT TO EXERCISE: The Option shall be immediately exercisable for any or all of the Option Shares, subject to your agreement that any unvested shares of stock purchased upon exercise are subject to the Company’s repurchase rights set forth in Paragraph 6 below. Notwithstanding the foregoing, except as provided in Paragraph 15 below, the aggregate fair market value of the stock with respect to which you may exercise the Option for the first time during any calendar year, together with any other incentive stock options which are exercisable by you for the first time under any Company plan during any such year, as determined in accordance with Section 422 of the Code, shall not exceed Five Million Dollars ($5,000,000) (the “Exercise Limitation”). To the extent the exercisability of the Option is deferred by any reason of the $5,000,000 Exercise Limitation, the deferred portion of the Option will first become exercisable in the calendar year or years thereafter in which the $5,000,000 Exercise Limitation would not be contravened.

6. COMPANY REPURCHASE RIGHT:

(a) By accepting the Option, you hereby grant to the Company an option (the “Repurchase Option”) to repurchase any Option Shares that remain Unvested Shares on the earlier of (i) the

 

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date you cease to be employed by or provide services to the Company (including a parent or subsidiary of the Company) for any reason whatsoever; including, without limitation, termination with or without cause, death or permanent disability; and (ii) the date you or your legal representative attempts to sell, exchange, transfer, pledge or otherwise dispose of any Unvested Shares (other than pursuant to a Terminating Event, as that term is defined in the Plan.

(b) The Company may exercise the Repurchase Option by giving you written notice within sixty (60) days after (i) such termination of employment or services (or exercise of the Option if later) or (ii) the Company has received notice of the attempted disposition. It the Company fails to give notice within such 60-day period, the repurchase Option shall terminate, unless you and the Company have extended the time for the exercise of the Repurchase Option. The Repurchase Option must me exercised, if at all, for all the Unvested Shares, except as you and the Company otherwise agree.

(c) Payment to you by the Company shall; be made in cash within thirty (30) days after the date of the mailing of the written notice of exercise of the Repurchase Option. For purposes of the foregoing, cancellation of any indebtedness you owe to the Company shall be treated as payment to you in cash to the extent of the unpaid principal and any accrued interest canceled. The purchase price per share being repurchased by the Company shall be an amount equal to your original cost per share, as adjusted as provided in the Plan. You shall deliver the shares of stock being repurchased to the Company at the same time as the Company delivers the purchase price to you.

(d) You hereby authorize and direct the Company’s Chief Financial Officer or transfer agent to transfer to the Company any Unvested Shares as to which the Repurchase Option is exercised.

(e) The Company shall have the right to assign the Repurchase Option at any time, whether or not the Repurchase Option is then exercisable, to one or more personas as may be selected by the Company.

(f) The Repurchase Option shall remain in full force and effect in the event of a Terminating Event, provided that if the Administrative Committee determines that an assumption or substitution of options outstanding under the Plan will not be

 

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made in connection with the Terminating event and the vesting of such options is therefore accelerated pursuant to the Plan, the Repurchase Option shall terminate and all Unvested Shares shall immediately vest in full.

(g) Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a parent or a subsidiary of the Company, to terminate your employment or services on behalf of the Company, for any reason, with or without cause.

(h) Subject to the terms and conditions of this Agreement, the Invested Shares may not be sold, transferred, pledged, encumbered or disposed of under any circumstances, whether voluntarily, by operation of law, by gift or by the applicable laws of descent and distribution. Any attempted transfer of any Unvested Shares in conflict with this Agreement shall be null and void.

7. MARKET STANDOFF: By accepting the Option, you hereby agree that, in connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Federal Securities At of 1933, as amended (the “Securities Act”), including the Company’s initial public offering, you shall not sell or make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose of or transfer for value or otherwise agree to engage in any of the foregoing transaction with respect to, any Option Shares without the prior written consent of the Company or its underwriters. Such limitations (the “Market Standoff”) shall be in effect only if and to the extent and for such period of times as may be required by the Company or such underwriters and agreed to by the Company’s officers and directors; provided, however, that in no event shall the weighted average number of days in such period exceed 180 days. The Market Standoff shall in all events terminate two years after the effective date of the Company’s initial public offering. In order to enforce the Market Standoff, the Company may impose stop-transfer instructions with respect to the Option Shares until the end of the applicable Market Standoff period.

8. SHAREHOLDERS AGREEMENT: By accepting the Option you hereby agree to execute, on the date you exercise the Option, a shareholders agreement (the “Shareholders Agreement”), if any, in the form in use at such time (unless at such time the Company’s stock is publicly traded or the Shareholders

 

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Agreement has otherwise terminated), whereby under certain circumstances you grant the Company and certain of its other shareholders a right of first offer to purchase the Option shares and agree not to dispose of the Option Shares until after May 31, 2016 without the Company’s prior written consent.

9. CAPITAL ADJUSTMENTS: In the event of any stock dividend, stock split, stock issuance by the Board of Directors to all outstanding shareholders, or consolidation of shares of any capital adjustment of any of the outstanding securities of the Company, any and all new, substituted or additional securities or other property to which you are entitled be reason of ownership of the Options Shares shall be immediately subject to this Agreement and shall be included in the definition of the Option Shares for all purposes and shall be subject to the Repurchase Option, the Shareholders Agreement, and the Market Standoff and other terms of this Agreement. While the aggregate repurchase price for Unvested Shares shall remain the same after each event, the repurchase price per Unvested Share upon execution of the Repurchase Option shall be appropriately adjusted.

10. METHOD OF EXERCISE: The Option may be exercised by written notice to the Company, in the form and substance satisfactory to the Company, which must state the election to exercise the Option, the number of shares of stock for which the Option is being exercised and such other representations and agreements as to your investment intent with respect to such shares as may be required pursuant to the provisions of this Agreement and the Plan. The written notice must be accompanied by full payment of the exercise price for the number of shares of stock being purchased.

11. FORM OF PAYMENT: The Option exercise price may be paid, in whole or in part, in cash, by check, or by cash equivalent, or in any other form of payment permitted by the Plan Administrator.

12. EARLY TERINATION: The Option will terminate in its entirety three months after cessation of employment or services on behalf of the Company or its affiliated companies, unless cessations is due to (a) disability, in which case the Option shall terminate one year after cessation of employment or services on behalf of the Company, or (b) death, in which case the Option shall terminate one year after death.

 

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13. LIMITED TRANSFERABILITY: The Option is not transferable except by will or by the applicable laws of descent and distribution. During your lifetime only you can exercise the Option. The Plan provides for exercise of the Option by the personal representative of your estate or he beneficiary thereof following your death.

14. NOTICE OF DISQUALIFYING DISPOSITION: To obtain certain tax benefits afforded to incentive stock options under Section 422 of the Code, an optionee must hold the shares issued upon the exercise of the incentive stock option for two years after the date of grant and one year from the date of exercise. An optionee may be subject to the alternative minimum tax at the time of exercise. Tax advice should ne obtained when exercising any option and prior to the disposition of the shares issued upon the exercise of any option. By accepting the Option, you hereby agree to promptly notify the Company’s Chief Financial Officer if you dispose of any of the Option Shares within one year from the date you exercise all or part of the Option or within two years of the date of grant of the Option.

15. EXCEPTION TO $5,000,000 EXERCISE LIMITATION: Notwithstanding any other provision of this Agreement, if compliance with the above $5,000,000 Exercise Limitation as set forth above in Paragraph 5 above will result in the exercisability of any vested shares being delayed more than 30 days beyond the vesting date for such shares, the Option shall be deemed to be two options. The first Option shall be for the maximum number of shares subject to the Option that can comply with the $5,000,000 Exercise Limitation without causing the Option to be unexercisable as to vested shares. The second Option, which shall not be treated as an incentive stock option, shall be for the balance of the shares subject to the Option and shall be exercisable on the same terms and conditions and at the same time as set fort in this Agreement; provided, however, that the second sentence of Paragraph 4 above shall not apply to the second option and such shares shall become vested shares on the same date or dates as set forth in this agreement without regard to this paragraph. Unless you specifically elect to the contrary in your written notice of exercise, the first option shall be deemed to be exercised first to the maximum possible extent and then the second option shall be deemed exercised.

16. REGISTRATION: YOUR PARTICULAR ATTENTION IS DIRECTED TO THE PLAN WHICH DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING

 

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TO FEDERAL AND STATE SECURITIES LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE COMPANY CAN ISSUE SHARES TO YOU. By accepting the Option, you hereby acknowledge that you have read the Plan and that you are hereby making the representations and acknowledgments to the Company, and entering into the indemnity and other obligations to the Company, therein specified.

17. BINDING EFFECT: This Agreement shall inure to the benefit of the successors and assigns of the Company and be binding upon you and your heirs, executors, administrators, successors, and assigns.

Please execute the following Acceptance and Acknowledgment and return to the undersigned.

Sincerely,

Edward Riggs Monfort

Chief Executive Officer

ACCEPTANCE AND ACKNOWLEDGMENT

I,                     , a resident of the State of California, accept the incentive stock option described in this agreement and in ADOMANI. Inc.’s 2012 Preferred Stock Option Plan, and acknowledges receipt of a copy of this Agreement and a copy of the Plan. I have read and understand the Plan, and I hereby make the representations, warranties and acknowledgments, and undertake the indemnity and other obligations, therein specified. As a condition to my exercise of this stock option, I agree to execute the Company’s Shareholders Agreement and Stock Purchase Agreement in effect at such time.

Dated:             , 20    

 

 

  

 

   Taxpayer Identification

By his or her signature below, the spouse of the Optionee, if such Optionee is legally married as of the date of his or her

 

7


execution of this Agreement, acknowledges that he or she has read this agreement, acknowledges that he or she is familiar with the terms and provisions thereof, and agrees to be bound by al the terms and conditions of this Agreement and the Plan.

Date:             , 20    

 

 

Spouse

 

Printed Name

 

8

Exhibit 6.6

JAMES L. REYNOLDS

EMPLOYMENT AGREEMENT WITH ADOMANI, INC.

This EMPLOYMENT AGREEMENT is entered into by and between ADOMANI, INC., a Florida corporation (the “Company”), with its corporate headquarters located at 1181 Cadillac Court, Milpitas, California 95035 and JAMES L. REYNOLDS, the undersigned individual (“Executive”), with his address located at [Address].

RECITAL

The Company and Executive desire to enter into an EMPLOYMENT AGREEMENT setting forth the terms and conditions of Executive’s employment with the Company.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the Company and Executive agree as follows:

1. Employment.

(a) Term. The Company hereby employs Employee to serve as its Chief Executive Officer/President of the Company. The employment with the Company is for a five-year period. The Employee is free to terminate the employment relationship at any time, subject to the other provisions of this Agreement.

(b) Duties and Responsibilities. Executive will be reporting to the Company’s Executive Committee and Board of Directors. Within the limitations established by the Bylaws of the Company, the Executive shall have each and all of the duties and responsibilities of the Executive’s position and such other duties on behalf of the Company as may be reasonably assigned from time to time by the Company’s Board of Directors.

(c) Location. The location at which Executive shall perform services for the Company shall be 1181 Cadillac Court, Milpitas, California 95035, or at any other location where the Company designates its corporate office. Executive agrees to perform the services of Chief Executive Officer/President at said corporate office or a location which is acceptable to the Executive where he can perform his services of Chief Executive Officer/President. The Company acknowledges that currently it does not have a physical office in Southern California and authorizes Executive to perform his services as Chief Executive Officer/President wherever it is convenient for him to perform such services.


2. Compensation.

(a) Base Salary. Employee shall be paid a base salary (“Base Salary”) at the annual rate of Two Hundred Forty Thousand Dollars ($240,000.00), payable in monthly installments consistent with Company’s payroll practices. However, Executive acknowledges that the Company is in the process of securing a Round B of financing and agrees that until Round B is closed, but not later than January 1, 2015, Executive agrees that for the period between September 1, 2014 and the earlier of the closing of Round B or December 31, 2014, Executive shall be paid at a monthly rate of Five Thousand Dollars ($5,000.00) per month. The annual Base Salary shall be reviewed on or before December 31 of each year, unless Employee’s employment hereunder shall have been terminated earl.i.er pursuant: to this Agreement. By December 31 of each year, the Board of Directors of the Company shall determine if such Base Salary should be increased for the following year in recognition of services to the Company. The Company agrees to begin compensating the Employee under this Employment commencing September 1, 2014.

As an additional Base Pay, Executive shall also be entitled to receive five percent (5%) of the Net Profits of the Company on an annual basis. The determination of Net Profits shall be in accordance with the definition of Net Profits as described in Generally Accepted Accounting Principles (GAAP) which is the Company’s income, less cost of goods, less operating expenses. In addition, for purposes of this Employment Agreement, the warranty reserve balance shall be added back to Net Profits. The computation of Net Income for the purpose of this paragraph shall be prior to state and federal corporate income taxes.

(b) Payment. Payment of all compensation to Executive hereunder shall be made in accordance with the relevant Company policies in effect from time to time, including normal payroll practices, and shall be subject to all applicable employment and withholding taxes. However, Executive agrees that regardless of subsections 2(a) and 2(b), Executive agrees that he shall postpone any payment of salary until the earlier of the closing of Round B or December 31, 2014. Accordingly, Executive shall not be paid any salary until the earlier of the closing of Round B or January 1, 2015. The Company and Executive agree that prior to January 1, 2015, the Company and Executive shall review the payment of Executive’s Salary that is accrued as of December 31, 2014, and if deemed by the Company to be in the best interests of the Company, the Company may pay the Executive before January 1, 2015.

 

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(c) Bonus. Executive may also be entitled to a bonus determined at the sole discretion of the Board of Directors.

3. Other Employment Benefits.

(a) Business Expenses. Upon submission of itemized expense statements in the manner specified by the Company, Executive shall be entitled to reimbursement for reasonable travel and other reasonable business expenses duly incurred by Executive in the performance of his duties under this Agreement. However, Company shall furnish Executive with a debit and/or credit card for payment of business expenses. Executive agrees to comply with all reporting requirements of Section 274 of the Internal Revenue Code of 1986 and all changes thereto in addition to the Treasury Regulations and rulings promulgated thereunder.

(b) Benefit Plans. Executive shall be entitled to participate in the Company’s benefit plans offered by the Company to its employees during the term of this Agreement. Nothing in this Agreement shall preclude the Company from terminating or amending any employee benefit plan or program from time to time. The Company also agrees to include the Executive in any insurance plan it incorporates, including, but not limited to, medical insurance, dental insurance, long-term disability insurance, and life insurance. If Executive is paying for medical insurance or dental insurance and the Company has not instituted either or both a medical insurance plan or dental insurance plan, then Company shall reimburse Executive his out of pocket payments for medical insurance and dental insurance.

(c) Vacation and Sick Pay. Executive shall be entitled to three (3) weeks total of vacation and sick pay each year of full employment, exclusive of legal holidays, as long as the scheduling of Executive’s vacation does not interfere with the Company’s normal business operations.

(d) Holidays. Employee shall be entitled to the following Holidays: New Years Day, President’s Day, Memorial Day, Independence Day, Labor Day, Veterans Day, Thanksgiving, and Christmas.

 

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(e) Granting and Buyback of Stock. The following provisions shall apply to the granting and repurchasing of the Common Stock of the Company:

(1) Grant to Executive. The Company shall grant to Executive Five Million (5,000,000) of the existing outstanding stock options of the Company at ten cents ($.10) per share. Executive’s stock options shall vest over a period of five (5) years. Executive shall vest 1/60th for each month the Executive works over the five years. The Executive shalt pay for the stock options at the price of $.10 per share as defined in the 2012 Incentive Stock Option Plan of the Company.

(2) Repurchase Rights. In the event of Executive’s termination of employment for cause prior to the five-years of this Employment Agreement, the Company shall have the right to repurchase the stock options vested at the price that the Executive paid under the 2012 Incentive Stock Option Plan. The terms upon which the Executive may be terminated for cause are defined in Section 5(a)(2), (3) and (4) of this Agreement.

(3) Stock Legend. Each certificate for stock option shares issued by the Company to Executive shall bear an appropriate legend that the transfer of such shares is restricted by the provisions of this Agreement.

(4) Compliance with Securities Laws. Issuance of stock shall be in accordance with all applicable securities laws.

(f) No Other Benefits. Subject to Section 5(b), Executive understands and acknowledges that the compensation specified in Sections 2 and 3 of this Agreement shall be in lieu of any and all other compensation, benefits and plans. However, Executive understands that the Company shall be adopting Stock Option Plans and will be entitled to receive additional stock option grants at the determination of the Board of Directors of the Company.

4. Executive’s Business Activities. Executive shall devote his entire business time, attention and energy to the business and affairs of the Company. Executive may serve as a member of the Board of Directors of other organizations that do not compete with the Company, and may participate in other professional, civic, governmental organizations, and activities that do not materially affect his ability to carry out his duties hereunder.

 

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5. Termination of Employment.

(a) For Cause. Notwithstanding anything herein to the contrary, the Company may terminate Executive’s employment hereunder for cause for any one of the following reasons: (1) conviction of a felony, or a misdemeanor where imprisonment is imposed, (2) commission of any act of theft, fraud, or falsification of any employment or Company records in any material way, (3) Executive’s failure or inability to perform any material reasonably assigned duties after written notice from the Company of, and a reasonable opportunity to cure, such failure or inability, or (4) material breach of this Agreement which breach is not cured within ten (10) days following written notice of such breach. Upon termination of Executive’s employment with the Company for cause, the Company shall be under no further obligation to Executive for salary or bonus, except to pay all accrued but unpaid base salary, accrued bonus (if any) and accrued vacation to the date of termination thereof.

(b) Without Cause. The Company may not terminate Executive’s employment hereunder at any time without cause.

(c) Cooperation. After notice of termination, Executive shall cooperate with the Company, as reasonably requested by the Company, to effect a transition of Executive’s responsibilities and to ensure that the Company is aware of all matters being handled by Executive.

6. Disability of Executive. The Company may terminate this Agreement without liability if Executive shall be permanently prevented from properly performing his essential duties hereunder with reasonable accommodation by reason of illness or other physical or mental incapacity for a period of more than 120 consecutive days. In the event of the disability of Executive and his termination in accordance with this Section, the Company’s obligations hereunder shall automatically cease and terminate; provided, however, that within 15 days the Company shall pay to Executive’s heirs or personal representatives Executive’s Base Salary and accrued vacation accrued to the date of termination. However, if Executive’s employment is terminated by the Company under this section for disability, then all stock options that have not vested for Executive shall vest on the date of termination. Executive shall have thirty days to pay for such stock options which have received accelerated vesting.

 

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7. Death of Executive. In the event of the death of Executive, the Company’s obligations hereunder shall automatically cease and terminate; provided, however, that within 15 days the Company shall pay to Executive’s heirs or personal representatives Executive’s Base Salary and accrued vacation accrued to the date of death. However, if Executive’s employment is terminated by the Company under this section for death, then all stock options that have not vested for. Executive shall vest on the date of termination. Executive’s personal representative or heirs shall have thirty days to pay for such stock options which have received accelerated vesting.

8. Confidential Information and Invention Assignments. Executive understands that the Company possesses Proprietary Information as defined below which is important to its business and that this Agreement creates a relationship of confidence and trust between Executive and the Company with regard to Proprietary Information.

(a) Proprietary Information. For purposes of this Agreement, “Proprietary Information” is information that was or will be developed, created or discovered by or on behalf of the Company, or is developed, created or discovered by Executive while performing Services, or which became or will become known by, or was or is conveyed to the Company which has commercial value in the Company’s business. “Proprietary Information” includes, but is not limited to, trade secrets, designs, technology, know-how, works of authorship, source and object code, data, computer programs, ideas, techniques, business and product development plans, and other information concerning the Company’s actual or anticipated business, research or development, personnel information, terms of compensation and performance levels of Company employees, inventions (as defined in subsection (e) below), or that is received in confidence by or for the Company from any other person. Executive understands and agrees that this employment relationship creates a relationship of confidence and trust between the Company and Executive with respect to Proprietary Information.

(b) Confidentiality. At all times, both during the term of this Agreement and after its termination, Executive will keep in confidence and trust, and will not use or disclose any Proprietary Information without the prior written consent of the Company, except as may be necessary in the ordinary course of performing the Services under this Agreement.

 

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(c) Company Documents. Executive understands that the Company possesses or will possess Company Documents that are important to its business. For purposes of this Agreement, “Company Documents” are documents or other media or tangible items that contain or embody Proprietary Information or any other information concerning the business, operations or plans of the Company, whether such documents have been prepared by Executive or by others. “Company Documents” include, but are not limited to, drawings, photographs, charts, graphs, research data, notebooks, computer disks, tapes or printouts, sound recordings and other printed, typewritten or handwritten documents. All Company Documents are and shall remain the sole property of the Company. Executive agrees not to remove any Company Documents from the business premises of the Company or deliver any Company Documents to any person or entity outside the Company, except as required in connection with performance of the Services under this Agreement. Executive further agrees that, immediately upon the Company’s request and in any event upon completion of the Services or the termination of this Agreement, Executive shall deliver to the Company all Company Documents, apparatus, equipment and other physical property or any reproduction of such property, excepting only Executive’s copy of this Agreement.

(d) Solicitation of Company Employees. During the term of this Agreement and for two years thereafter, Executive will not encourage or solicit any employee of the Company to leave the Company for any reason.

(e) Work for Hire. It is understood and agreed that if Executive has rendered or is rendering services to and for the benefit of the Company, including developing software or other technology, or creating improvements, inventions, designs, formulas, works of authorship, trade secrets, technology, ideas, processes, techniques, know-how and data, whether or not patentable (together, the “Inventions”), then those Inventions are for the sole and exclusive use of the Company, and that the Company shall be deemed the sole and exclusive owner of all right, title and interest in and to such Inventions, including any designs, source code, object code, enhancements and modifications, all files including input and output materials, all documentation relating to such Inventions, all media upon which any such computer programs, files and documentation are located (including tapes, disks and other storage media) and including all copyright, patent, trademark and other proprietary rights therein and relating thereto. All Inventions developed by Executive and any supporting documentation therefor shall be considered “Works for Hire” (as that term is defined under the United States Copyright Act (1.7 U.S.C., Section 101)1 and, as such, shall be owned by and for the benefit of the Company.

 

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(f) Disclosure of Inventions. Executive will promptly disclose in writing to the Company all Inventions made or conceived or reduced to practice or developed by Executive, either alone or jointly with others, during the term of this Agreement in connection with the Services that relate to any Proprietary Information.

(g) Title to Intellectual Property. All Proprietary Information and all title, patents, patent rights, copyrights, trade secret rights and other intellectual property and rights anywhere in the world (collectively “Rights”) in connection therewith shall be the sole property of the Company.

(h) Assignment of Inventions. In the event that it should be determined that any of the Inventions, Rights or supporting documentation therefor do not qualify as Works for Hire, Executive will and hereby does assign to the Company for no additional consideration, all right, title, and interest that he may possess in such Inventions and/or Rights and documentation including, but not limited to, all copyright and proprietary rights relating thereto. Executive hereby assigns to the Company any Rights Executive may have or acquire in such Proprietary Information.

(i) Cooperation with Company. Executive agrees to perform, during and after the term of this Agreement, all acts deemed necessary or desirable by the Company to permit and assist it, in evidencing, perfecting, obtaining, maintaining, defending and enforcing Rights and/or Executive’s assignment with respect to such Inventions in any and all countries. Such acts may include, but are not limited to, execution of documents and assistance or cooperation in legal proceedings. Executive hereby irrevocably designates and appoints the Company and its duly authorized officers and agents, as Executive’s agents and attorneys-in-fact to act for and on behalf and instead of Executive, to execute and file any documents and to do all other lawfully permitted acts to further the above purposes with the same legal force and effect as if executed by Executive.

(j) Prior Confidentiality Agreements. Executive represents that performance of all the terms of this Agreement will not breach any agreement to keep in confidence Proprietary Information acquired by Executive in confidence or in trust prior to the execution of this Agreement. Executive has not entered into, and Executive agrees not to enter into, any agreement either written or oral that conflicts or might conflict with Executive’s performance of the Services under this Agreement.

 

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(k) Right to License. If any Rights or Inventions assigned hereunder are based on, or incorporated, or are improvements or derivatives of, or cannot be reasonably made, used, reproduced and distributed without using or violating technology or Rights owned or licensed by Executive and not assigned hereunder, Executive hereby grants the Company a perpetual, worldwide, non-exclusive sublicensable right and license to exploit and exercise all such technology and Rights in support of the Company’s exercise or exploitation of any assigned Rights or Inventions (including any modifications, improvements and derivatives thereof).

9. Exclusive Employment. During employment with the Company, Executive will not do anything to compete with the Company’s present or contemplated business, nor will he plan or organize any competitive business activity. Executive will not during his employment or within two (2) years after it ends, without the Company’s express written consent, solicit or encourage any employee, agent, independent contractor, supplier, Executive, investor, or alliance partner to terminate or alter a relationship with the Company. After this agreement is terminated and for two (2) years thereafter, Executive shall not, compete with the Company without the Company’s express written consent

10. Assignment and Transfer. Executive’s rights and obligations under this Agreement shall not be transferable by assignment or otherwise, and any purported assignment, transfer or delegation thereof shall be void.

11. No Inconsistent Obligations. Executive is aware of no obligations, legal or otherwise, inconsistent with the terms of this Agreement or with his undertaking employment with the Company. Executive will not disclose to the Company, or use, or induce the Company to use, any proprietary information or trade secrets of others.

12. Miscellaneous.

(a) Attorneys’ Fees. Should either party hereto, or any heir, personal representative, successor or assign of either party hereto, resort to legal proceedings in connection with this Agreement or 17.,7erW-ive’s employment with the Company, the party or parties prevailing in such legal proceedings shall be entitled, in addition to such other relief as may be granted, to recover its or their reasonable attorneys’ fees and costs in such legal proceedings from the non-prevailing party or parties; provided, however, that nothing herein is intended to affect the provisions of Section 12(l).

 

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(b) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to conflict of law principles.

(c) Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto and supersedes any prior or contemporaneous written or oral agreements, representations and warranties between them respecting the subject matter hereof.

(d) Amendment. This Agreement may be amended only by a writing signed by Executive and by a duly authorized representative of the Company after approval of the Company’s Board of Directors.

(e) Severability. If any term, provision, covenant or condition of this Agreement, or the application thereof to any person, place or circumstance, shall be held to be invalid, unenforceable or void, the remainder of this Agreement and such term, provision, covenant or condition as applied to other persons, places and circumstances shall remain in full force and effect.

(f) Construction. The headings and captions of this Agreement are provided for convenience only and are intended to have no effect in construing or interpreting this Agreement. The language in all parts of this Agreement shall be in all cases construed according to its fair meaning and not strictly for or against the Company or Executive.

(g) Rights Cumulative. The rights and remedies provided by this Agreement are cumulative, and the exercise of any right or remedy by either party hereto (or by its successor), whether pursuant to this Agreement, to any other agreement, or to law, shall not preclude or waive its right to exercise any or all other rights and remedies.

(h) Nonwaiver. No failure or neglect of either party hereto in any instance to exercise any right, power or privilege hereunder or under law shall constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance. All waivers by either party hereto must be contained in a written instrument: signed by the party to be charged and, in the case of the Company, by an officer of the Company (other than Executive) or other person duly authorized by the Company’s Board of Directors.

 

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(i) Notices. Any notice, request, consent or approval required or permitted to be given under this Agreement or pursuant to law shall be sufficient if in writing, and if and when sent by certified or registered mail, with postage prepaid, to Executive’s residence (as noted in the Company’s records), or to the Company’s principal office, as the case may be.

(j) Assistance in Litigation. Executive shall, during and after termination of employment, upon reasonable notice, furnish such information and proper assistance to the Company as may reasonably be required by the Company in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become a party; provided, however, that such assistance following termination shall be furnished at mutually agreeable times and for mutually agreeable compensation.

(k) Disputes. Any controversy, claim or dispute arising out of or relating to this Agreement or the employment relationship, either during the existence of the employment relationship or afterwards, between the parties hereto, shall be litigated solely in state or federal court in San Francisco, California. Each party (1) submits to the jurisdiction of such court, (2) waives the defense of an inconvenient forum, and (-3) agrees that valid consent to service may be made by mailing or delivery of such service to the party at the party’s last known address, if personal service delivery cannot be easily effected.

 

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(l) Waiver of Jury Trial. EACH PARTY, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER MATTER INVOLVING THE PARTIES HERETO.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date set forth below.

Dated: September 1, 2014

ADOMANI, INC.:

EDWARD R. MONFORT

JAMES L. REYNOLDS

 

 

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Exhibit 6.7

June 5, 2016

Mr. Edward Montfort

Dear Edward:

On behalf of ADOMANI, Inc. (the “Company”), I am pleased to confirm your continuing employment with the Company on the following terms. You are referred to hereafter as “Executive.”

1. Position and Duties. Executive’s title will be Chief Technology Officer (the “CTO”), and Executive will report to the Company’s Chief Executive Officer (the “CEO”) and the term will be for two years. In this position, Executive’s duties will consist of ED projects to be worked on, segregating between R & D vs. production, and recommending them. Executive will also respond to projects suggested by other Company Executives, obtain CEO approval of the projects in general before proceeding to creating a budget. Without CEO approval, no project should proceed in any manner. Executive will create budgets, including outside resources and travel, timeline for completion for projects approved by the CEO including where the projects will be worked on. Executive will conduct all background checks on all contractors and ADOMANI employees to be hired or retained for each project, and submit, along with resumes, with the project budget, to the CEO for approval before incurring any project costs. Executive will also supervise all resources and furnish the CEO or a designee all weekly status reports. Should an approved project’s actual cost for parts, labor, travel, and/or other expenses exceed 5% of the budgeted cost, Executive will immediately notify the CEO and CFO and receive in writing any approval for additional spending on the project. In this position, Executive’s duties shall consist of providing technological assistance to the Company in its business of zero-emission electric and hybrid vehicle solutions to school bus and medium to heavy-duty fleet operators. Executive shall not engage in additional technology development without first obtaining CEO approval of the projects in general before proceeding. Executive will also supervise outside vendors who provide technological support for the business of the Company. In addition, Executive will advise the CEO or CFO of any activity on projects that require additional or special insurance or other costs to be provided and will comply with all Company policies on invoice approval and timely submit invoices for payment, including the utilization of the Company Purchase Order System and Procedures. In performing Executive’s duties, Executive shall devote his full business time and best efforts on behalf of Company, and shall abide by all Company policies and directives, as well as all applicable laws. Further, during Executive’s employment with Company, Executive agrees not to engage in any work, paid or unpaid, or other activities that create a conflict of interest, or disrupt or interfere with Company’s operations; however, nothing contained herein shall prevent Executive from engaging in other technological development for his own account or for others so long as such outside research/development is outside the scope of Company’s business.

2. Base Salary. The Company will pay Executive a base salary at the rate of $10,000.00 per month (which annualizes to $120,000.00 per year) starting June 1, 2016, payable in accordance with the Company’s standard payroll schedule. This salary will be subject to adjustment pursuant to the Company’s employee compensation policies in effect from time to time.

 

www.adomanielectric.com    620 Newport Center Drive, Suite 1100, Newport Beach, CA 92660    714.814.6900


June 6, 2016

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3. Employee Benefits. Executive will remain eligible to participate in various Company fringe benefit plans offered by Company to full-time employees as of the date of this letter, subject to the terms and conditions of such benefit plans. The Company may change its benefit plans, from time to time, at its discretion. Executive has been granted stock options by grant letters as to 12,000,000 shares of common stock and 3,000,000 shares of preferred stock effective November 1, 2012 and June 1, 2014, respectively, which vest at the rate of 1/60th per month from the date of grant. Said option grant has been amended by amendment of even date herewith.

4. Other Consideration. In consideration for Executive’s execution of a general release in the form attached hereto as Exhibit A, the Company will pay Executive the sum of $200,000.00 to ELO, LLC. Company agrees to pay for two years, commencing June 1, 2016 through May 31, 2018, $3,000.00 per month for the services of a contracted consultant to be selected by Executive. In addition, Company agrees to pay to ELO, LLC for two years, commencing June 1, 2016 through May 31, 2018, up to $7,000.00 per month for invoiced expenses.

5. Employment Relationship. This Agreement contemplates a two-year employment period, beginning on June 1, 2016 and ending on May 31, 2018. Executive may terminate Executive’s employment at any time and for any reason. Any contrary representations that may have been made to Executive are superseded by this letter agreement. This is the full and complete agreement between. Executive and the Company on this term.

6. Termination of Employment.

(a) Resignation. If Executive voluntarily terminates his employment with the Company at any time for any reason, Executive will be entitled to Executive’s base salary then in effect prorated through Executive’s termination date, as well as any accrued but unused vacation, and Executive shall not be entitled to any other compensation or benefits from Company other than vested stock option rights.

(b) Termination for Cause, Death or Disability. If the Company terminates Executive’s employment for Cause (as defined in Paragraph 7 below, and as determined in the discretion of the Board) or if Executive’s employment with Company terminates as a result of Executive’s death or Disability, Executive will be entitled to his base salary then in effect prorated through his termination date, in addition to any accrued but unused vacation, and Executive shall not be entitled to any other compensation or benefits from Company, other than stock option rights.

7. Definitions. The following terms have the meaning set forth below wherever they are used in this letter agreement:

Cause” means the occurrence of any of the following:

(i) Executive’s gross negligence, willful misconduct or his failure to substantially perform Executive’s duties and responsibilities to the reasonable satisfaction of the Board; his material breach of his fiduciary duties to the Company; or his breach of a material term of the Employee Proprietary Information and Inventions Assignment Agreement. Any act or acts or omission or omissions by Executive that have an adverse effect on the Company’s operations, prospects, reputation or business shall be deemed to be such a breach of Executive’s duties and responsibilities to the Company.

 

www.adomanielectric.com    620 Newport Center Drive, Suite 1100, Newport Beach, CA 92660    714.814.6900


June 6, 2016

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(ii) Executive’s conviction for a felony; in which case, notwithstanding anything set forth in this letter agreement, the Company may immediately terminate Executive’s employment for Cause.

(iii) Executive’s engagement in acts of fraud, embezzlement, or dishonesty; in which case, notwithstanding anything set forth in this letter agreement, the Company may immediately terminate Executive’s employment for Cause.

Disability” means “disability” within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.

8. Tax Matters.

(a) Withholding. All forms of compensation referred to in this letter agreement are subject to reduction to reflect applicable withholding and payroll taxes and other deductions required by law.

(b) Tax Advice. Executive is encouraged to obtain his own tax advice regarding his compensation from the Company. Executive agrees that the Company does not have a duty to design its compensation policies in a manner that minimizes his tax liabilities, and Executive will not make any claim against the Company or the Board related to tax liabilities arising from his compensation.

9. Interpretation and Disputes. This letter agreement supersedes and replaces any prior agreements, representations or understandings (whether written, oral, implied or otherwise) between Executive and the Company and constitute the complete agreement between Executive and the Company regarding the subject matter set forth herein. This letter agreement may not be amended or modified, except by an express written agreement signed by both Executive and a duly authorized officer of the Company. The terms of this letter agreement and the resolution of any disputes as to the meaning, effect, performance or validity of this letter agreement or arising out of, related to, or in any way connected with, this letter agreement, Executive’s employment with the Company or any other relationship between Executive and the Company (the “Disputes”) will be governed by California law, excluding laws relating to conflicts or choice of law. Executive and the Company submit to the exclusive personal jurisdiction of the federal and state courts located in Santa Clara County in connection with any Dispute or any claim related to any Dispute.

10. Confidential Information, Rights and Duties. Executive shall be required as a condition of employment to sign and abide by the Employee Proprietary Information and Inventions Agreement (the “Inventions Agreement”), which is attached hereto as Exhibit B and which is incorporated herein by this reference. The Inventions Agreement may be revised and amended from time to time by the Company and Executive and shall survive termination of Executive’s employment with the Company. To the extent any of the provisions of the Inventions Agreement provide broader protections to the Company than those set forth in this Agreement, the Inventions Agreement shall control.

 

www.adomanielectric.com    620 Newport Center Drive, Suite 1100, Newport Beach, CA 92660    714.814.6900


June 6, 2016

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11. Older Workers’ Benefit Protection Act. This release is intended to satisfy the requirements of the Older Workers’ Benefit Protection Act, 29 U.S.C. sec. 626(f). Employee is advised to consult with an attorney before executing this release.

(a) Acknowledgments. Executive acknowledges and agrees that (a) Executive has read and understands the terms of this Agreement; (b) Executive has been advised in writing to consult with an attorney before executing this Agreement; (c) Executive has obtained and considered such legal counsel as Executive deems necessary; (d) Executive has been given sufficient time to enter into this Employment Agreement; and (e) by signing this Agreement, Executive acknowledges that Executive does so freely, knowingly, and voluntarily.

(b) Effective Date. This Agreement shall become effective and enforceable upon Executive and Company signing this Agreement.

12. Preserved Rights of Executive. This Agreement does not waive or release any rights or claims that Executive may have under the Age Discrimination in Employment Act that arise after the execution of this Agreement. In addition, this Agreement does not prohibit Executive from challenging the validity of this Agreement’s waiver and release of claims under the Age Discrimination in Employment Act of 1967, as amended. Company shall, to the maximum extent permitted by law, defend, indemnify and hold Executive harmless from costs, expenses, damages and other liability incurred by Executive for any acts or decisions made in good faith while performing services for Company.

Executive may indicate his agreement with these terms and accept this offer by signing and dating the enclosed duplicate original of this letter agreement and returning it to the Company.

 

Very truly yours,

By:

 

/s/ James L. Reynolds

Title:  

President & CEO

I have read and accept this employment offer:

 

/s/ Edward Monfort

Edward Monfort
Dated: 6-23-16

 

www.adomanielectric.com    620 Newport Center Drive, Suite 1100, Newport Beach, CA 92660    714.814.6900

Exhibit 6.8

INDEMNITY AGREEMENT

This Indemnity Agreement, dated as of             , 2016, is made by and between ADOMANI, Inc., a Delaware corporation (the “Company”), and [            ] (the “Indemnitee”).

RECITALS

A. The Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company’s directors, officers, employees and other agents, the cost of such insurance and the general reductions in the coverage of such insurance;

B. The Company and Indemnitee recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees and other agents to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited;

C. The Company desires to attract and retain the services of talented and experienced individuals, such as Indemnitee, to serve as directors, officers, employees and agents of the Company and its subsidiaries and wishes to indemnify its directors, officers, employees and other agents to the maximum extent permitted by law;.

D. Section 145 of the General Corporation Law of Delaware, under which the Company is organized (“Section 145”), empowers the Company to indemnify its directors, officers, employees and agents by agreement and to indemnify persons who serve, at the request of the Company, as the directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by Section 145 is not exclusive.

E. In order to induce Indemnitee to serve or continue to serve as a director, officer, employee or agent of the Company and/or one or more subsidiaries of the Company free from undue concern for claims for damages arising out of or related to such services to the Company and/or one or more subsidiaries of the Company, the Company has determined and agreed to enter into this Agreement with Indemnitee.

AGREEMENT

NOW, THEREFORE, the Indemnitee and the Company hereby agree as follows:

1. Definitions. As used in this Agreement:

(a) “Agent” means any person who is or was a director, officer, employee or other agent of the Company or a subsidiary of the Company; or is or was serving at the request of, for the convenience of, or to represent the interests of the Company or a subsidiary of the Company as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise; or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the Company or a subsidiary of the Company, or was a director, officer, employee or agent of another enterprise at the request of, for the convenience of, or to represent the interests of such predecessor corporation.

 

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(b) “Board” means the Board of Directors of the Company.

(c) “Expenses” shall include all out-of-pocket costs of any type or nature whatsoever (including, without limitation, all attorneys’ fees and related disbursements), actually and reasonably incurred by the Indemnitee in connection with either the investigation, defense or appeal of a Proceeding or establishing or enforcing a right to indemnification under this Agreement, or Section 145 or otherwise; provided, however, that “Expenses” shall not include any judgments, fines, ERISA excise taxes or penalties, or amounts paid in settlement of a Proceeding.

(d) “Independent Counsel” means a law firm, or a partner (or, if applicable, member) of such a law firm, that is experienced in matters of corporation law and neither currently is, nor in the past five years has been, retained to represent: (i) the Company or the Indemnitee in any matter material to either such party or (ii) any other party to or witness in the proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitee’s rights under this Agreement.

(e) “Proceeding” means any threatened, pending, or completed action, suit or other proceeding, whether civil, criminal, administrative, or investigative.

(f) “Subsidiary” means any corporation of which more than 50% of the outstanding voting securities is owned directly or indirectly by the Company, by the Company and one or more other subsidiaries, or by one or more other subsidiaries.

2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to serve as an Agent of the Company, at its will (or under separate agreement, if such agreement exists), in the capacity the Indemnitee currently serves as an Agent of the Company, so long as the Indemnitee is duly appointed or elected and qualified in accordance with the applicable provisions of the Bylaws of the Company or any subsidiary of the Company or until such time as the Indemnitee tenders his or her resignation in writing; provided, however, that nothing contained in this Agreement is intended to create any right to continued employment by the Indemnitee.

3. Liability Insurance.

(a) Maintenance of D&O Insurance. The Company hereby covenants and agrees that, so long as the Indemnitee shall continue to serve as an Agent of the Company and thereafter so long as the Indemnitee shall be subject to any possible Proceeding by reason of the fact that the Indemnitee was an Agent of the Company, the Company, subject to Section 3(c), shall promptly obtain and maintain in full force and effect directors’ and officers’ liability insurance (“D&O Insurance”) in reasonable amounts from established and reputable insurers, as more fully described below.

 

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(b) Rights and Benefits. In all policies of D&O Insurance, the Indemnitee shall qualify as an insured in such a manner as to provide the Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s independent directors (as defined by the insurer) if the Indemnitee is such an independent director; of the Company’s non-independent directors if the Indemnitee is not an independent director; of the Company’s officers if the Indemnitee is an officer of the Company; or of the Company’s key employees, if the Indemnitee is not a director or officer but is a key employee.

(c) Limitation on Required Maintenance of D&O Insurance. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain D&O Insurance if the Company determines in good faith that: such insurance is not reasonably available; the premium costs for such insurance are disproportionate to the amount of coverage provided; the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit; the Indemnitee is covered by similar insurance maintained by a subsidiary of the Company; the Company is to be acquired and a tail policy of reasonable terms and duration is purchased for pre-closing acts or omissions by the Indemnitee; or the Company is to be acquired and D&O Insurance will be maintained by the acquirer that covers pre-closing acts and omissions by the Indemnitee.

4. Mandatory Indemnification. Subject to the terms of this Agreement:

(a) Third Party Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any Proceeding (other than an action by or in the right of the Company) by reason of the fact that the Indemnitee is or was an Agent of the Company, or by reason of anything done or not done by the Indemnitee in any such capacity, the Company shall indemnify the Indemnitee against all Expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) actually and reasonably incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of such Proceeding, provided the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or Proceeding, had no reasonable cause to believe his or her conduct was unlawful.

(b) Derivative Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any Proceeding by or in the right of the Company by reason of the fact that the Indemnitee is or was an Agent of the Company, or by reason of anything done or not done by the Indemnitee in any such capacity, the Company shall indemnify the Indemnitee against all Expenses actually and reasonably incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of such Proceeding, provided the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; except that no indemnification under this Section 4(b) shall be made in respect to any claim, issue or matter as to which the Indemnitee shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction unless and only to the extent that the Delaware Court of Chancery or the court in which such Proceeding was brought shall

 

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determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such amounts which the Delaware Court of Chancery or such other court shall deem proper.

(c) Actions where Indemnitee is Deceased. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any Proceeding by reason of the fact that the Indemnitee is or was an Agent of the Company, or by reason of anything done or not done by the Indemnitee in any such capacity, and if, prior to, during the pendency of or after completion of such Proceeding the Indemnitee is deceased, the Company shall indemnify the Indemnitee’s heirs, executors and administrators against all Expenses and liabilities of any type whatsoever to the extent the Indemnitee would have been entitled to indemnification pursuant to this Agreement were the Indemnitee still alive.

(d) Certain Terminations. The termination of any Proceeding or of any claim, issue, or matter therein by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself create a presumption that the Indemnitee did not act in good faith and in a manner which the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal action or Proceeding, that the Indemnitee had reasonable cause to believe that the Indemnitee’s conduct was unlawful.

(e) Limitations. Notwithstanding the foregoing, the Company shall not be obligated to indemnify the Indemnitee for Expenses or liabilities of any type whatsoever for which payment is actually made to or on behalf of the Indemnitee under an insurance policy, or under a valid and enforceable indemnity clause, by-law or agreement.

5. Indemnification for Expenses in a Proceeding in Which the Indemnitee is Wholly or Partly Successful.

(a) Successful Defense. Notwithstanding any other provisions of this Agreement, to the extent the Indemnitee has been successful, on the merits or otherwise, in defense of any Proceeding (including, without limitation, an action by or in the right of the Company) in which the Indemnitee was a party by reason of the fact that the Indemnitee is or was an Agent of the Company at any time, the Company shall indemnify the Indemnitee against all Expenses actually and reasonably incurred by or on behalf of the Indemnitee in connection with the investigation, defense or appeal of such Proceeding.

(b) Partially Successful Defense. Notwithstanding any other provisions of this Agreement, to the extent that the Indemnitee is a party to or a participant in any Proceeding (including, without limitation, an action by or in the right of the Company) in which the Indemnitee was a party by reason of the fact that the Indemnitee is or was an Agent of the Company at any time and is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify the Indemnitee against all Expenses actually and reasonably incurred by or on behalf of the Indemnitee in connection with each successfully resolved claim, issue or matter.

 

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(c) Dismissal. For purposes of this section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

6. Mandatory Advancement of Expenses. Subject to the terms of this Agreement and following notice pursuant to Section 7(a) below, the Company shall advance all Expenses reasonably incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any Proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an Agent of the Company (unless there has been a final determination that the Indemnitee is not entitled to indemnification for such Expenses) upon receipt of (i) an undertaking by or on behalf of the Indemnitee to repay the amount advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to indemnification by the Company and (ii) satisfactory documentation supporting such Expenses. Such advances are intended to be an obligation of the Company to the Indemnitee hereunder and shall in no event be deemed to be a personal loan. The advances to be made hereunder shall be paid by the Company to the Indemnitee within twenty (20) days following delivery of a written request therefor by the Indemnitee to the Company. In the event that the Company fails to pay Expenses as incurred by the Indemnitee as required by this paragraph, Indemnitee may seek mandatory injunctive relief from any court having jurisdiction to require the Company to pay Expenses as set forth in this paragraph. If Indemnitee seeks mandatory injunctive relief pursuant to this paragraph, it shall not be a defense to enforcement of the Company’s obligations set forth in this paragraph that Indemnitee has an adequate remedy at law for damages.

7. Notice and Other Indemnification Procedures.

(a) Notice by Indemnitee. Promptly after receipt by the Indemnitee of notice of the commencement of or the threat of commencement of any Proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company in writing of the commencement or threat of commencement thereof.

(b) Insurance. If the Company receives notice pursuant to Section 7(a) hereof of the commencement of a Proceeding that may be covered under D&O Insurance then in effect, the Company shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies.

(c) Defense. In the event the Company shall be obligated to pay the Expenses of any Proceeding against the Indemnitee, the Company shall be entitled to assume the defense of such Proceeding, with counsel selected by the Company and approved by the Indemnitee (which approval shall not be unreasonably withheld), upon the delivery to the Indemnitee of written notice of its election so to do. After delivery of such notice, and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees of counsel subsequently incurred by the Indemnitee with respect to the same Proceeding, provided that (i) the Indemnitee shall have the right to employ his or her own counsel in any such Proceeding at the Indemnitee’s expense; and (ii) the Indemnitee shall have the right to employ his or her own counsel in any such Proceeding at the Company’s expense if

 

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(A) the Company has authorized the employment of counsel by the Indemnitee at the expense of the Company, (B) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such Proceeding.

8. Right to Indemnification.

(a) Right to Indemnification. In the event that Section 5(a) is inapplicable, the Company shall indemnify the Indemnitee pursuant to this Agreement unless, and except to the extent that, it shall have been determined by one of the methods listed in Section 8(b) that the Indemnitee has not met the applicable standard of conduct required to entitle the Indemnitee to such indemnification.

(b) Determination of Right to Indemnification. A determination of the Indemnitee’s right to indemnification hereunder shall be made at the election of the Board by (i) a majority vote of directors who are not parties to the Proceeding for which indemnification is being sought, even though less than a quorum, or by a committee consisting of directors who are not parties to the Proceeding for which indemnification is being sought, who, even though less than a quorum, have been designated by a majority vote of the disinterested directors, or (ii) if there are no such disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee, or (iii) by the stockholders of the Company, if the Board so directs.

(c) Submission for Decision. As soon as practicable, and in no event later than thirty (30) days after the Indemnitee’s written request for indemnification, the Board shall select the method for determining the Indemnitee’s right to indemnification. The Indemnitee shall cooperate with the person or persons or entity making such determination with respect to the Indemnitee’s right to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to the Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board or stockholder of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitee’s entitlement to indemnification under this Agreement.

(d) Application to Court. If (i) the claim for indemnification or advancement of Expenses is denied, in whole or in part, (ii) no disposition of such claim is made by the Company within ninety (90) days after the request therefor, (iii) the advancement of Expenses is not timely made pursuant to Section 6 of this Agreement or (iv) payment of indemnification is not made pursuant to Section 5 of this Agreement, the Indemnitee shall have the right to apply to the Delaware Court of Chancery, the court in which the Proceeding is or was pending or any other court of competent jurisdiction, for the purpose of enforcing the Indemnitee’s right to indemnification (including the advancement of Expenses) pursuant to this Agreement.

(e) Expenses Related to the Enforcement or Interpretation of this Agreement. The Company shall indemnify the Indemnitee against all reasonable Expenses incurred by the Indemnitee in connection with any hearing or proceeding under this Section 8 involving the Indemnitee and against all reasonable Expenses incurred by the Indemnitee in connection with

 

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any other proceeding between the Company and the Indemnitee involving the interpretation or enforcement of the rights of the Indemnitee under this Agreement, unless a court of competent jurisdiction finds that each of the claims and/or defenses of the Indemnitee in any such proceeding was frivolous or made in bad faith.

9. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated:

(a) Claims Initiated by Indemnitee. To indemnify or advance Expenses to the Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, with a reasonable allocation where appropriate, unless (i) such indemnification is expressly required to be made by law, (ii) the Proceeding was authorized by the Board, (iii) such indemnification is provided by the Company, in its sole discretion, pursuant to the powers vested in the Company under the General Corporation Law of Delaware or (iv) the Proceeding is brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 in advance of a final determination;

(b) Lack of Good Faith. To indemnify the Indemnitee for any Expenses incurred by the Indemnitee with respect to any Proceeding instituted by the Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such Proceeding was not made in good faith or was frivolous;

(c) Unauthorized Settlements. To indemnify the Indemnitee under this Agreement for any amounts paid in settlement of a Proceeding unless the Company consents to such settlement, which consent shall not be unreasonably withheld;

(d) Claims Under Section 16(b). To indemnify the Indemnitee for Expenses and the payment of profits made from the purchase and sale (or sale and purchase) by the Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law; or

(e) Payments Contrary to Law. To indemnify or advance Expenses to the Indemnitee for which payment is prohibited by applicable law.

10. Non-Exclusivity. The provisions for indemnification and advancement of Expenses set forth in this Agreement shall not be deemed exclusive of any other rights which the Indemnitee may have under any provision of law, the Company’s Certificate of Incorporation or Bylaws, the vote of the Company’s stockholders or disinterested directors, other agreements, or otherwise, both as to action in the Indemnitee’s official capacity and as to action in another capacity while occupying the Indemnitee’s position as an Agent of the Company, and the Indemnitee’s rights hereunder shall continue after the Indemnitee has ceased acting as an Agent of the Company and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee.

 

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11. Permitted Defenses. It shall be a defense to any action for which a claim for indemnification is made under this Agreement (other than an action brought to enforce a claim for Expenses pursuant to Section 6 hereof, provided that the required undertaking has been tendered to the Company) that the Indemnitee is not entitled to indemnification because of the limitations set forth in Sections 4 and 9 hereof. Neither the failure of the Company (including its Board of Directors) or an Independent Counsel to have made a determination prior to the commencement of such enforcement action that indemnification of the Indemnitee is proper in the circumstances, nor an actual determination by the Company (including its Board of Directors) or an Independent Counsel that such indemnification is improper, shall be a defense to the action or create a presumption that the Indemnitee is not entitled to indemnification under this Agreement or otherwise.

12. Subrogation. In the event the Company is obligated to make a payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery under an insurance policy or any other indemnity agreement covering the Indemnitee, who shall execute all documents required and take all action that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights (provided that the Company pays the Indemnitee’s costs and expenses of doing so), including without limitation by assigning all such rights to the extent of such indemnification or advancement of Expenses.

13. Primacy of Indemnification. The Company hereby acknowledges that the Indemnitee may have certain rights to indemnification, advancement of expenses or liability insurance provided by a third-party investor and certain of its affiliates (collectively, the “Fund Indemnitors”). The Company hereby agrees that (i) it is the indemnitor of first resort, i.e., its obligations to the Indemnitee under this Agreement and any indemnity provisions set forth in its Certificate of Incorporation, Bylaws or elsewhere (collectively, “Indemnity Arrangements”) are primary, and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by the Indemnitee is secondary and excess, (ii) it shall advance the full amount of expenses incurred by the Indemnitee and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement by or on behalf of the Indemnitee, to the extent legally permitted and as required by any Indemnity Arrangement, without regard to any rights the Indemnitee may have against the Fund Indemnitors, and (iii) it irrevocably waives, relinquishes and releases the Fund Indemnitors from any claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind arising out of or relating to any Indemnity Arrangement. The Company further agrees that no advancement or indemnification payment by any Fund Indemnitor on behalf of the Indemnitee shall affect the foregoing, and the Fund Indemnitors shall be subrogated to the extent of such advancement or payment to all of the rights of recovery of the Indemnitee against the Company. The Company and the Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 13.

14. Survival of Rights.

(a) All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an Agent of the Company and shall continue thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed Proceeding by reason of the fact that Indemnitee was serving in the capacity referred to herein.

 

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(b) The Company shall require any successor to the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

15. Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to the Indemnitee to the fullest extent permitted by law, including those circumstances in which indemnification would otherwise be discretionary.

16. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality and enforceability of the remaining provisions of the Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 14 hereof.

17. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless it is in a writing signed by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

18. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) upon delivery if delivered by hand to the party to whom such notice or other communication shall have been directed, (b) if mailed by certified or registered mail with postage prepaid, return receipt requested, on the third business day after the date on which it is so mailed, (c) one business day after the business day of deposit with a nationally recognized overnight delivery service, specifying next day delivery, with written verification of receipt, or (d) on the same day as delivered by confirmed facsimile transmission if delivered during business hours or on the next successive business day if delivered by confirmed facsimile transmission after business hours. Addresses for notice to either party shall be as shown on the signature page of this Agreement, or to such other address as may have been furnished by either party in the manner set forth above.

19. Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. This Agreement is intended to be an agreement of the type contemplated by Section 145 (f) of the General Corporation Law of Delaware.

 

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20. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforcement is sought needs to be produced to evidence the existence of this Agreement.

The parties hereto have entered into this Indemnity Agreement effective as of the date first above written.

 

Indemnitee:     The Company:
      ADOMANI, Inc.

 

   
[                                     ]     By:  

 

        Jim Reynolds
        CEO
Address:  

 

     
 

 

     

 

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Exhibit 6.9

 

THIS PATENT LICENSE – USE AND MANUFACTURING AGREEMENT (the “Agreement”) MADE BETWEEN: SILICON TURBINE SYSTEMS, INC., a DELAWARE corporation (Called “STS”) with an address of: 900 E. Hamilton Avenue, Suite 180 Campbell CA, 95008, USA and ADOMANI, INC. a FLORIDA corporation (called “Licensee”) whose address is: 1181 Cadillac court Milpitas CA, 95036.

WHEREAS

 

  A. STS owns all right, title and interest in and to the Patent Rights (as defined below);

 

  B. Licensee desires to gain exclusive world wide rights under the Patent Rights to combine these Patent Rights with its own to commercialize and use products covered by the Patent Rights in the Field of Use (as defined below); and

 

  C. STS is willing to grant and Licensee accepts a license under the Patent Rights restricted to the Field of Use in accordance with the terms and conditions set forth in this Agreement.

 

  D. Licensee desires to have the ability to manufacture products covered by the Patent Rights for electric powered vehicles shipped under a brand owned by Licensee (“Licensee Branded Product”).

 

  E. STS is willing to grant a non-exclusive manufacturing license under the Patent Rights restricted to Licensee Branded Products.

IN CONSIDERATION of the preceding recitals and of the following terms, conditions, and promises, the Parties agree as follows:

 

1) DEFINITIONS IN THIS AGREEMENT

 

  a) “Patent Rights” means:

 

  i) U.S. Patent Applications #61/194,881, #61/323,293, #13/121,472, #14/181,834, and listed in Appendix I (attached) as well as any continuations, divisions, re-issues, re-examinations and extensions thereof and corresponding patents and applications in other countries that claim priority to any of the foregoing.

 

  ii) Any patent resulting from U.S. Patent Applications #61/194,881, #61/323,293, #13/121,472, #14/181,834, and listed in Appendix I (attached) as well as any continuations, divisions, re-issues, re-examinations and extensions thereof and corresponding patents and patent applications in other countries that claim priority to any of the foregoing.

 

  iii) Any other patent owned or controlled by STS that is relevant to implement and use a magnetic Vortex Flux Electric Generation system (as defined within the U.S. Patent Applications above in Section 1.a.i.) within the Field of Use.

 

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  b) “Licensed Process,” means any process covered by a claim of the Patent Rights or a claim of any other patent rights licensed under this Agreement. A Licensed Process also includes the provision of any service using a Licensed Product.

 

  c) “Licensed Product” means any article, kit, equipment, system, unit, product or component part covered by a claim of the Patent Rights or a claim of any other patent rights licensed under this Agreement.

 

  d) “Exclusive Field of Use” means only:

 

  i) For the use, solely in combination with Licensee’s own unique technology, systems and/or procedures, to upgrade existing (i.e., previously sold) fossil-fuel vehicles to an all-electric vehicle or to a hybrid electric vehicle.

 

  ii) Exclusive Field of Use shall not include original manufacture, sale or use of products that are solely built using the technology covered by the Patent Rights.

 

  iii) The rights to manufacture an STS product covered under this Exclusive Field of Use are limited to uses when combined with Licensee’s unique technology, systems and procedures and must be associated with all-electric or hybrid vehicles.

 

  e) “Non-Exclusive Field of Use” means only:

 

  i) For the use, solely in combination with Licensee’s own unique technology, systems and/or procedures, a) to upgrade existing (i.e., previously sold) fossil-fuel vehicles to an all-electric vehicle or to a hybrid electric vehicle or b) for electric powered vehicles shipped under a brand owned by Licensee “Licensee Branded Products”.

 

  ii) Non-Exclusive Field of Use shall not include original manufacture, sale or use of products that are solely built using the technology covered by the Patent Rights.

 

  iii) The rights to manufacture an STS product covered under this Non-Exclusive Field of Use are limited to uses when combined with Licensee’s unique technology, systems and procedures and must be associated with all-electric or hybrid vehicles.

 

  iv) When STS product is combined with Licensee’s own unique technology, systems and procedures the final combined product being an upgraded or new electric or hybrid/electric vehicle, said vehicle can also be used as a back-up form of electric capacity by the vehicle operator and or agent.

 

  f) “Field of Use” means Exclusive Field of Use and Non-Exclusive Field of Use collectively.

 

  g) “Affiliate” is a corporation that is a franchisee that also has a franchise license to the Licensee’s technology.

 

  h) “Grant 1” means the license granted by STS to Licensee in Section 2.a. below.

 

  i) “Grant 2” means the license granted by STS to Licensee in Section 2.b. below.

 

  j) “Material Breach” means any breach of License that has not been cured by the Licensee, See 10) c).

 

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2) GRANT OF LICENSES

 

  a) “Grant 1”: STS grants Licensee a world-wide, exclusive, royalty-free license under the Patent Rights, to use, sell, offer for sale and export and import Licensed Products within the Exclusive Field of Use and to practice Licensed Processes in the Exclusive Field of Use, subject to the following and to the terms and conditions outlined in this Agreement:

 

  i) This “Grant 1” is specific to the Exclusive Field of Use and does not grant any rights in the Patent Rights or any other patent rights to the Licensee except as specifically granted. A license to permit any other use of Patent Rights or any other patent rights owned or controlled by STS, whether solely or in combination with others, shall be retained by STS and must be negotiated separately.

 

  ii) For purposes of clarity, the Parties agree that Licensee may purchase, from third parties, unlicensed products that might otherwise infringe the Patent Rights and that such purchased products may be combined by Licensee with Licensee’s own unique technology, systems and/or procedures to form the Licensed Product within the scope of Grant 1. The foregoing shall not be interpreted as a “foundry right” that might otherwise permit such third parties to sell unlicensed products to parties other than Licensee.

 

  iii) Sub-licensing: Licensee may grant limited sub-license rights for “Grant 1” only as follows:

 

  (1) If a sub-license from Licensee is required for use of the Licensed Product or Licensed Process acquired by an end-user from Licensee, then Licensee may grant the end-user a sub-license restricted to use of the purchased Licensed Product or Licensed Process only, provided that the Licensee notifies such end-user of the existence of this license and the terms and conditions, including the restricted Exclusive Field of Use, under which the sublicense is granted. An acceptable form of such notice is “This product is licensed for use only in the electric/hybrid retrofit as supplied by Licensee and or its franchisees.” Such notice may be included in written documentation accompanying tangible hardware or software products or embodied in viewable documentation accompanying electronically distributed products or processes. Such a sub-license to an end-user shall continue for the life of the Licensed Product or Licensed Process or the life of the Patent Rights or any other patent rights which are licensed hereunder, whichever is shorter. Such sub-licenses granted to end-user in place at the time of termination, as defined in Section 10), of

 

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  this Agreement will continue after termination of this Agreement. An end-user shall not have the right to further sub-license any Patent Rights under this Agreement to any other third party.

 

  (2) Licensee may grant a sub-license for “Grant 1” within the Exclusive Field of Use to an Affiliate of Licensee provided that Licensee promptly gives written details to STS of the name and address of the Affiliate to which a sub-license is granted. A sub-license granted to an Affiliate will terminate on termination of this Agreement or whenever the sub-licensee ceases to be an Affiliate.

 

  b) “Grant 2”: STS grants Licensee a worldwide, non-exclusive, royalty-free license under the Patent Rights, to use, sell, offer for sale and export, import and manufacture and have made Licensed Branded Products within the Non-Exclusive Field of Use subject to the following and to the terms and conditions outlined in this Agreement:

 

  i) This “Grant 2” is specific to the Non-Exclusive Field of Use and does not grant any rights in the Patent Rights or any other patent rights to the Licensee except as specifically granted. A license to permit any other use of Patent Rights or any other patent rights owned or controlled by STS, whether solely or in combination with others, shall be retained by STS and must be negotiated separately.

 

  ii) For purposes of clarity, the Parties agree that Licensee may purchase, from third parties, unlicensed products that might otherwise infringe the Patent Rights and that such purchased products may be combined by Licensee with Licensee’s own unique technology, systems and/or procedures to form the Licensed Product within the scope of Grant 2. The foregoing shall not be interpreted as a “foundry right” that might otherwise permit such third parties to sell unlicensed products to parties other than Licensee.

 

  c) Reciprocal Grant by Licensee: Licensee grants STS a worldwide, non-exclusive, royalty-free license outside the Field of Use to any patent rights that Licensee creates, owns or controls during the term of this Agreement that are relevant to or beneficial for implementing vortex flux generation systems.

 

 3) CONSIDERATION AND REPORTING

 

  a) License Fees, Royalties and Taxes: These licenses are being granted on a royalty-free basis. The only consideration to STS for the license granted herein is the rights granted to STS under Section 2) c) and Licensee and Sub-licensees promises to be bound by the terms of this Agreement.  

 

  b) All licenses are conditional on and become effective on the closing of an equity investment in STS by Licensee (and/or other related parties) in the amount of USD $3M (the Effective Date). This investment will be finalized under a separate mutually agreed stock purchase and supporting documentation that will have been fully executed no later than December 31, 2014.  

 

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4) MARKING OF PATENT RIGHTS

 

  a) Patent Marking: The Licensee and any authorized sub-licensee will mark all Licensed Products in a manner consistent with their current patent marking practices for their own products provided appropriate notice is given under the relevant statutes. Where marking is to be performed but the Licensed Product cannot be marked, the patent notice shall be placed on associated tags, labels, packaging, or accompanying documentation either electronic or paper as appropriate. The obligations required of the Licensee and sub-licensee shall be satisfied by including a notice, as may be updated from time to time, of the form; “Covered by one or more claims of U.S. Patent No. 8,692,437, other pending patent applications, and registered trademarks.”

 

5) TECHNICAL ASSISTANCE

Effort, Costs and Payment: Unless otherwise mutually agreed to and with appropriate compensation, STS will not provide technical assistance to Licensee or sub-licensees relating to the use of Patent Rights.

 

6) PUBLICITY

 

  a) Announcements: Licensee shall not make any public announcement regarding this Agreement or the terms thereof without the prior approval of STS, such approval will not be unreasonably withheld.

 

  b) Use of STS’s Name: Licensee may not use STS’s name, any abbreviations, words, or images that apparently refer to STS, or any trade name, trademark, or service mark owned by STS without the prior written consent of STS. STS will undertake in its reasonable discretion, if requested in writing by Licensee, to approve in advance any proposed use of its name. In the event Licensee inadvertently uses STS’s name or other marks without prior approval from STS, Licensee shall promptly notify STS and shall use its reasonable efforts to withdraw from circulation any written material containing such an unapproved use.

 

7) REPRESENTATIONS AND WARRANTIES

 

  a) Representation of Ownership: STS represents that it owns or holds rights to the Patent Rights sufficient to grant a license pursuant to this Agreement.

 

  b) Non-Warranty of Validity: STS does not warrant the validity of the Patent Rights and makes no representation as to their scope. STS disclaims any warranty of non-infringement of the rights of others under any present or future patent.

 

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Licensee does not warrant the validity of the Patent Rights licensed by it pursuant to this Agreement and makes no representation as to their scope. Licensee disclaims any warranty of non-infringement of the rights of others under any present or future patent.

 

8) INFRINGEMENT

 

  a) Decision to Assert: STS reserves the right in its sole discretion to decide what actions, if any, to take in the event that either Licensee or its Affiliates or STS identifies an infringement of the Patent Rights licensed under this Agreement. STS will be under no obligation to assert the Patent Rights against any alleged infringer. With regards to Grant 2, Licensee agrees that neither Licensee nor its Affiliates shall initiate any action against alleged infringers and that neither Licensee not its affiliates shall be entitled to recover damages for infringement from infringers. With regards to Grant 1, Licensee and its Affiliates agree to liaise with STS and obtain written consent from STS before taking any independent action/s against alleged infringers. STS consent will not be unreasonably withheld.

 

9) LIMITATION OF LIABILITY

 

  a) No Liability: STS shall not be responsible for any losses due to Licensee’s or its Affiliate’s actions and accepts no liability for indirect or consequential damages whatsoever. For greater certainty, STS accepts no liability for direct, indirect or consequential damages whatsoever even if STS has been advised of the possibility of such damages, including, but not limited to, business interruption, lost business revenue, lost profits, failure to realize expected savings, economic loss, loss of data, loss of business opportunity or any claim against Licensee or its Affiliates by any other party.

 

  b) Reciprocal limitation of Liability: STS agrees that Licensee shall not be responsible for any losses resulting from STS exercising the rights granted under Section 2.c., and Licensee or its Affiliates shall have no liability for indirect or consequential damages due to exercising such rights.

 

 10) DURATION AND TERMINATION

 

  a) Date and Duration: This Agreement shall become effective on the Effective Date and remain active for ten (10) years following the date Licensee first ships their own product containing the Patent Rights. The rights and obligations of this Agreement shall remain in effect until expiration of the last patent licensed under this Agreement, or termination by notice in accordance with the provisions of this Agreement.  

 

6


  b) Termination by STS: This Agreement, at the option of STS, may be terminated forthwith by STS if Licensee defaults or if there is a Material Breach of any provision of this Agreement.

 

  c) Reparations for Default or Breach: If, upon receipt of STS’s notice of termination of this Agreement, Licensee cures the default or breach within thirty (30) days after notice is given, this Agreement shall continue in full force and effect.

 

  d) Effect of Change of Control of Licensee: Upon a change of control, whereby an independent entity (or a set of Affiliated entities) purchases 50% or more of the ownership interest in Licensee, in a single transaction or series of transactions, such that the majority owners of the Licensee prior to such transaction or series of transactions are no longer the majority owners of the Licensee, then: i) Grant 1 shall continue for Licensed Products within the Exclusive Field of Use and ii) Grant 2 shall continue within the Non-Exclusive Field of Use but only for Licensed Products that are substantially the same as those of the Licensee prior to the change of control as well as enhancements and derivatives of these.

 

11) GENERAL TERMS AND CONDITIONS

 

  a) Prior Agreement: This Agreement supersedes all prior communications, negotiations and agreements, written or oral, concerning the same subject matter.

 

  b) Entire Agreement: This Agreement represents the entire Agreement between the Parties as of the Effective Date hereof and may only be subsequently altered or modified by an instrument in writing, signed by the Parties, which expressly states the intention of affecting this Agreement. If any provision of this Agreement is declared by a court of competent jurisdiction to be invalid, illegal, or unenforceable, such provision shall be severed from this Agreement and the other provisions shall remain in full force and effect.

 

  c) Waiver: A failure by any of the Parties to assert rights arising from any breach or default of this Agreement shall not be regarded as a waiver of rights. No waiver or toleration implies any continuing or future waiver of rights.

 

  d) Assignment: This Agreement and everything herein contained shall inure to the benefit of and be binding upon the successors and permitted assignees of the Parties hereto, but shall not be assigned, sub-licensed, transferred, conveyed, or encumbered by Licensee, its Affiliates or STS except to the extent otherwise herein expressly provided. STS may assign this Agreement, without the prior consent of Licensee, to any successor to the business of STS or to an acquirer of all or substantially all of the assets of STS. Licensee or its Affiliates shall not assign this Agreement without the prior written consent of STS; any attempt to do so either by agreement or operation of law shall become null and void.

 

7


  e) Addresses: Any notice contemplated by this Agreement, unless a different address is subsequently notified by one party to the other in writing, must be sent to the address stated at the beginning of this Agreement where the Parties are identified, either;

 

  i) By registered mail and then it is deemed to be an effective notice five days after it is sent, or

 

  ii) By courier or facsimile, and then it is an effective notice only when acknowledged by an official receipt or a return facsimile transmission.

 

  f) Choice of Law: This Agreement shall be interpreted according to the laws of the State of California in the country of the USA.

..... - SIGNATURE PAGE FOLLOWS - .....

 

8


For: SILICON TURBINES SYSTEMS, INC.   
Signature:   

/s/ Geoff Williamson

  
By: Geoff Williamson   
Its: Chief Executive Officer   
Dated: 11 / 07 / 2014   

 

For: ADOMANI, INC.   
Signature:   

/s/ Kevin Kanning

  
By: Kevin Kanning   
Its: Chief Operating Officer   
Dated: 11 / 07 / 2014   

 

9


Appendix I

 

Country

   Type    Abbrev.   

Activity

Date

   Activity     

Ref. Number

USA

   Provisional    VFG    30-Sep-08      Filing       61/194,881

Geneva

   PCT    VFG    30-Sep-09      Filing       PCT/IB2009/054268

India

   National    VFG    21-Mar-11      Filing       1196/KOLNP/2011

Europe

   National    VFG    25-Mar-11      Filing       9817354.5

China

   National    VFG    30-Mar-11      Filing       200980138391.00

USA

   National    VFG    9-Jun-11      Filing      

13/121,472 which

issued as U.S. Patent

No. 8,692,437

USA

   Continuation    VFG    17-Feb-14      Filing       14/181,834

Electric Generator VFG

Earliest filing begins with U.S. Provisional Patent Application No. 61/194,881 entitled “Vortex Flux Generator,” abbreviated VFG filed by Richard Adams on September 30, 2008 Internationally filed PCT Application No. PCT/IB2009/054268 claims priority to the foregoing provisional application entitled “Vortex Flux Generator” filed by Richard Adams on September 30, 2009.

U.S. Patent Application No. 13/121,472 is a national stage application of the foregoing PCT application and has issued as U.S. Patent No. 8,692,437.

U.S. Patent Application No. 14/181,834 is a continuation application of the foregoing U.S. application.

Abstract: A method and apparatus for generating electricity by electromagnetic induction, using a magnetic field modulated by the formation, dissipation, and movement of vortices produced by a vortex material such as a type II superconductor. Magnetic field modulation occurs at the microscopic level, facilitating the production of high frequency electric power. Generator inductors are manufactured using microelectronic fabrication, in at least one dimension corresponding to the spacing of vortices. The vortex material fabrication method establishes the alignment of vortices and generator coils, permitting the electromagnetic induction of energy from many vortices into many coils simultaneously as a cumulative output of electricity. A thermoelectric cycle is used to convert heat energy into electricity.

The National filings for USA, Europe, India, China were all initiated through Rick Toering’s office Attorney: Rick Toering, email: mailto:rick@toeringpatents.com (703) 472.9954

 

10

Exhibit 6.10

CONSULTING AGREEMENT

This CONSULTING AGREEMENT (this “Agreement”) is made and entered into effective November 14, 2016 (the “Effective Date”), by and between ADOMANI, Inc., a Florida corporation, its successors or assignees (the “Company”), and Redwood Group International Limited (the “Consultant”).

RECITALS

WHEREAS, the Company desires to obtain Consultant’s consulting services as set forth in this Agreement; and

WHEREAS, Consultant desires to provide such services to the Company directly for a fee that will compensate Consultant for time spent for services rendered and costs advanced by Consultant as contemplated in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and conditions hereinafter set forth, the parties hereto agree as follows:

1. Retention of Consultant. The Company hereby engages and retains Consultant and Consultant hereby agrees to use Consultant’s best efforts to render to the Company the consulting services for a period commencing on the Effective Date and terminating on the date the draft offering statement submitted to the Securities Exchange Commission (the “SEC”) pursuant to Regulation A (the “Regulation A Offering”) is qualified by the SEC (such date, the “End Date”), provided that either party may terminate this Agreement after the End Date upon thirty (30) days’ written notice to the other

2. Monthly Retainer. The Company agrees to pay Consultant a monthly retainer in the amount of $5,000 per month until termination of this Agreement.

3. Consultant’s Services. Consultant’s services under this Agreement shall include, but are not limited to, the following:

 

    Financial presentation for the Regulation A Offering, analyst and broker road show

 

    Work with underwriter to complete the Regulation A Offering

 

    Analyst, market maker/specialist, investment bank relations

 

    Investor/shareholder relations

 

    Preparation of press releases

 

    Board of Director presentations

 

    Development of effective pricing model and maintain efficient resource utilization

 

    Development of creative and cost effective marketing plans and tools

 

    Assist management with executive compensation matters

 

1


    Assist with third-party matters relating to the Regulation A Offering

 

    Advise on joint venture activity in China, appropriate legal structure of joint venture, and business plan for China operations

The Consultant will report to the Company’s management team.

4. Payment for Services. The Company shall (i) pay Consultant a cash fee of $800,000 and (i) issue a cashless warrant to purchase 350,000 shares of the Company’s common stock for all services rendered hereunder payable upon the End Date. From and after the Effective Date, the Company shall promptly reimburse Consultant for any actual and documented expenses reasonably incurred by Consultant in performing the consulting services pursuant to Paragraph 2, above, provided, however, that such expenses shall require the Company’s advance approval.

5. Consultant’s Time Commitment. Consultant shall devote such time as reasonably requested by the Company for consultation, advice and assistance on matters described in this Agreement and provide the same in such form as the Company requests. The Company agrees that Consultant shall not be prevented or barred from rendering services similar or dissimilar in nature for and on behalf of any person, firm or corporation other than the Company.

6. Independent Contractor. The relationship created under this Agreement is that of Consultant acting as an independent contractor. The parties acknowledge and agree that Consultant shall have no authority to, and shall not, bind the Company to any agreement or obligation with any third party. Consultant is not providing any services as a broker/dealer.

7. Nondisclosure of Confidential Information. Consultant shall maintain as secret and confidential all valuable information heretofore or hereafter acquired, developed or used by the Company relating to its business, operations, employees and customers that may give the Company a competitive advantage in its industry (all such information is hereinafter referred to as “Confidential Information”). The parties recognize that, by reason of Consultant’s duties under this Agreement, Consultant may acquire Confidential Information. Consultant recognizes that all such Confidential Information is the property of the Company. During the term of Consultant’s engagement by the Company, Consultant shall exercise all due and diligent precautions to protect the integrity of any or all of the Company’s documents containing Confidential Information. In consideration of the Company entering into this Agreement, Consultant shall not, directly or indirectly, use, publish, disseminate or otherwise disclose any Confidential Information obtained during Consultant’s engagement by the Company without the prior written consent of the Company. The parties agree that this Paragraph 6 shall survive the termination of this Agreement.

8. Communications with Consultant. Consultant will not independently conduct a due diligence review of the Company and will, to a great extent, be relying upon information provided by the Company in rendering services under this Agreement.

9. Exculpation of Liability and Indemnification. All decisions with respect to consultations or services rendered by Consultant for transactions negotiated for and presented to the Company by Consultant shall be those of the Company, and Consultant shall have no liability with respect to such decisions. In connection with the services Consultant renders under this Agreement, the Company indemnifies and holds Consultant harmless against any and all losses, claims, damages and liabilities and the expense, joint and several, to which Consultant may become subject and will reimburse Consultant for any legal and other expenses, including attorneys’ fees and disbursements incurred by Consultant in connection with investigating, preparing or defending any actions commenced or threatened or claim

 

2


whatsoever, whether or not resulting in the liability, insofar as such are based upon the information the Company has supplied to Consultant under this Agreement. In connection with the services Consultant renders under this Agreement, Consultant indemnifies and holds the Company harmless against any and all losses, claims, damages and liabilities and the expense, joint and several, to which Company may become subject and will reimburse Company for any legal and other expenses, including attorneys’ fees and disbursements incurred by the Company in connection with investigating, preparing or defending any actions commenced or threatened or claim whatsoever, whether or not resulting in the liability, insofar as such losses, claims, damages and liabilities are based upon or in connection with the services Consultant has rendered under this Agreement.

10. Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter contained herein. There are no representations or warranties other than as set forth in this Agreement.

11. Waiver. No waiver or modification of this Agreement shall be valid unless in writing and signed by the parties to this Agreement.

12. Notices. All notices, consents, requests, demands and offers required or permitted to be given under this Agreement will be in writing and will be considered properly given or made when personally delivered to the party entitled thereto, or when mailed by certified United States mail, postage prepaid, return receipt requested, addressed to the addresses appearing in this Agreement. A party may change his address by giving notice to the other party to this Agreement.

13. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, but all of which, taken together, shall constitute one agreement.

14. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California.

15. Attorneys’ Fees. In case of any action or proceeding to compel compliance with, or for a breach of, any of the terms and conditions of this Agreement, the prevailing party shall be entitled to recover from the losing party all costs of such action or proceeding, including, but not limited to, reasonable attorneys’ fees.

 

3


IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective as of the day and year first above written.

 

“Company”

 

ADOMANI, Inc.

   

“Consultant”

 

Redwood Group International Limited

By:  

/s/ Michael K. Menerey

    By:  

/s/ James Bickel

  Michael K. Menerey       James Bickel
  Chief Financial Officer       Chairman
      By:  

/s/ Paul Marquis

       

Paul Marquis

Director

 

[SIGNATURE PAGE TO CONSULTING AGREEMENT]

Exhibit 6.11

 

LOGO

 

CONFIDENTIAL

 

  July 29, 2016        

James L. Reynolds, President and CEO

ADOMANI, Inc.

620 Newport Center Drive, Suite 1100 Newport

Beach, CA 92660

 

 

Re: Proposed Initial Public Offering

Dear Jim:

We are pleased to submit the following agreement with respect to a planned initial public offering (“IPO”) and pre-IPO financing by and for ADOMANI, Inc. or any other corporate entities that may be utilized from time to time (“the Company” or “ADOMANI”), consisting of the Company’s Common Stock that will be applied for listing on NASDAQ, the NYSE or the NYSE MKT national securities exchanges.

Monarch Bay Securities, LLC (“Monarch”) is pleased to act as exclusive financial advisor to the Company (“Advisor”), including its affiliates and subsidiaries, in connection with the Company’s intention to pursue the corporate finance activities described in this Agreement or any combination thereof (any such activities in Sections 2. a) i, ii, and or iii below henceforth being referred to as a “Transaction”). The exclusive, best efforts, engagement outlined in this letter has the objective of providing growth capital and stock liquidity to support the Company’s global expansion plan.

The final terms of the IPO will be dictated by pre-existing investor interest, market conditions and the financial performance of the Company and its consolidated subsidiaries prior to the date that the Securities and Exchange Commission shall declare the Company’s Form S registration statement for the IPO to be effective (the “Effective Date”). However, it is our mutual expectation that we will offer not less than $10,000,000 of Common Stock to investors in the IPO.

This letter agreement (“Agreement”) contemplates certain conditions and assumptions upon which the IPO to be underwritten by Monarch Capital Partners LLC, will be based. It is our intention that, immediately prior to the Effective Date, we will enter into an exclusive Underwriting Agreement with the Company. Monarch will act as managing underwriter and as the representative of each of the several underwriters, if any, for the IPO on a “best efforts” basis. We reserve the right to bring in such other co-managers, underwriters and selected dealers for the offering as we shall determine and who shall be reasonably acceptable to the Company. The Underwriting Agreement and related agreements shall contain such terms and conditions as are customarily contained in agreements of such character.

 

 

898 N. Sepulveda Blvd, Suite 475, El Segundo, CA 90245 | 949-295-1580 phone | 815-301-8099 fax


ADOMANI, Inc.

July 29, 2016

  Page | 2

 

This Agreement will confirm the understanding and agreement between Monarch and the Company as follows:

 

  1. Advisory Services. Monarch will provide advisory services to the Company in the areas of corporate development, corporate finance and/or capital placement transactions. Monarch also will introduce other firms, products and services to the Company as deemed necessary during the normal course of business and act as coordinator for all activities within its purview. It is also understood that Monarch is acting as an advisor only, and shall have no authority to (i) enter into any commitments on the Company’s behalf, (ii) negotiate the terms of any Transaction, (iii) hold any funds or securities in connection with any Transaction, or (iv) to perform any other acts on behalf of the Company without the Company’s express written consent.

 

  2. Fees and Expenses. In connection with the services to be rendered hereunder, the Company agrees to pay Monarch the following fees and expenses upon the closing of each Transaction directly to Monarch from the escrow established for each such Transaction closing or in such other manner as may be acceptable to Monarch. Immediately prior to closing of a Transaction, the Company will sign a payment authorization letter, in a form to be prepared at the sole discretion of Monarch, irrevocably instructing the Escrow Agent or Transaction source to deduct the fees and expenses due to Monarch from the Transaction and remit those fees and expenses directly to Monarch:

a) Success Fees:

 

  i. Transactions: Other than in the Company’s normal course of business activities, any sale, merger, acquisition, joint venture, strategic alliance, technology partnership, licensing agreement or other similar agreements shall accrue compensation to Monarch based on a percentage of the Aggregate Consideration (as defined below) calculated as follows:

 

    10.0% for Aggregate Consideration of less than USD$10,000,000; plus

 

    8.0% for Aggregate Consideration between USD$10,000,000 and USD$25,000,000; plus

 

    6.0% for Aggregate Consideration between USD$25,000,001 and USD$50,000,000; plus

 

    4.0% for Aggregate Consideration between USD$50,000,001 and USD$75,000,000; plus

 

    2.0% for Aggregate Consideration between USD$75,000,001 and USD$100,000,000; plus

 

    1.0% for Aggregate Consideration above USD$100,000,000.

“Aggregate Consideration” is defined as the greater of (i) the total amount actually payable and (ii) the value assigned to such a transaction, whether due

 

 

898 N. Sepulveda Blvd, Suite 475, El Segundo, CA 90245 | 949-295-1580 phone | 815-301-8099 fax


ADOMANI, Inc.

July 29, 2016

  Page | 3

 

at closing or deferred by the Company or any affiliate of the Company, and shall include all cash or cash equivalents, the principal amount of any notes, all classes of securities issued, the aggregate amounts payable pursuant to any consulting agreements, employment agreements, agreements not to compete and similar agreements, and the aggregate amount of value of any bank or term loans or other debts assumed or refinanced as part of the transaction.

 

  ii. Debt Financing: For any debt financing Transaction, including, without limitation, any investment in or purchase of notes, term loans, promissory notes and debentures, Monarch shall receive upon the closing of such Transaction: (i) a Success Fee, payable in cash, equal to five percent (5%) of the gross proceeds received by the Company from such closing, plus (ii) warrants in the entity financed, with a cashless exercise provision, equal to five percent (5%) of the gross proceeds received by the Company from such closing, exercisable at a strike price equal to one hundred percent (100%) of the fair market value of the Common Stock for the Company as of the date of the closing of the Transaction, in whole or in part, at any time within five (5) years from issuance. For example, if a debt financing of USD$20 million is completed, and the Company’s Common Stock is valued at USD$2 per share on the day the debt financing is closed, Monarch would be paid a cash commission of USD$1,000,000, and receive warrants to purchase 500,000 shares of the Company’s Common Stock, with Monarch paying a fixed price of USD$2 per share, exercisable for five years. The foregoing language does not apply to debt financing for projects funded by bank or commercial loans or derived from foreign and domestic governmental and quasi-governmental agencies, including, but not limited to, state, Federal, county, local, or administrative agencies.

 

  iii. Equity Investment: For any equity investment into the Company, including, without limitation, any investment in or purchase of common stock, preferred stock, convertible stock, LLC Memberships, convertible debentures, convertible debt, subordinated debt with warrants or any other securities convertible into common stock, and any other form of debt instrument involving any other form of equity participation, Monarch shall receive upon the closing of such Transaction: (i) a Success Fee, payable in cash, equal to seven percent (7%) of the gross proceeds received by the Company from such closing, plus (ii) warrants in the entity financed, with a cashless exercise provision, equal to seven percent (7%) of the gross proceeds received by the Company from such closing, exercisable at a strike price equal to one hundred percent (100%) of the fair market value of the Common Stock for the Company as of the date of the closing of the Transaction, in whole or in part, at any time within five (5) years from issuance. For example, if an equity investment of USD$20 million is completed, where the Company sold four million shares of its common stock at USD$5 per share, Monarch would be paid a cash commission of USD$1,400,000, and receive warrants to purchase 280,000 shares of the Company’s common stock, with Monarch paying a fixed price of USD$5 per share, exercisable for five years.

 

 

898 N. Sepulveda Blvd, Suite 475, El Segundo, CA 90245 | 949-295-1580 phone | 815-301-8099 fax


ADOMANI, Inc.

July 29, 2016

  Page | 4

 

b) Expenses: The Company also agrees to reimburse Monarch, promptly when invoiced, for all of its reasonable out-of-pocket expenses (including reasonable fees and expenses of its legal counsel) in connection with the performance of a Transaction or Transactions referred to herein, regardless of whether such a Transaction(s) occurs. Any expense above USD$5,000 shall be pre-approved by the Company. Upon the earlier of the termination of this letter agreement or completion of a Transaction, the Company agrees to pay promptly in cash any unreimbursed expenses that have accrued as of such date.

c) Advisory Fees: Upon the filing of an application for listing on NASDAQ, the NYSE or the NYSE MKT national securities exchanges, the Company shall pay Monarch an Additional Advisory Fee of USD$50,000.

 

  3. Indemnification. The Company agrees to indemnify Monarch as set forth in Schedule A annexed hereto and made a part hereof.

 

  4. Successors. This Agreement shall be binding upon any and all successors and assigns of the Company (including any corporation surviving any merger to which the Company is a party). Monarch shall be permitted to assign its rights or delegate its obligations hereunder by operation of law or otherwise, including as a result of the partial or total merger or consolidation of Monarch with another entity.

 

  5. Term. The term of this Agreement (the “Engagement Period”) will expire upon the earlier to occur of (i) twelve (12) months from the date Monarch receives an executed copy of this Agreement from the Company and (ii) the mutual written agreement of the Company and Monarch. The Engagement Period may be extended for additional six (6) month periods under the same terms and conditions as described herein by mutual written agreement of the Company and Monarch. Upon the termination of the Agreement, the Company shall pay Monarch any out-of-pocket expenses incurred up to the date thereof. In addition, Monarch shall be entitled to the Success Fee(s), described in Section 2 hereof, if the Company completes, during the twelve (12) month period following the termination of this Agreement, a Transaction with a party with which Monarch had discussions regarding a Transaction prior to the termination of this Agreement (collectively, the “Identified Party(ies)”).

 

  6. Registration. In the event the Company undertakes a public offering following the IPO, the Company hereby grants Monarch customary “piggyback” registration rights for the stock of the Company underlying any warrants issued as part of the Success Fee(s) to Monarch as described herein.

 

 

898 N. Sepulveda Blvd, Suite 475, El Segundo, CA 90245 | 949-295-1580 phone | 815-301-8099 fax


ADOMANI, Inc.

July 29, 2016

  Page | 5

 

  7. Future Services. The Company agrees that it shall provide Monarch the right of first refusal for one (1) year from the date of the consummation of a Transaction (as defined in the second paragraph of page one of this letter) or termination of this Agreement to act as Financial Advisor or to act as joint Financial Advisor on at least equal economic terms on any public or private financing (debt or equity), merger, business combination, recapitalization or sale of some or all of the equity or assets of the Company (collectively, “Future Services”). In the event the Company notifies Monarch of its intention to pursue an activity that would enable Monarch to exercise its right of first refusal to provide Future Services, Monarch shall notify the Company of its election to provide such Future Services, including notification of the compensation and other terms to which Monarch claims to be entitled, within thirty (30) days of written notice by the Company. In the event the Company engages Monarch to provide such Future Services, Monarch will be compensated consistent with Section 2 of this Agreement, unless mutually agreed otherwise by the Company and Monarch.

 

  8. Governing Law. This Agreement may not be amended or modified except in writing signed by each of the parties and shall be governed by and construed and enforced in accordance with the laws of the State of New York. Any controversy or claim relating to or arising from this Agreement (an “Arbitrable Dispute”) shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the Judicial Arbitration and Mediation Services (the “JAMS”) as such rules may be modified herein or as otherwise agreed by the parties in controversy. The forum for arbitration shall be New York City, New York. Following thirty (30) days’ notice by any party of intention to invoke arbitration, any Arbitrable Dispute arising under this Agreement and not mutually resolved within such thirty (30) day period shall be determined by a single arbitrator upon which the parties agree.

 

  9. USA Patriot Act. Monarch is committed to complying with U.S. statutory and regulatory requirements designed to combat money laundering and terrorist financing. The USA Patriot Act requires that all financial institutions obtain certain identification documents or other information in order to comply with their customer identification procedures.

 

  10. Confidentiality. All non-public information concerning the Company and its subsidiaries which is given to Monarch will be used by Monarch solely in the course of the performance of its services hereunder and will be treated confidentially by Monarch and any retained advisors and agents for as long as such information remains non-public. Except as otherwise required by law, Monarch will not use such information or disclose such information to a third party, other than its representatives who have a need to know such information in connection with the Transactions contemplated by this Agreement and who agree to keep such information confidential.

This Agreement is for confidential use of the Company and Monarch only and may not be disclosed by the Company to any person other than its attorneys, accountants, financial advisors, and shareholders and only on a confidential basis in connection with the proposed transaction or financing, except where disclosure is required by law or is mutually consented to in writing by Monarch and the Company.

 

 

898 N. Sepulveda Blvd, Suite 475, El Segundo, CA 90245 | 949-295-1580 phone | 815-301-8099 fax


ADOMANI, Inc.

July 29, 2016

  Page | 6

 

  11. Access to Information. In connection with Monarch activities on the Company’s behalf, the Company agrees that it will furnish Monarch with all information concerning the Company and the Transaction(s) that Monarch reasonably deems appropriate and that the Company will provide Monarch with reasonable access to its officers, accountants, attorneys and other professional advisors. The Company represents that all information made available to Monarch will be complete and correct in all material respects and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in light of the circumstances under which such statements are made. In rendering its services hereunder, Monarch will be utilizing and relying on the information without independent verification thereof or independent appraisal of any of the Company’s assets.

 

  12. Disclosure. During the Engagement Period and for sixty (60) days thereafter, the Company agrees not to issue any press releases or communications to the public relating to any Transaction without Monarch prior approval or unless otherwise required by law, which will not be unreasonably withheld or delayed, and the Company agrees that such press release will state that the transaction and/or financing was arranged by Monarch, unless Monarch and the Company mutually agree otherwise or unless otherwise required by law. The Company further agrees that, except as restricted by applicable law, Monarch may, at its own expense, publicize its services to the Company hereunder, including, without limitation, by issuing press releases, placing advertisements and referring to the Transaction(s) on Monarch’s website.

 

  13. Modification. This Agreement may not be modified or amended except in writing duly executed by the parties hereto.

 

  14. Notices. Any notice required shall be in writing and may be delivered by hand, e-mail, fax or first class mail to the following addresses (or at such other email, fax number or address as shall hereafter be specified by such party by like notice):

 

  (b) If to the Company, to:

Mr. James L. Reynolds, President and CEO

ADOMANI, Inc.

620 Newport Center Drive, Suite 1100

Newport Beach, CA 92660

Fax Number:

E-mail:

 

  (c) If to Monarch, to:

Keith Moore, CEO

Monarch Bay Securities, LLC

898 N. Sepulveda, Suite 475

El Segundo, CA 90245

Fax Number: (815) 301-8099

E-mail: keith@Monarchecurities.com

 

 

898 N. Sepulveda Blvd, Suite 475, El Segundo, CA 90245 | 949-295-1580 phone | 815-301-8099 fax


ADOMANI, Inc.

July 29, 2016

  Page | 7

 

Notices shall be deemed to have been given contemporaneously in the case of fax or e-mail. Notices given by first class mail shall be deemed to have been given seven days after mailing. Evidence that the notice was properly addressed, stamped and mailed shall be prima facie evidence of mailing.

 

  15. Waiver. Neither Monarch’s nor the Company’s failure to insist at any time upon strict compliance with this Agreement or any of its terms nor any continued course of such conduct on their part shall constitute or be considered a waiver by Monarch or the Company of any of their respective rights or privileges under this Agreement.

 

  16. Severability. If any provision herein is or should become inconsistent with any present or future law, rule or regulation of any sovereign government or regulatory body having jurisdiction over the subject matter of this Agreement, such provision shall be deemed to be rescinded or modified in accordance with such law, rule or regulation. In all other respects, this Agreement shall continue to remain in full force and effect.

 

  17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and will become effective and binding upon the parties at such time as all of the signatories hereto have signed a counterpart of this Agreement. All counterparts so executed shall constitute one Agreement binding on all of the parties hereto, notwithstanding that all of the parties are not signatory to the same counterpart. Each of the parties hereto shall sign a sufficient number of counterparts so that each party will receive a fully executed original of this Agreement.

 

  18. Entire Agreement. This Agreement (together with Schedule A hereto) constitutes the entire agreement between the Company and Monarch. No other agreements, covenants, representations or warranties, express or implied, oral or written, have been made by any party hereto to any other party concerning the subject matter hereof. All prior and contemporaneous conversations, negotiations, possible and alleged agreements, representations, covenants and warranties concerning the subject matter hereof are merged herein and shall be of no further force or effect.

Please confirm that the foregoing is in accordance with our understanding by signing and returning one copy of this Agreement to Monarch to indicate the Company’s acceptance of the terms set forth herein.

Very truly yours,

 

 

898 N. Sepulveda Blvd, Suite 475, El Segundo, CA 90245 | 949-295-1580 phone | 815-301-8099 fax


ADOMANI, Inc.

July 29, 2016

  Page | 8

 

Monarch Bay Securities, LLC
By:  

/s/ Daniel J. McClory

Daniel J. McClory

Managing Director

By:  

/s/ Keith Moore

Keith Moore

CEO

 

Accepted as of the date first above written:

ADOMANI, Inc.

By:  

/s/ James L. Reynolds

James L Reynolds, President and CEO

 

 

898 N. Sepulveda Blvd, Suite 475, El Segundo, CA 90245 | 949-295-1580 phone | 815-301-8099 fax


ADOMANI, Inc.

July 29, 2016

  Page | 9

 

SCHEDULE A

The Company agrees that it shall indemnify and hold harmless, Monarch, its members, managers, officers, employees, agents, affiliates and controlling persons within the meaning of Section 20 of the Securities Exchange Act of 1934 and Section 15 of the Securities Act of 1933, each as amended (any and all of whom are referred to as an “Indemnified Party”), from and against any and all losses, claims, damages, liabilities, or expenses, and all actions in respect thereof (including, but not limited to, all legal or other expenses reasonably incurred by an Indemnified Party in connection with the investigation, preparation, defense or settlement of any claim, action or proceeding, whether or not resulting in any liability), incurred by an Indemnified Party with respect to, caused by, or otherwise arising out of any transaction contemplated by this Agreement or Monarch’s performing the services contemplated hereunder; provided, however, the Company will not be liable to the extent, and only to the extent, that any loss, claim, damage, liability or expense is finally judicially determined to have resulted primarily from Monarch’s gross negligence or bad faith in performing such services.

If the indemnification provided for herein is conclusively determined (by an entry of final judgment by a court of competent jurisdiction and the expiration of the time or denial of the right to appeal) to be unavailable or insufficient to hold any Indemnified Party harmless in respect to any losses, claims, damages, liabilities or expenses referred to herein, then the Company shall contribute to the amounts paid or payable by such Indemnified Party in such proportion as is appropriate and equitable under all circumstances taking into account the relative benefits received by the Company on the one hand and Monarch on the other, from the transaction or proposed transaction under the Agreement or, if allocation on that basis is not permitted under applicable law, in such proportion as is appropriate to reflect not only the relative benefits received by the Company on the one hand and Monarch on the other, but also the relative fault of the Company and Monarch; provided, however, in no event shall the aggregate contribution of Monarch and/or any Indemnified Party be in excess of the net compensation actually received by Monarch and/or such Indemnified Party pursuant to this Agreement.

The Company shall not settle or compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action, claim, suit or proceeding in which any Indemnified Party is or could be a party and as to which indemnification or contribution could have been sought by such Indemnified Party hereunder (whether or not such Indemnified Party is a party thereto), unless such consent or termination includes an express unconditional release of such Indemnified Party, reasonably satisfactory in form and substance to such Indemnified Party, from all losses, claims, damages, liabilities or expenses arising out of such action, claim, suit or proceeding.

In the event any Indemnified Party shall incur any expenses covered by this Schedule A, the Company shall reimburse the Indemnified Party for such covered expenses within ten (10) business days of the Indemnified Party’s delivery to the Company of an invoice therefor, with receipts attached. Such obligation of the Company to so advance funds may be conditioned upon the Company’s receipt of a written undertaking from the Indemnified Party to repay such amounts within ten (10) business days after a final, non-appealable judicial determination that such Indemnified Party was not entitled to indemnification hereunder.

The foregoing indemnification and contribution provisions are not in lieu of, but in addition to, any rights which any Indemnified Party may have at common law hereunder or otherwise, and shall remain in full force and effect following the expiration or termination of Monarch’s engagement and shall be binding on any successors or assigns of the Company and successors or assigns to all or substantially all of the Company’s business or assets.

 

 

898 N. Sepulveda Blvd, Suite 475, El Segundo, CA 90245 | 949-295-1580 phone | 815-301-8099 fax

Exhibit 6.12

CONSULTING SERVICES AGREEMENT

THIS AGREEMENT will be made effective as of the date that ADOMANI, Inc. signs and dates, provided said date is on or before February 19, 2016, beyond which point the terms of this Agreement will expire and a new Agreement must be furnished by TriplePoint, LLC.

This Agreement is between:

ADOMANI, Inc., a company incorporated under the laws of the United States and the State of Florida, having its principal business office at 620 Newport Center Drive, Suite 1100, Newport Beach, CA 92660 - USA (the “Company”)

AND

TriplePoint, LLC, a company incorporated under the laws of the United States and the State of Maine, having its primary business office at 4 Poplar Ridge, Falmouth, ME 04015, USA (the “Consultant”).

WHEREAS:

 

A. The Consultant has certain technical and financial expertise for the energy and clean technology sectors; and

 

B. The Company wishes to retain the Consultant to provide consulting services on the terms and conditions hereinafter set forth.

NOW THEREFORE IN CONSIDERATION of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement agree as follows:

 

1. SERVICES TO BE PROVIDED:

 

  (a) The Company hereby engages the Consultant to provide the services described in Schedule “A” hereto (the “Services”) on the terms and conditions set out herein.

 

  (b) The Consultant hereby accepts such engagement and agrees to provide the Services in a professional, faithful and diligent manner in compliance with the policies, practices, directions and instructions of the Company from time to time. Without limiting the foregoing, the Consultant agrees to devote such time and attention as may be reasonably necessary for the Consultant to provide the Services pursuant hereto.

 

  (c) The Company will provide such information and provide access to such management and other personnel of the Company that the Consultant may reasonably require in order for the Consultant to provide the Services in accordance with the terms of this Agreement.

 

  (d) The Consultant will render all Services under this Agreement in response to written requests of the Company’s President and Chief Executive Officer and any other Officer, Agent, or Consultant of the Company. An email shall also be deemed a written request.


2. COMPENSATION

As compensation for the Services to be provided hereunder,

 

  A. Upon the effective date of execution of this Agreement, the Company will pay the Consultant Fifteen Thousand Dollars ($15,000.00) per month until the Company achieves an Initial Public Offering at which point the Company will pay the Consultant Ten Thousand Dollars ($10,000.00 USD) per month until the termination of this Agreement. First monthly payment is due on the effective date of this agreement, and subsequent monthly payments set forth in this Agreement are to be made on or before each month of service.

 

  B. The Consultant will earn Two Hundred Fifty Thousand (250,000) restricted shares of Common Stock of ADOMANI, Inc. (the “Shares”) on the transaction date when the Company achieves an Initial Public Offering. The terms of the lockup are outlined as follows:

After the six month anniversary of the initial closing of the IPO the Consultant can sell up to 25% of the number of the Shares without restriction; however, if the Company’s common stock price is 50% higher than the IPO price per share for five consecutive trading days then the Consultant can sell up to 50% of the number of the Shares, with the second 25% of the Shares subject to a maximum sale on any trading day of 5% of the daily volume.

After the twelve month anniversary of the initial dosing of the IPO the Consultant can sell up to 50% of the number of the Shares without restriction; however, if the Company’s stock price is 50% higher than the IPO price per share for five consecutive trading days then the Consultant can sell up to 75% of the number of the Shares, with the third 25% subject to a maximum sale on any trading day of 5% of the daily volume. Additionally, if the Company’s common stock price is 100% higher than the IPO price per share for five consecutive trading days then the Consultant can sell up to 100% of the Shares, with the second 50% of the Shares subject to a maximum sale on any trading day of 10% of the daily volume.

After the eighteen month anniversary of the initial closing of the IPO the Consultant can sell up to 75% of the number of the Shares without restriction; however, if the Company’s common stock price is 100% higher than the IPO price per share for five consecutive trading days then the Consultant can sell up to 100% of the number of the Shares, with the final 25% of the Shares subject to a maximum sale on any trading day of 10% of the daily volume.

After the twenty-four month anniversary of the initial closing of the IPO the Consultant can sell up to 100% of the number of the Shares without restriction.

 

  C. The Company will be responsible for all expenses related to this Agreement (i.e. Consultant travel and lodging for Company-related events, etc.), yet these expenses must be pre-approved by the Company’s Chief Executive Officer. A detailed expense report will be provided by the Consultant and will have supporting documentation attached. Payment on such bills is due within 30 days of the Company’s receipt of the Consultant’s bill. The Consultant reserves the right to charge a late fee of 5% per month for all fees and expenses advanced by the Consultant that are not paid within the 30 days of the billing date. The Company agrees to pay the costs incurred by the Consultant in collecting the debt, including court costs, filing fees and reasonable attorneys’ fees.

 

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3. STATUS

It is understood and agreed that this is an agreement for the performance of services; the Consultant will not be or be deemed to be an employee of the Company for any purpose; and that the relationship of the Consultant to the Company is that of independent professional service provider.

In addition, the Consultant will comply with all applicable statutes, laws, ordinances and regulations governing the performance of the Services and will make all required payments with respect to income taxes, unemployment insurance and government pension plans and will pay all assessments in connection with workers’ compensation legislation and will on request provide satisfactory evidence thereof to the Company. The Company will not deduct or remit to any government authority any such amounts in respect of the Consultant. The Consultant will indemnify and hold the Company harmless from all claims, demands, suits, interest, penalties and costs (including, without limitation, reasonable legal fees) relating to income tax, unemployment insurance and government pension plan contributions and worker’s compensation assessments in respect of provision of the Services.

 

4. TERM AND TERMINATION

 

  (a) This Agreement will be effective from the date hereof and will continue for a one-year period unless terminated earlier in accordance with the provisions hereof. This Agreement will automatically renew unless otherwise notified by the Company prior to the end of each one-year period.

 

  (b) This Agreement may be terminated for any reason at any time by either party, by providing the other party 30 days prior written notice of termination.

 

  (c) Upon the termination of this Agreement the Consultant will be entitled to any compensation accrued and expenses incurred to the date of such termination. Upon notice of termination the Company will pay all monies due under this Agreement within thirty (30) days. Regardless of termination following delivery of the industry report outlined in bullet point 1 of short term deliverables in Schedule A, the Consultant will receive the full 250,000 shares with the same schedule outlined in section 2B of this Agreement at the time the IPO closes. Should termination occur prior to delivery of said industry report, the consultant shall receive the prorated quantity of the 250,000 shares (for example, should the contract be terminated at the one month mark, the Consultant shall receive 1/12th of the 250,000 shares), with a standard 180-day lockup instead of the schedule outlined in section 2B.

 

  (d) The Consultant agrees that all work produced pursuant to this Agreement, including, without limitation, publications, reports and other materials prepared by the Consultant shall be the property of the Company which will be solely entitled to all copyright, trademarks, and other intellectual property rights relating thereto.

 

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5. CONFIDENTIALITY

 

  (a) The Consultant will retain all confidential information regarding the Company, its branches and affiliates, including, without limitation, business information and other information concerning its know-how and trade secrets relating to systems, finances, sources of supply and intellectual property (collectively “Confidential Information”) in the strictest confidence and will not disclose or permit the disclosure of Confidential Information in any manner other than with the consent of the Company in the course of providing the Services to and for the benefit of the Company or as required by law. The Consultant will not use the Confidential Information for his/her benefit or permit it to be used for the benefit of any other person or business entity, either during the term of this Agreement or thereafter. The Consultant will take all reasonable precautions in dealing with the Confidential Information so as to prevent any person or business entity from having unauthorized access to it. The provisions of this paragraph will not apply to any information which, through no act or omission of the Consultant, becomes generally known or, is furnished to others by the Company without restriction or disclosure or is provided to the Consultant by a third party.

 

  (b) Upon termination of this Agreement, the Consultant will promptly return to the Company all property of the Company, including, without limitation, all reports and other written information, tapes, discs, or other data embodied or recorded in tangible form which is in the Consultant’s possession or under the Consultant’s control.

The obligations of confidentiality under this Agreement shall survive for a period of three (3) years after the date of termination of this Agreement as described in section 4.

 

6. EXCLUDED SERVICES

The Parties acknowledge that Consultant is not a licensed broker-dealer and is providing industry research, business consulting and structuring services, only. The Company agrees to engage a licensed broker-dealer in the event broker-dealer services are required.

 

7. INDEMNIFICATION

 

  (a) Company agrees to indemnify and hold harmless Consultant and its affiliates, directors, shareholders, officers, and employees against all losses, claims, liabilities, penalties, fines, forfeitures, damages, or expenses, as the same are incurred (including the reasonable costs and expenses of legal counsel to defend Consultant), relating to or arising out of the duties contemplated by this Agreement, with the exception of willful negligence or misconduct by Consultant.

 

  (b) Consultant agrees to indemnify and hold harmless Company and its affiliates, directors, shareholders, officers, and employees against all losses, claims, liabilities, penalties, fines, forfeitures, damages, or expenses, as the same are incurred (including the reasonable costs and expenses of legal counsel to defend Company), relating to or arising out of the duties contemplated by this Agreement, with the exception of willful negligence or misconduct by Company.

 

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8. NON-CIRCUMVENTION

The Company hereby agrees not to circumvent the Consultant for the intended purpose or reasonably expected result of denying or otherwise preventing Consultant from receiving compensation agreed herein.

 

9. ATTORNEY’S FEES

In any dispute or action between the Parties arising out of, pertaining to, or relating to this Agreement, the enforcement of any of its terms, or to any other contract relating to the subject matter of this Agreement, the prevailing party shall be entitled to recover, in addition to any other award of damages or other remedies, its reasonable attorneys’ fees, costs, expert witness fees, and expenses. However, prior to the initiation of any litigation between the Parties arising out of, pertaining to, or relating to this Agreement, the Parties shall move to resolve any disputes between them through mediation, using any well-established mediation service such as JAMS, ADR Services, or other similar service which can provide as mediators both retired Judges and well-respected private lawyer, with the fees for such mediation to be born equally by Company and Consultant.

 

10. GENERAL TERMS

 

  (a) This Agreement, including Schedule “A”, constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties hereto and there are no warranties, representations or other agreements between the parties hereto in connection with the subject matter hereof except as specifically set forth herein or in Schedule “A”.

 

  (b) No supplement, modification or waiver of any provision of this Agreement will be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement will be deemed or will constitute a waiver of any other provision (whether or not similar), nor will such waiver constitute a continuing waiver unless otherwise expressly provided.

 

  (c) This Agreement may not be assigned by the Consultant. The Company may assign its rights and obligations hereunder to an affiliate. Subject thereto, this Agreement will inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns.

 

5


  (d) Time will be of the essence of this Agreement.

 

  (e) Each party hereto hereby agrees that upon the written request of the other party hereto, it will do all such acts and execute all such further documents and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as such other party may from time to time reasonably request be done and/or executed as may be required to give effect to the purposes of this Agreement and to carry out the provisions hereof.

 

  (f) Any notice required or permitted to be given hereunder will be in writing and will be sufficiently given if delivered in person during normal business hours of the recipient on a business day or sent by facsimile or email transmission as follows:

 

  (1) in the case of a notice to the Company to:

ADOMANI, Inc.

620 Newport Center Drive, Suite 1100, Newport Beach, CA – USA

Email: jimsAadomanielectric.com

Attention: Jim Reynolds, President & CEO

 

  (2) in the case of a notice to the Consultant to:

TriplePoint, LLC

4 Poplar Ridge, Falmouth, ME 04105, USA

Email: jherrickAtriplemint-11c.com

Attention: Jesse Herrick, Managing Partner

and will be conclusively deemed to have been given and to have been received on the same business day, if so delivered, and on the first business day following the transmission thereof, if sent by facsimile or email transmission. Addresses for notice may be changed by giving notice in accordance with the foregoing. For purposes hereof, business day means any day other than a Saturday or Sunday.

 

  (g) The provisions of paragraphs 3, 4(d) and 5 will survive the termination of this Agreement.

 

  (h) This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of California, United States without regard to its conflict of law rules.

 

6


IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first above written.

 

ADOMANI, INC

/s/ Jim Reynolds

     Date: 2/17/16                                                 

Jim Reynolds

President & Chief Executive Officer

    
TriplePoint, LLC     

/s/ Jesse Herrick

    

Jesse Herrick

Founder & Managing Partner

    

 

7


SCHEDULE “A”

SERVICES TO BE PROVIDED BY THE CONSULTANT

Scope of the Work:

The Consultant shall:

Short-term

 

  1. Deliver a deep-dive, multi-page industry report on or before the 60th day anniversary of the execution of this Agreement.

 

  2. Deliver four or more company-specific and/or industry specific update reports between engagement and year-end.

 

  3. Support modeling efforts as it pertains to IPO valuation.

 

  4. Support business plan strategizing effort.

 

  5. Introduce contacts and potential purchasers of the Company’s securities to the Company in an investor relations capacity.

 

  6. Introduce banking contacts to the Company.

 

  7. Introduce analysts to the Company.

 

  8. Aid in development and/or improvement of corporate PowerPoint presentation and outbound financial marketing documents.

Long- term

 

  1. Provide strategic guidance for Company valuations and marketing.

 

  2. Introduce contacts and potential purchasers of the Company’s securities to the Company in an investor relations capacity.

 

  3. Lead corporate relationship building and management with industry analysts.

 

  4. Ongoing research as it pertains to the Industry.

 

  5. Ongoing research as it pertains to the Company.

Exhibit 6.13

DEALER AGREEMENT

between

LION BUSES INC.

and

ADOMANI Inc.

November 2016


DEALER AGREEMENT

This agreement (the “Agreement”) is entered into on the 1st day of November 2016 by and between LION BUSES INC., a Canadian corporation having its principal place of business in St-Jerome, Quebec, Canada (hereinafter referred to as “LION” or “Manufacturer”) and ADOMANI Inc., a US corporation (hereinafter referred to as “DEALER” or “NGSB”).

Whereas, Manufacturer is engaged in the production and sale of buses and parts that are distributed throughout North America;

Whereas, LION seeks to achieve effective distribution of Manufacturer’s products by assigning an exclusive dealer of a specific geographic area to participate in a coordinated sales and distribution network that is successful; and

Now, therefore, it is mutually agreed:

 

1. Dealer’s Selling Rights

LION grants to DEALER the exclusive right of selling those products produced by Manufacturer, which are identified on Exhibit A (“Products”) in the territory described in Exhibit B (“Territory”).

 

2. Customers

 

  (a) Sales Efforts. DEALER shall use its best efforts to develop the market for, promote the sale of, and solicit orders for Buses, parts and service throughout its Territory. The sales quota described in Exhibit C (“Sales quota”) for Buses for the term of this Agreement shall be deemed a material breach of this Agreement if those sales quotas are not respected.

 

  (b) Customer Relationships. DEALER will provide and maintain a high quality of customer service and customer relations. DEALER will make every reasonable effort to handle to the satisfaction of DEALER’S customers all matters relating to the sale and service of LION Products and, in connection therewith, will establish regular contacts, either by correspondence or personal interview, with owners and users of LION Products in DEALER’S Territory for Customers. All complaints to DEALER concerning its service shall be promptly addressed in a way that will best preserve the goodwill of DEALER and LION, and the reputation of the products of Manufacturer.

 

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3. DEALERS Reports and Orders for Buses

 

  (a) Estimates of Requirements. Unless otherwise advised by LION, DEALER will furnish LION, on an annual basis, and from time to time as required, an estimate of DEALER’S requirements for Buses over the next twelve months in terms of units and models.

 

  (b) Sales Reports. Every quarter, DEALER shall furnish LION with sales reports, on a form provided by LION, and other information that LION may reasonably require in evaluating current DEALER inventories and current distribution schedules. DEALER should also provide copies of every sale invoice related to LION’s products on a monthly basis.

 

  (c) Orders. DEALER shall submit orders for Buses to LION for acceptance at mutually satisfactory periods. Such orders shall be submitted upon order forms supplied by LION and upon such terms and conditions expressed therein. LION’S obligation to sell buses to DEALER shall be limited to the Buses described in written orders from DEALER that are accepted in writing by LION. LION will use its best efforts to supply the requested products within an eight-week delivery period upon acceptance of the order by Manufacturer. An order from DEALER accepted by LION may not be withdrawn by DEALER without written approval from LION. All orders placed with LION by DEALER for Buses shall contain all necessary information regarding specifications of the Buses being ordered, to allow for efficient

 

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  manufacturing and distribution, all in accordance with the procedures and guidelines established by LION. All costs and damages of any kind resulting from the DEALER’S failure or refusal to provide LION with complete and accurate specifications shall be DEALER’S responsibility.

 

  (d) Change Orders. Change orders shall only be permitted with the approval of LION. DEALER shall be liable for charges associated with the acceptance of any change order, and any such change order shall be governed by the change order policy in effect at the time of receipt of such change order. Payment for such change order shall be delivered at the time of payment for the Buses contained in the original order.

 

  (e) No Liability for Failure to Accept Orders. It is LION’S responsibility to supply DEALER with quantities of Buses that DEALER may order to the extent permitted by the production facilities of Manufacturer and the demands by the customers. However, it is understood that all orders which DEALER may place from time to time are subject to acceptance by LION and that no liability on the part of Manufacturer shall result from their failure to accept or fill, in whole or in part, any order or orders which DEALER may place.

 

  (f) Failure or Delay to Fill Orders. Manufacturer shall not be liable for failure or delay in filling orders of DEALER, which have been accepted by LION, when such failure or delay is due, in whole or in part, to any labor, material, transportation, or utility shortage or curtailment, to any labor trouble in the plants of Manufacturer or its suppliers, or to any cause beyond the control or without the fault or negligence of Manufacturer; provided, however, that LION shall provide DEALER notice of such failure or delay.

 

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4. Buses

 

  (a) Definition of Buses. The term “Buses”, as used in this Agreement, means the model of Buses produced by Manufacturer.

 

  (b) Sale of Buses. DEALER is responsible for arranging for the purchase and delivery of Buses from Manufacturer’s production facilities.

 

5. Selling Prices for Buses

 

  (a) Established Prices. The prices which DEALER shall pay LION for each shipment of Buses shall be the prices established by LION and in effect at the time of such order acknowledgment. All applicable taxes will be added to those established selling prices. The delivery date from Lion to DEALER of any order acknowledgment shall in no circumstances be more than 120 days from the date of the order acknowledgment.

 

  (b) Right to Change Prices. The established selling prices will be reviewed every July 1st and January lst for all Orders executed after those dates. Those prices will be modified considering the inflation/deflation, as the case maybe, the exchange rate fluctuation and the change in raw material costs since the last revision date. Any cost changes due to regulation changes will also be considered. Lion will provide DEALER with a selling price change notice within fifteen (15) days following every price change revision date.

 

  (c) Options Selling Prices. Options Selling Prices from Lion to DEALER shall at all times be in accordance with the Lion’s options price list to contractors (“MSRP”).

 

6. Payment

Payment shall be made in full by wire transfer upon completion and before delivery of the Buses. Payment by DEALER shall include the sales price, and any applicable delivery charges and federal, province and local taxes.

 

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7. Title and Security Interest

 

  (a) Title. For the purpose of securing payment to LION, title to any products sold by LION shall be and remain with LION until receipt by LION in cash of the full purchase price.

 

8. Shipment of Buses

 

  (a) F.O.B. Manufacturer’s Facility. DEALER shall take responsibility of the delivery of the completed Buses, F.O.B. Manufacturer’s production facility (actually located in Saint-Jerome, Province of Quebec, Canada), within a maximum of five (5) working days after the date of notice of completion from Manufacturer is provided to DEALER, indicating that such product is completed.

 

  (b) Inspection and Acceptance. DEALER shall have the right to reject Buses upon inspection at Manufacturer’s facility. All products that are justifiably rejected shall be corrected by LION as soon as reasonably possible. If there are no defects to be corrected, DEALER shall accept such Buses prior to taking possession/delivery thereof.

 

  (c) Storage Charges. Unless DEALER has made payment in full or other terms for payment have been specifically agreed to by the parties, in the event that DEALER fails to take responsibility of delivery within the time frame set forth in Subsection (a) of this Section, a storage fee for the Buses shall be charged in the amount equal to 10 percent (10%) per annum of the unpaid sales price (“Storage Fee”).

 

  (d) Delivery Charges. DEALER shall be responsible for all delivery charges and costs for the shipment of Buses.

 

  (e) Risk of Loss or Damage. LION shall not be liable to DEALER for any loss or damage to any Buses purchased hereunder after delivery thereof to DEALER or to DEALER’S designated agent or carrier, whichever shall first occur. DEALER shall be responsible for filing all claims for loss of or damage to any of said products purchased hereunder while in the possession of DEALER’S designated agent or carrier. LION shall, however, provide reasonable assistance to DEALER in processing all such claims.

 

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9. Warranty on Buses

 

  (a) Delivery of Warranty. Upon delivery of the Buses to DEALER, LION shall deliver to DEALER a written limited warranty (“Limited Warranty”) from Manufacturer, as such Limited Warranty exists at that time, to be delivered by DEALER to the end purchaser at such time and in such manner as LION shall direct. There shall be no warranties, express or implied, made by Manufacturer on Buses furnished under this Agreement except as provided in such Limited Warranty.

 

  (b) Warranty on Chassis. Chassis manufactured by LION carries industry standard chassis warranty against workmanship and defects.

 

10. Change of Design

LION may change the design or specifications of any of the LION Products at any time without notice and without obligation to make the same or any similar change upon any products previously purchased by or shipped to DEALER.

 

11. Operation of DEALERS Business

 

  (a) Facilities. DEALER shall establish, maintain and equip, in a manner satisfactory to LION, at least one place of business in Dealer’s Territory for the proper presentation and sale of the LION Products.

 

  (b) Personnel. DEALER shall employ adequately trained personnel in all departments,

 

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  including, without limitation, a competent sales and a customer service organization adequate to solicit all potential purchasers of Lion Products in Dealer’s Territory. DEALER shall send its principal and its key sales personnel to Manufacturer’s production facilities at least once per year.

 

  (c) Permits, Licenses and Registrations. During the term of this Agreement, DEALER shall be and remain in compliance with all federal, provincial, municipal and local laws, orders, codes and ordinances applicable to DEALER business. DEALER shall obtain any and all authorizations, permits or licenses and complete and file any registrations or disclosures of any kind whatsoever which are required by any government authority, agency, or unit having jurisdiction in the Territory or any part of the Territory, which are required by reason of this Agreement or any of the actions or transactions which are necessary for the performance of the obligations of either party under this Agreement. At DEALER’S request, LION shall provide DEALER with such information as reasonably may be necessary to permit DEALER to comply with such obligations.

 

  (d) Insurance. DEALER shall at all times carry adequate insurance on any employees, vehicles and premises used in the conduct of its business, as well as any insurance that is required by law. LION shall have the right to review and approve all such insurance. DEALER shall name LION and Manufacturer as “additional insured” under all liability insurance policies. DEALER shall provide proof of coverage to LION. Manufacturer and LION shall have the right to require that they receive at least 30 days notice prior to the cancellation of such insurance policies.

 

  (e) DEALER’s Inventories. Dealer shall purchase and maintain on hand at all times at least one demonstration model of each LION product line.

 

  (f) Standards of Advertising. DEALER will not publish or permit to be published any

 

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  advertising or communication relating to LION Products which in LION’S opinion is likely to mislead or deceive potential buyers or to impair the goodwill of Manufacturer, LION or DEALER, or the reputation of LION Products.

 

  (g) Confidential Information. DEALER and its officers, directors, owners, employees, agents, and principals will not, during the term of this Agreement, or anytime thereafter, except as may be required in the performance of this Agreement by law, including the filing requirements of the Securities and Exchange Commission or other regulatory authorities with whom DEALER must comply, or when authorized in writing by LION, publish or disclose, or authorize anyone else to publish or disclose, any of the contents of this Agreement or any secret or confidential information relating to DEALER’s business or affairs as it relates to LION or the sale or distribution of the products of Manufacturer, which it or they may in any way acquire in the course of performing this Agreement including, without limitation, any and all pricing information; nor will it or they, as partner, principal, agent, consultant, employer, employee, or otherwise directly or indirectly at any time hereafter, other than as may be required in the fulfillment of the terms and conditions of this Agreement, make use of such secret or confidential information for the benefit of itself or themselves or any person related to or associated with it or them. DEALER agrees to be fully responsible for any breach of this Section by any of the DEALER’S officers, directors, shareholders, owners, employees, agents, and principals. Confidential information (with the exception of this agreement) shall be identified as such by LION before such information is provided to DEALER.

 

  (h) Competition. Without the express written consent of LION, neither DEALER nor its officers, directors, shareholders (prior to becoming a public company, owners (prior to becoming a public company, employees, agents, related corporations and principals shall,

 

9


  directly or indirectly, during the term of this Agreement manufacture, sell or lease products described in Exhibit A in DEALER’S granted territory. Dealer agrees not to manufacture, sell or lease products described in Exhibit A in the Provinces of Quebec and Ontario, Canada for the duration of this Agreement plus one year. DEALER will not manufacture new products described in Exhibit A during term of this Agreement.

 

  (i) Territorial Restrictions and Customers. DEALER understands that it has been granted an exclusive territory in which to sell Lion Products and that it is prohibited from selling Lion Products outside of its Territory and within its Territory if DEALER has knowledge that such products will likely be used or delivered outside its Territory with the exception of a Headquartered account inside DEALER territory with satellite facilities not covered by this agreement. DEALER further understands that other DEALER’S or Lion’s representatives may be given the exclusive authority to sell Lion Products outside of DEALER’S Territory. DEALER will not solicit business for Lion Products from outside the limits of its Territory and will refer to LION all inquiries or orders received therefore.

 

  (j) Changes in Territory. If at any time it appears to LION, in its sole discretion, that DEALER is not properly serving, or is not in the position to properly serve, any part of its Territory, LION reserves the right to cancel any part of DEALER’S territory, by giving two months written notice to DEALER without, however, suspending the provisions of this Agreement with respect to the remaining part of the DEALER’S Territory. Any such cancellation shall not affect orders accepted by LION prior to the effective date of the cancellation.

 

  (k) Infringement on Territory. LION, in its sole discretion, may take reasonable measures to protect DEALER from an infringement on its exclusive Territory by other LION dealers;

 

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  provided, however, DEALER recognizes that the applicable laws of the Territory, a part of the Territory, or all or part of the territory of such other dealer(s), may prevent Manufacturer or LION from taking action to enforce these territorial restrictions. Under no circumstances shall LION be liable to DEALER for an infringement on its exclusive Territory by other LION dealers.

 

  (l) Lion reserves the right to sell National Fleet Accounts directly. National Fleets will be defined as fleets with more than 100 Vehicles and who operate in more than one state. Lion at its own discretion may or may not provide some type of compensation should the delivery take place in ADOMANI’s territory now or in the future.

 

12. Products and Parts Manual

 

  (a) Delivery. LION shall deliver to DEALER a product and parts manual (“Manual”) containing such items as descriptions of the Buses produced by Manufacturer, including the model names, options, parts information, pricing information, technical marketing data, photographs, drawings, compatible makes, chassis specifications, etc.

 

  (b) Revision of Manual. In its sole discretion, LION from time to time may revise or replace the Manual, with such revisions or replacements to be distributed to DEALER.

 

  (c) Informational Purposes Only. The Manual is provided for DEALER’S informational purposes only and LION shall not be bound thereby.

 

13. Sales and Service Records

In order for LION to continue to improve the safety and performance of its products, it is important that DEALER makes available for its inspection complete and up-to-date sales and service records. DEALER agrees to maintain proper quality control procedures in compliance with LION’S requirements. DEALER shall keep complete and

 

11


up-to-date records containing the sales and servicing of all products sold under this Agreement and will permit Manufacturer at all reasonable times and business hours, to inspect such records or, if requested, to forward such records to LION. Further, in order to enable LION to maintain competitive prices and product quality control, DEALER agrees to the following:

 

  (a) Provide reports containing the names and addresses of all persons to whom Buses have been sold, copies of all sales invoices, along with the date of sale, date of delivery, mileage at delivery to end user, description and serial number of the Buses and Lion chassis;

 

  (b) Provide reports of DEALER’S competitive bid information within twenty (20) days after the submission of any bid, including the DEALER’S bid amount, the number of bids and the name and description of the successful bidders;

 

  (c) Provide reports of the servicing work performed by DEALER, including both warranty and non-warranty servicing work; and

 

  (d) Provide such additional information as may from time to time be requested by LION.

 

14. Representations of DEALER

 

  (a) Criminal History. Dealer represents that neither DEALER nor any of its officers or directors, have at any time been:

 

  (1) Arrested or indicted for, or convicted any felony;

 

  (2) Arrested, indicted, or convicted of a violation or alleged violation of any other criminal laws involving dishonesty in any act;

 

  (3) Investigated, arrested, indicted, or cited for, or convicted of (i) engaging in a price-fixing arrangement or combination formed for the purpose or with the effect of raising, depressing, fixing, pegging or stabilizing the price of a product, or (ii) any price-fixing arrangement combination, tying arrangement, price collusion or other action resulting in a restraint of trade or substantially lessening competition; or Dealer further agrees that in the event of the occurrence of any of the events listed in this Subsection (a) during the term of this Agreement, DEALER shall give LION immediate written notice of such event.

 

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  (b) Compliance With Laws. DEALER represents that it has obtained, or will within a reasonable time obtain, the necessary authorizations, permits, licenses, registrations and disclosures required by any governmental authority, agency, or unit having jurisdiction in the Territory or any part of the Territory, which by reason of this Agreement may be required. DEALER further represents that the relationship between the parties pursuant this Agreement does not require LION to complete or file any registration or disclosures, including any registrations or disclosures that might be required under the applicable Franchise laws, securities laws, distributorship laws, dealership laws, school bus vendor laws, business opportunity laws, or other laws having jurisdiction in the Territory or any part of the Territory

 

15. Service and Parts

 

  (a) Service. During the term of this Agreement, DEALER shall provide service, care, maintenance and repairs to Lion Products to its Customers in its Territory, including, without limitation, the provision of all parts and service under the terms of the Limited Warranty. DEALER shall use its best efforts to ensure that such customer service is provided in a prompt, professional and courteous manner.

 

  (b) Parts. In performing the services and repairs to Lion Products, DEALER shall use only parts purchased from LION’S authorized parts

 

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  distribution center selected by LION, at its sole discretion, meeting the specifications and standards prescribed by LION. DEALER’S use of parts not supplied or approved by LION shall relieve Manufacturer and LION from its obligations, if any, under the Limited Warranty, and DEALER agrees that it shall be deemed to have assumed such obligations with respect to these parts.

 

  (c) Parts Inventory. DEALER agrees to maintain an adequate inventory of parts that are reasonably needed to provide for the service, care, maintenance, and repair of the Lion Products.

 

16. Trademarks

 

  (a) Exclusive ownership. Manufacturer is the exclusive owner of the various trademarks, including the word “Lion” and the several other words and design marks which LION uses in connection with its products.

 

  (b) Use by DEALER. DEALER is granted the nonexclusive privilege of displaying such words or marks in connection with the sale of Lion Products; provided, however, that DEALER shall discontinue the display or use of any such word or mark or change the manner in which any such word or mark is displayed or used when requested to do so by LION. DEALER shall not use the term “Lion” or any derivative thereof in DEALER’S name.

 

  (c) Discontinuance of Use Upon Termination. If any such word or mark is used as part of DEALER’S signs, advertising or in any other manner by DEALER, DEALER will, upon termination of this Agreement, immediately discontinue all such use and display thereof. Thereafter, DEALER will not use, either directly or indirectly, any such word or mark or any other word or mark so resembling such word or mark as to be likely to cause confusion or mistake or deceive the public.

 

  (d) DEALER’S Liability for Failure to discontinue Use. If DEALER shall refuse or neglect to keep and perform the provisions of Subsections (b) or (c) above, DEALER shall reimburse LION for all costs, attorney’s fees, accounting and auditing fees, and other fees and expenses incurred by LION in connection with DEALER’S compliance therewith.

 

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17. Dealer Independent Contractor

 

  (a) Relationship of Parties. The relationship between LION and DEALER during the term of this Agreement shall be that of vendor and vendee. DEALER is not the agent or legal representative of LION for any purpose whatsoever and is not granted by the terms or execution of this Agreement or otherwise any express or implied right or authority to assume or create any obligation or responsibility on behalf of or in the name of LION, or to bind LION in any manner or thing whatsoever. DEALER shall have no authority, express or implied, to act as agent of LION, or any of their affiliates for any purpose. This Agreement does not create a partnership, joint venture, or any other entity or relationship other than that of vendor and vendee.

 

  (b) Independent Contractor. DEALER is and shall remain an independent contractor responsible for all obligations and liabilities of, and for all loss or damage to, its business, including those relating to the use or condition of any personal property, equipment, fixtures or real property connected therewith, and for all claims or demands based on damage or destruction of property or based on injury, illness or death of any person or persons, directly or indirectly, resulting from the operation of the DEALER’S business. Except insofar as it is specifically provided otherwise in this Agreement, DEALER shall be solely responsible for the performance of this Agreement.

 

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  (c) Indemnify and Hold Harmless. If LION or DEALER shall be subject to any claim, demand or penalty or become a party to any suit or other judicial or administrative proceeding by reason of any claimed act or admission by either LION or DEALER, their employees or their agents, or by reason of any act occurring on Lion’s or DEALER’S premises, or by reason of any omission with respect to Lion’s or DEALER’S business or the operation thereof, Lion or DEALER shall indemnify the other and hold each other harmless against all judgments, settlements, penalties and expenses, and shall protect and defend each other including without limitation, all court costs, attorneys fees, accounting and auditing fees, and other fees and expenses of litigation, arbitration, mediation, administrative proceedings, or otherwise.

 

18. Term

This Agreement shall become effective on the 1st day of November, 2016, and, unless terminated in accordance with the provisions of this Agreement, shall continue in effect until November 1st, 2019, at which date the Agreement shall be automatically renewed.

 

19. Early Termination: Default; Remedies

 

  (a) Termination by DEALER on 60-Days’ notice. If LION should fail to fulfill or comply with any term or provision of this Agreement, DEALER may terminate this Agreement at any time by written notice of termination delivered to LION. Such notice of termination shall be delivered not fewer than sixty (60) days prior to the effective date of termination.

 

  (b) Possible Termination by LION or DEALER on 60-Days’ notice. Should DEALER consider selling or representing new, non-LION battery electric Type-C or Type-A school bus products in non-assigned territories a 60-day notice will be given to LION by DEALER.

 

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  (b) Termination by LION on 60-Days’ notice. If DEALER should fail to fulfill or comply with any term or provision of this Agreement, LION may terminate this Agreement by giving to DEALER written notice of such termination. Such notice of termination shall be delivered to DEALER not fewer than sixty (60) days prior to the effective date of termination.

 

  (c) Immediate Termination by LION or DEALER. LION or DEALER may terminate this Agreement immediately by delivering to LION or DEALER, as the case may be, written notice of such termination in the event of the happening of any of the following:

 

  (1) Failure of DEALER or LION to cure a breach of this Agreement within fifteen (15) days following receipt of notice of the breach from the other party; provided, however, this provision shall not limit in any way LION’S or DEALER’s right to terminate the Agreement with sixty (60) days’ notice pursuant to Subsection (b) of this Section and shall not create a right to cure by DEALER or LION.

 

  (2) Non-respect of the Sales quota. In this case, the right to terminate this Agreement is granted solely to Lion;

 

  (3) Non-respect of DEALER to exclusively purchased from LION the new electric Type-C school bus offered by LION in DEALER granted territory. In this case, the right to terminate this Agreement is granted solely to Lion;

 

  (4)

Insolvency of DEALER; filing of a voluntary petition in bankruptcy by DEALER or LION; filing of an involuntary petition to have DEALER or LION declared bankrupt, provided it is not vacated within thirty (30) days from date of filing; appointment of a receiver or trustee for DEALER or LION, provided such appointment of a receiver or trustee for DEALER or LION provided such appointment

 

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  of a receiver or trustee for DEALER or LION provided such appointment is not vacated within thirty (30) days from date of filing; or execution by DEALER or LION of an assignment for benefit of creditors;

 

  (5) A deterioration in DEALER’S financial resources which, in LION’S opinion, would prevent DEALER from fulfilling its responsibilities as a dealer, and not corrected within 60 day notification by Lion, in this case, the right to terminate this Agreement is granted solely to Lion;

 

  (6) Any assignment by DEALER of any interest in this Agreement without LION’S express written consent. In this case, the right to terminate this Agreement is granted solely to Lion;

 

  (7) A change in the ownership or management of DEALER without the prior written consent of LION. In this case, the right to terminate this Agreement is granted solely to Lion;

 

  (8) The failure of DEALER for any reason to function in the ordinary course of business as a dealer, or failure of DEALER for any reason to keep DEALER’s place of business open during the customary hours of trade, for a period of ten (10) days or more without LION’S prior written approval; In this case, the right to terminate this Agreement is granted solely to Lion;

 

  (9) The involvement of Dealer or any action for which notice is required pursuant to Subsection (a) of Section 14 which, in LION’S opinion, might adversely affect the operation of DEALER’S business or the good name, goodwill or reputation of LION or DEALER or products of Manufacturer; or

 

  (10) The involvement of DEALER or any of its officers or directors in any action which, in LION’S opinion, might adversely affect the operation of DEALER’S business of the good name, goodwill, or reputation of Manufacturer, LION, or DEALER.

 

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  (d) Termination for Lack of License. If either LION or DEALER is required to hold a license to perform any obligation under or in connection with this Agreement, in any state or jurisdiction where the Agreement is to be performed, and either LION or DEALER fail to secure or maintain such license or renewal thereof, or if such license shall be suspended or revoked, irrespective of the cause or reason therefore, either party may immediately terminate this Agreement by giving to the other party written notice of such termination.

 

20. Assignment of Orders After Termination

At LION’S option, upon termination of this Agreement, DEALER shall transfer or assign by appropriate documents to LION, or its nominee, all acknowledged orders for LION Products which DEALER has not filled.

 

21. Right of Manufacturer to Enforce Agreement

 

22. General Provisions

 

  (a) Assignment. DEALER shall not transfer or assign nor attempts to transfer or assign this Agreement or any right or obligation hereunder without the prior written consent of LION.

 

  (b)

Entire Agreement. There are no other agreements or understandings, either oral or in written, between the parties affecting this Agreement or relating to the sale of Lion Products, except as otherwise specifically provided herein. DEALER acknowledges that neither LION nor anyone on behalf of LION has made any representation, inducements, promises or agreements, orally or otherwise respecting the subject of this Agreement which are not embodied herein. DEALER

 

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  acknowledges that it is entering into this Agreement as a result of its own independent investigation and not as a result of any representations by LION, its agents, officers or employees.

 

  (c) Overriding Character. This agreement cancels and supersedes all previous agreements between the parties.

 

  (d) Severability. If any provision of this Agreement is deemed to be invalid or unenforceable or is prohibited by the laws of the state or province or place where it is to be performed, this Agreement shall be considered divisible as to such provision shall be inoperative. The remaining provisions of this Agreement, however, shall be valid and binding and of like effect as though such provisions were not included herein unless, in the opinion of LION, the invalid or unenforceable provision is of the essence of this Agreement, in which event LION may terminate this Agreement upon written notice to DEALER.

 

  (e) No Implied Waiver. The failure of either party at any time to require performance by the other party of any provision hereof shall in no way affect the full right to require such performance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not constitute a waiver of any other breach of the same or any other such provision nor constitute a waiver of the provision itself.

 

  (f) Notices. Any notice required to be given by either party to the other under or in connection with this Agreement shall be in writing. Notices to DEALER shall be directed to its representatives at DEALER’S place of business; notices to LION shall be directed to its representatives at LION’S place of business.

 

  (g) Applicable Law. This Agreement is executed and accepted in the Province of Quebec and shall be governed by and construed according to the laws of the Province of Quebec.

 

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  (h) Negotiated Agreement. This Agreement is the result of negotiations between the parties to this Agreement. Accordingly, no party to this Agreement shall be deemed to be the author of this Agreement of the resulting documents, and there shall be no presumption that this Agreement or any of such documents are to be construed for or against any party to this Agreement on the basis of the authorship of the documents.

 

  (i) Captions. The captions of the various paragraphs herein contained are solely for the convenience of the various parties hereto and shall not be construed or interpreted to limit the content of any provision or paragraph of this Agreement.

 

  (j) Mediation. If at any time during the term of this Agreement any dispute, difference, or disagreement shall arise upon or in respect of the Agreement and the meaning and construction hereof, every such dispute, difference, and disagreement shall be referred to mediation to be held in the Province of Quebec.

 

  (k) Attorney’s Fees. In the event that arbitration, Mediation, suit or action is brought by any party under this Agreement to interpret or enforce any of its terms, or in any appeal therefore, it is agreed that the prevailing party shall be entitled to its court costs, attorney’s fees, accounting and auditing fees, and other fees and expenses to be fixed by the arbiter, the mediated agreement, the trial court, and/or the appellate court.

 

  (l) In the case of all bids, quotes, RFP’s etc. that request a quote for both a new bus and or a used bus that has been retro fitted, ADOMANI, and/or its affiliates will not offer any type of retrofitted school or commercial bus.

In the case of all bids, quotes, RFP’s etc. that request only a retrofitted bus ADOMANI will try to persuade customer to buy a new product however, ADOMANI can quote a retrofit. ADOMANI may be required to provide evidence that only a retrofit unit was requested.

 

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IN WITNESS THEREOF, the parties have duly executed this Agreement. If a party is not an individual, then the persons executing this Agreement on behalf of such party hereby represent that they are duly elected, authorized, and empowered to enter into this Agreement for or on behalf of said party.

 

LION BUSES INC.
By:  

/s/ Marc Bédard

  Marc Bédard, President
ADOMANI INC.
By:  

/s/ James Reynolds

  James Reynolds, President/CEO

 

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EXHIBIT A

“Products”

Consist of Type-C Electric School Buses and will include Type-A buses, when available.

 

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EXHIBIT B

“Territory”

Entire States of:

Nevada

Oregon

Utah

Arizona

Washington

Idaho

 

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EXHIBIT C

“Sales Quota”

Consist of the following number of eLion Type-C Buses being sold and delivered during those calendar years:

 

State

  2016   2017   2018   January to
September
2019
AZ   0   5   10   15
NV   0   5   10   15
ID   0   0   4   6
WA   0   3   6   10
OR   0   5   12   15
UT   0   0   4   6
White Fleet   0   5   12   15

 

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EXHIBIT 6.14

ADOMANI, INC.

ADVISOR AGREEMENT

This Advisor Agreement (the “Agreement”) is entered into as of the date set forth on the signature page by and between ADOMANI, Inc., a Florida corporation that proposes to reincorporate in Delaware (the “Company”) and the undersigned advisor (the “Advisor”).

The parties agree as follows:

1. Services. Advisor agrees to act as an advisor to the Company and provide general business and corporate advice to the Company from time to time as further described on Schedule A attached hereto or as otherwise mutually agreed to by the parties (collectively, the “Services”). Advisor understands that the Company will, in its discretion, consider and evaluate, then conclude and make decisions regarding, any advice, counsel or suggestions made by the Advisor.

2. Compensation. As consideration for, and subject to Advisor’s continued performance of, all of the Advisor Services, Advisor will receive a lump sum cash fee of $2,500 for each full calendar month during which Advisor provides Advisor Services to the Company.

3. Expenses. In connection with any reasonable and documented travel and related expenses incurred in the course of performing services hereunder in which Advisor desires to be reimbursed, Advisor shall provide a written request to the Company in advance describing the nature and maximum amount of such expense (email notice shall be sufficient). If the Company pre-approves in writing (email notice shall be sufficient), then the Company shall reimburse Advisor for such pre-approved expenses.

4. Term and Termination. The term of this Agreement shall continue until terminated by either party for any reason upon five (5) days prior written notice without further obligation or liability.

5. Independent Contractor Relationship. Advisor understands that the Advisor is not authorized to act on behalf of the Company or bind the Company as a result of their involvement with the Company as an Advisor and agrees that it will not act as if it has any such authority. Advisor will not act as an agent nor shall it be deemed to be an employee of the Company. The Advisor’s relationship with the Company is that of an independent contractor, and nothing in this Agreement is intended to, or should be construed to, create a partnership, agency, joint venture or employee relationship for the purposes of any employee benefit program, unemployment benefits, or otherwise. The Advisor is solely responsible for, and will file, on a timely basis, all tax returns and payments required to be filed with, or made to, any federal, state or local tax authority with respect to the performance of services and receipt of fees under this Agreement. The Advisor is solely responsible for, and must maintain adequate records of, expenses incurred in the course of performing services under this Agreement. No part of the Advisor’s compensation will be subject to withholding by the Company for the payment of any social security, federal, state or any other employee payroll taxes. The Company will regularly report amounts paid to the Advisor by filing Form 1099-MISC or successor form with the Internal Revenue Service as required by law and/or make such other reports as deemed necessary or appropriate by the Company under applicable laws.


6. Intellectual Property Rights.

6.1 Disclosure and Assignment of Intellectual Property.

(a) Intellectual Property. “Intellectual Property” means any and all art, discoveries, improvements, developments, inventions (whether or not patentable) methods, processes, works of authorship and technologies and all related know-how, designs, trademarks, formulae, manufacturing techniques, trade secrets, ideas, artwork, software or other work, that the Advisor, solely or jointly with others, makes, conceives or reduces to practice within the scope of the Advisor’s work for the Company under this Agreement. Advisor hereby acknowledges that it is “work made for hire” for the benefit of the Company and hereby assigns all right, title and interest of every kind and nature whatsoever in and to the Intellectual Property and the Intellectual Property shall be the sole and exclusive property of the Company. Advisor shall disclose to the Company promptly after its conception all Intellectual Property.

(b) Assistance. The Advisor agrees to assist the Company in any reasonable manner to obtain and enforce for the Company’s benefit any patents, copyrights and other property rights in any and all countries, with respect to any Intellectual Property, and the Advisor agrees to execute, when requested, patent, copyright or similar applications and assignments to the Company and any other lawful documents deemed necessary by the Company to carry out the purpose of this Agreement with respect thereto. If called upon to render assistance under this paragraph after the term of this Agreement, the Advisor will be entitled to a fair and reasonable fee in addition to reimbursement of authorized expenses incurred at the prior written request of the Company. In the event that the Company is unable for any reason to secure the Advisor’s signature to any document required to apply for or execute any patent, copyright or other applications with respect to any Intellectual Property (including improvements, renewals, extensions, continuations, divisions or continuations-in-part thereof), after a written demand is made therefore upon the Advisor (which shall refer to the provisions of this paragraph), the Advisor hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as the Advisor’s agents and attorneys-in-fact to act for and in the Advisor’s behalf and instead of the Advisor, to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights, mask works or other rights thereon with the same legal force and effect as if executed by the Advisor.

(c) No Conflicting Obligation. The Advisor represents that Advisor’s compliance with the terms of this Agreement and provision of Services hereunder will not violate any duty which Advisor may have to any other person or entity (such as a present or former employer), and Advisor agrees that Advisor will not do anything in the performance of Services hereunder that would violate any such duty. The Advisor has disclosed and, during the term of this Agreement, will disclose to the Chief Executive Officer of the Company any conflicts between this Agreement and any other agreements binding the Advisor.

6.2 Confidential Information.

(a) Definition of Confidential Information. “Confidential Information” as used in this Agreement shall mean any and all confidential and proprietary information of the Company including, without limitation, technical and non-technical information, techniques, sketches, drawings, models, inventions, know-how, processes, apparatus, equipment, algorithms, software programs, software source documents, and formulae related to the current, future and proposed products and services of the Company, its suppliers and customers, and information of the Company concerning research, experimental work, development, design details and specifications, engineering, financial information, procurement requirements, purchasing manufacturing, customer lists, business forecasts, sales and

 

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merchandising and marketing plans and information. Confidential Information also includes proprietary or confidential information of any third party who may disclose such information to the Company or the Advisor in the course of the Company’s business.

(b) Nondisclosure and Nonuse Obligations. The Advisor will use the Confidential Information solely to perform the Services for the benefit of the Company and for no other purpose, and the Advisor will not disclose the Confidential Information to any other person. The Advisor agrees that the Advisor shall treat all Confidential Information of the Company with the same degree of care as the Advisor accords to the Advisor’s own Confidential Information, and the Advisor represents that the Advisor exercises reasonable care to protect the Advisor’s own Confidential Information. Advisor agrees to take all reasonable measures to protect the secrecy of and avoid disclosure or use of Confidential Information of the Company to prevent it from falling into the public domain or the possession of persons other than agents of the Company or persons to whom the Company consents to such disclosure. The Advisor will immediately give notice to the Company of any unauthorized use or disclosure by or through him, or of which he becomes aware, of the Confidential Information. The Advisor agrees to assist the Company in remedying any such unauthorized use or disclosure of the Confidential Information.

(c) Exclusions from Nondisclosure and Nonuse Obligations. The Advisor’s obligations under Section 6.2(b) with respect to any portion of Confidential Information shall not apply to any information that (i) was in the public domain at or subsequent to the time it was communicated to the Advisor by the Company or a Company authorized person through no fault of the Advisor, (ii) was rightfully in the Advisor’s possession free of any obligation of confidence at or subsequent to the time it was communicated to the Advisor by the Company or a Company authorized person, (iii) was developed by employees or agents of the Advisor independently of and without reference to any information communicated to the Advisor by the Company or a Company authorized person, or (iv) is being disclosed by the Advisor in response to a valid order by a court or other governmental body, or otherwise as required by law.

(d) Rights Granted. Nothing in this Agreement shall be construed as granting any rights under any patent, copyright or other intellectual property right of the Company, nor shall this Agreement grant Advisor any rights in or to the Company’s Confidential Information, except the limited right to use the Confidential Information in connection with the Services.

(e) Disclosure of Third Party Information. Neither party shall communicate any information to the other in violation of the proprietary rights of any third party.

6.3 Return of the Company’s Property. All materials (including, without limitation, documents, plans, drawings, models, sketches, designs and software programs) furnished to the Advisor by the Company, whether delivered to the Advisor by the Company or made by the Advisor in the performance of services under this Agreement (“Company Property”) are the sole and exclusive property of the Company. The Advisor agrees to promptly deliver the original and any copies of Company Property to the Company at any time upon the Company’s request. Upon termination of this Agreement by either party for any reason, the Advisor agrees to promptly deliver to the Company or destroy, at the Company’s option, the original and any copies of Company Property. The Advisor agrees to certify in writing that the Advisor has so returned or destroyed all such Company Property.

7. No Conflict of Interest. During the term of this Agreement, Advisor agrees that prior to performing any services for or otherwise participating in a company developing or commercializing new services, methods or products that may be competitive with the Company, Advisor shall first notify the Company in writing. It is understood that in such event, the Company will review whether Advisor’s

 

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activities are consistent with Advisor remaining an advisor. Notwithstanding the foregoing, it is further understood that the Advisor may continue the Advisor’s current affiliation or other current relationships with the entity or entities described on Exhibit A (all of which entities are referred to collectively as “Current Affiliations”). This Agreement is subject to the current terms and agreements governing the Advisor’s relationship with Current Affiliations. The Advisor represents that nothing in this Agreement conflicts with the Advisor’s obligations to Current Affiliations or would otherwise prevent Advisor from performing its obligations under this Agreement.

8. Term and Termination.

8.1 Term and Termination. The term of this Agreement shall continue until terminated by either party for any reason upon five (5) days prior written notice without further obligation or liability.

8.2 Survival. The rights and obligations contained in Sections 6, 7, 8.2, 9 and 10 will survive any termination of this Agreement.

9. Non-solicitation. During the term of this Agreement, and for a period of one year following the Termination Date, the Advisor agrees not to, directly or indirectly, solicit or induce any employee, independent advisor, independent contractor or customer of the Company to terminate or breach any employment, contractual or other relationship with the Company.

10. Defend Trade Secrets Act. Pursuant to the Defend Trade Secrets Act of 2016, if Advisor is an individual, Advisor acknowledges that he/she shall not have criminal or civil liability under any Federal or State trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In addition, if Advisor files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Advisor may disclose the trade secret to Advisor’s attorney and may use the trade secret information in the court proceeding, if Advisor (X) files any document containing the trade secret under seal and (Y) does not disclose the trade secret, except pursuant to court order.

11. Miscellaneous.

11.1 Company’s Right to Disclose. So long as Advisor continues to serve as an advisor to the Company, the Company shall have the right and Advisor hereby consents to the Company’s disclosure of the existence of this Agreement, Advisor’s status as an Advisor, and to include Advisor’s name, image and profile in various promotional and marketing materials, including, but not limited to, executive summaries, the Company’s world wide web page, private placement memo, or other offering materials.

11.2 Successors and Assigns. Due to the personal nature of the services to be rendered by the Advisor, the Advisor may not assign its rights and obligations under this Agreement, in whole or in part, without the prior written consent of the Company. The Company may assign its rights and obligations under this Agreement, in whole or in part, without the consent of the Advisor. Subject to the foregoing, this Agreement will inure to the benefit of and be binding upon each of the heirs, assigns and successors of the respective parties.

 

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11.3 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (a) by personal delivery when delivered personally; (b) by overnight courier upon written verification of receipt; (c) by facsimile transmission upon acknowledgment of receipt of electronic transmission; or (d) by certified or registered mail, return receipt requested, upon verification of receipt. Notice shall be sent to the addresses set forth on the signature page hereto or such other address as either party may specify in writing.

11.4 Governing Law. This Agreement shall be governed in all respects by the laws of the United States of America and by the laws of the State of California without reference to rules of conflicts of law.

11.5 Severability. Should any provisions of this Agreement be held by a court of law to be illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining provisions of this Agreement shall not be affected or impaired thereby.

11.6 Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other or subsequent breach by such other party.

11.7 Injunctive Relief for Breach. The Advisor’s obligations under this Agreement are of a unique character that gives them particular value, and the Advisor’s breach of any of such obligations will result in irreparable and continuing damage to the Company for which there will be no adequate remedy at law. Accordingly, in the event of such breach, the Company will be entitled to injunctive relief and/or a decree for specific performance, and such other and further relief as may be proper (including monetary damages if appropriate).

11.8 Countersignatures; Entire Agreement; Amendment. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. This Agreement and the schedule and exhibit hereto constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior and contemporaneous oral or written agreements concerning such subject matter. The terms of this Agreement will govern all Services and other services undertaken by the Advisor for the Company. This Agreement of any provision hereof may only be amended or changed or waived by mutual agreement of authorized representatives of the parties in writing.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of September 1, 2016.

 

ADOMANI, INC.
BY:   /s/ James Reynolds
NAME:   James Reynolds

Title:

  President and CEO
ADVISOR:
BY:   /s/ Dennis R. Di Ricco
NAME:   Dennis R. Di Ricco

Title:

   
Address:   343 Franklin Street
  Mountain View, CA 94041-1229
Phone:   (650) 303-0685

 

Signature page to ADOMANI, Inc. Advisor Agreement


SCHEDULE A

Services

As directed by the CEO, the Advisor will have the following duties

General Business Consulting: from time-to-time the Advisor will provide to the CEO of ADOMANI and its management team consulting on general business activities that the Advisor believes would benefit the company, its shareholders, vendors and customers.

Business Development: The Advisor will continue to actively develop any and all business opportunities and bring them to the appropriate Department Managers and the CEO.

Projections: The Advisor, when called upon, will work with Management to develop sales forecasts and projects.

Investor Relations: As requested, the Advisor will work with the CFO & CEO in developing strategy in getting the ADOMANI message to its shareholders and may be called upon to be a point of contact.

Tax Planning: As called upon by the CFO, the Advisor will provide advice on tax matters for the company.

Preparation of Federal, Florida and California corporate income tax returns: As called upon by the CFO, the Advisor will work with financial planners, CPA firms and any other financial entities to prepare company income tax returns.

Planning and Review of Business Agreements: The Advisor may be called on from time-to-time to review company contracts, vendor blanket purchase orders, MNDA and similar contracts and render his opinion as to acceptability and enforceability.

Meeting and Advising Management: The Advisor will from time-to-time be asked to attend company meetings, Board Meetings and product meetings to (a) keep himself informed of company activities and (b) advise management on any issues requested.

Interfacing with China Business Development: The Advisor will advise and interface with the personnel of ADOMANI China as requested and directed by the CEO. These areas will include sales increases, profits, business development and other areas as requested.


EXHIBIT A

Current Affiliations

Taxes by DDR, INC.

CRYOTHERM USA, Inc.

Golden Genesis, Inc.

Exhibit 8.1

ESCROW DEPOSIT AGREEMENT

This ESCROW DEPOSIT AGREEMENT (this “Agreement”) dated as of this [    ] day of              2016, by and among ADOMANI, INC., a Delaware corporation (the “Company”), having an address at 620 Newport Center Drive, Suite 1100, Newport Beach CA 92660, MONARCH BAY SECURITIES, LLC, a California LLC. (the “Underwriter”), having an address at 898 N. Sepulveda, Suite 475, El Segundo CA 90245, and SIGNATURE BANK (the “Escrow Agent”), a New York State chartered bank, having an office at 950 Third Ave, 9th Floor, New York, NY 10022. All capitalized terms not herein defined shall have the meaning ascribed to them in that certain offering circular, dated [            ], 20[    ], including all attachments, schedules and exhibits thereto (the “Offering Circular”).

W I T N E S S E T H:

WHEREAS, pursuant to the terms of the Offering Circular, the Company desires to sell (the “Offering”) a minimum of $10 million (the “Minimum Amount”) and a maximum of $25 million (the “Maximum Amount”) of its shares (the “Shares”). Each Share is being sold at a price of $         per Share, with a minimum investment of $500 (which minimum investment may be waived by Company); and

WHEREAS, unless the Minimum Amount is sold by [insert Termination Date] (the “Termination Date”), or by [insert Final Termination Date] (the “Final Termination Date”) if the Termination Date has been extended by Company and the Placement Agent, the Offering shall terminate and all funds shall be returned to the subscribers in the Offering, and if the Minimum Amount is met, the Offering may continue until the Termination Date or Final Termination Date if extended; and

WHEREAS, the Company and Underwriter desire to establish an escrow account with the Escrow Agent into which the Company and Underwriter shall instruct Investors introduced to the Company by Underwriter (the “Investors”) to deposit checks and other instruments for the payment of money made payable to the order of “Signature Bank as Escrow Agent for ADOMANI, Inc.,” and Escrow Agent is willing to accept said checks and other instruments for the payment of money in accordance with the terms hereinafter set forth; and

WHEREAS, the Company, as issuer, and Underwriter, as an introducing broker-dealer, represent and warrant to the Escrow Agent that they will comply with all of their respective obligations under applicable state and federal securities laws and regulations with respect to sale of the Offering; and

WHEREAS, the Company and Underwriter represent and warrant to the Escrow Agent that they have not stated to any individual or entity that the Escrow Agent’s duties will include anything other than those duties stated in this Agreement; and

WHEREAS, the Company and Underwriter warrant to the Escrow Agent that a copy of each document that has been delivered to Investors and third parties that include Escrow Agent’s name and duties, has been attached hereto as Schedule I.


NOW, THEREFORE, IT IS AGREED as follows:

1. Delivery of Escrow Funds.

(a) The Underwriter and the Company shall instruct Investors to deliver to Escrow Agent checks made payable to the order of “Signature Bank, as Escrow Agent for ADOMANI, Inc.,” or wire transfer to Signature Bank, 950 Third Ave, 9th Floor, New York, NY 10022, ABA No. 026013576 for credit to Signature Bank, as Escrow Agent for ADOMANI, Inc., Account No.                     , in each case, with the name and address of the individual or entity making payment. In the event any Investor’s address is not provided to Escrow Agent by the Investor, then Underwriter and/or the Company agree to promptly provide Escrow Agent with such information in writing. The checks or wire transfers shall be deposited into a non interest-bearing account at Signature Bank entitled “ADOMANI, Inc., Signature Bank, as Escrow Agent” (the “Escrow Account”).

(b) The collected funds deposited into the Escrow Account are referred to as the “Escrow Funds.”

(c) The Escrow Agent shall have no duty or responsibility to enforce the collection or demand payment of any funds deposited into the Escrow Account. If, for any reason, any check deposited into the Escrow Account shall be returned unpaid to the Escrow Agent, the sole duty of the Escrow Agent shall be to return the check to the Investor and advise the Company and Underwriter promptly thereof.

2. Release of Escrow Funds. The Escrow Funds shall be paid by the Escrow Agent in accordance with the following:

(a) In the event that the Company and Underwriter advise the Escrow Agent in writing that the Offering has been terminated (the “Termination Notice”), the Escrow Agent shall promptly return the funds paid by each Investor to said Investor without interest or offset.

(b) If prior to 3:00 P.M. Eastern time on the Termination Date, the Escrow Agent receives written notice, in the form of Exhibit A, attached hereto and made a part hereof, and signed by the Company and Underwriter, stating that the Termination Date has been extended to the Final Termination Date (the “Extension Notice”), then the Termination Date shall be so extended.

(c) Provided that the Escrow Agent does not receive the Termination Notice in accordance with Section 2(a) and the Minimum Amount has been deposited into the Escrow Account on or prior to later of the Termination Date or the date stated in the Extension Notice, if any, received by the Escrow Agent in accordance with Section 2(b) above, the Escrow Agent shall, upon receipt of written instructions, in the form of Exhibit B, attached hereto and made a part hereof, or in a form and substance satisfactory to the Escrow Agent, received from the Company and Underwriter, pay the Escrow Funds in accordance with such written instructions, which instructions shall be limited to the payment of the Underwriter’s fee and other offering


expenses and the payment of the balance to the Company (each, a “Closing”). Such payment or payments shall be made by wire transfer within one (1) business day of receipt of such written instructions. Such instructions must be received by the Escrow Agent no later than 3:00 PM Eastern Time on a Banking Day for the Escrow Agent to process such instructions that Banking Day. The Company and Underwriter further agree that there shall be a limit of three (3) Closings under this Agreement with each Closing limited to four (4) wires. Any additional wires or Closing may be subject to additional fees.

(d) If by 3:00 P.M. Eastern time on the later of the Termination Date or the date stated in the Extension Notice, if any, that the Escrow Agent has received in accordance with Section 2(b) above, the Escrow Agent has not received written instructions from the Company and Underwriter regarding the disbursement of the Escrow Funds or the total amount of the Escrow Funds is less than the Minimum Amount, then the Escrow Agent shall promptly return the Escrow Funds to the Investors without interest or offset. The Escrow Funds returned to each Investor shall be free and clear of any and all claims of the Escrow Agent.

(e) The Escrow Agent shall not be required to pay any uncollected funds or any funds that are not available for withdrawal.

(f) If the Termination Date, Final Termination Date or any date that is a deadline under this Agreement for giving the Escrow Agent notice or instructions or for the Escrow Agent to take action is not a Business Day, then such date shall be the Business Day that immediately preceding that date. A “Business Day” is any day other than a Saturday, Sunday or a Bank holiday.

3. Acceptance by Escrow Agent. The Escrow Agent hereby accepts and agrees to perform its obligations hereunder, provided that:

(a) The Escrow Agent may act in reliance upon any signature believed by it to be genuine, and may assume that any person who has been designated by Underwriter or the Company to give any written instructions, notice or receipt, or make any statements in connection with the provisions hereof has been duly authorized to do so. Escrow Agent shall have no duty to make inquiry as to the genuineness, accuracy or validity of any statements or instructions or any signatures on statements or instructions. The names and true signatures of each individual authorized to act singly on behalf of the Company and Underwriter are stated in Schedule II, which is attached hereto and made a part hereof. The Company and Underwriter may each remove or add one or more of its authorized signers stated on Schedule II by notifying the Escrow Agent of such change in accordance with this Agreement, which notice shall include the true signature for any new authorized signatories.

(b) The Escrow Agent may act relative hereto in reliance upon advice of counsel in reference to any matter connected herewith. The Escrow Agent shall not be liable for any mistake of fact or error of judgment or law, or for any acts or omissions of any kind, unless caused by its willful misconduct or gross negligence.

(c) Underwriter and the Company agree to indemnify and hold the Escrow Agent harmless from and against any and all claims, losses, costs, liabilities, damages, suits, demands,


judgments or expenses (including but not limited to reasonable attorney’s fees) claimed against or incurred by Escrow Agent arising out of or related, directly or indirectly, to this Escrow Agreement unless caused by the Escrow Agent’s gross negligence or willful misconduct.

(d) In the event that the Escrow Agent shall be uncertain as to its duties or rights hereunder, the Escrow Agent shall be entitled to (i) refrain from taking any action other than to keep safely the Escrow Funds until it shall be directed otherwise by a court of competent jurisdiction, or (ii) deliver the Escrow Funds to a court of competent jurisdiction.

(e) The Escrow Agent shall have no duty, responsibility or obligation to interpret or enforce the terms of any agreement other than Escrow Agent’s obligations hereunder, and the Escrow Agent shall not be required to make a request that any monies be delivered to the Escrow Account, it being agreed that the sole duties and responsibilities of the Escrow Agent shall be to the extent not prohibited by applicable law (i) to accept checks or other instruments for the payment of money and wire transfers delivered to the Escrow Agent for the Escrow Account and deposit said checks and wire transfers into the non-interest bearing Escrow Account, and (ii) to disburse or refrain from disbursing the Escrow Funds as stated above, provided that the checks received by the Escrow Agent have been collected and are available for withdrawal.

4. Escrow Account Statements and Information. The Escrow Agent agrees to send to the Company and/or the Underwriter a copy of the Escrow Account periodic statement, upon request in accordance with the Escrow Agent’s regular practices for providing account statements to its non-escrow clients and to also provide the Company and/or Underwriter, or their designee, upon request other deposit account information, including Escrow Account balances, by telephone or by computer communication, to the extent practicable. The Company and Underwriter agree to complete and sign all forms or agreements required by the Escrow Agent for that purpose. The Company and Underwriter each consent to the Escrow Agent’s release of such Escrow Account information to any of the individuals designated by Company or Underwriter, which designation has been signed in accordance with Section 3(a) by any of the persons in Schedule II. Further, the Company and Underwriter have an option to receive e-mail notification of incoming and outgoing wire transfers. If this e-mail notification service is requested and subsequently approved by the Escrow Agent, the Company and Underwriter agrees to provide a valid e-mail address and other information necessary to set-up this service and sign all forms and agreements required for such service. The Company and Underwriter each consent to the Escrow Agent’s release of wire transfer information to the designated e-mail address(es). The Escrow Agent’s liability for failure to comply with this section shall not exceed the cost of providing such information.

5. Resignation and Termination of the Escrow Agent. The Escrow Agent may resign at any time by giving thirty (30) days’ prior written notice of such resignation to Underwriter and the Company. Upon providing such notice, the Escrow Agent shall have no further obligation hereunder except to hold as depositary the Escrow Funds that it receives until the end of such thirty (30)-day period. In such event, the Escrow Agent shall not take any action, other than receiving and depositing Investors checks and wire transfers in accordance with this Agreement, until the Company has designated a banking corporation, trust company, attorney or other person as successor. Upon receipt of such written designation signed by Underwriter and the Company,


the Escrow Agent shall promptly deliver the Escrow Funds to such successor and shall thereafter have no further obligations hereunder. If such instructions are not received within thirty (30) days following the effective date of such resignation, then the Escrow Agent may deposit the Escrow Funds held by it pursuant to this Agreement with a clerk of a court of competent jurisdiction pending the appointment of a successor. In either case provided for in this Section, the Escrow Agent shall be relieved of all further obligations and released from all liability thereafter arising with respect to the Escrow Funds.

6. Termination. The Company and Underwriter may terminate the appointment of the Escrow Agent hereunder upon written notice specifying the date upon which such termination shall take effect, which date shall be at least thirty (30) days from the date of such notice. In the event of such termination, the Company and Underwriter shall, within thirty (30) days of such notice, appoint a successor escrow agent and the Escrow Agent shall, upon receipt of written instructions signed by the Company and Underwriter, turn over to such successor escrow agent all of the Escrow Funds; provided, however, that if the Company and Underwriter fail to appoint a successor escrow agent within such thirty (30)-day period, such termination notice shall be null and void and the Escrow Agent shall continue to be bound by all of the provisions hereof. Upon receipt of the Escrow Funds, the successor escrow agent shall become the escrow agent hereunder and shall be bound by all of the provisions hereof and Escrow Agent shall be relieved of all further obligations and released from all liability thereafter arising with respect to the Escrow Funds and under this Agreement.

7. Investment. All funds received by the Escrow Agent shall be held only in non-interest bearing bank accounts at Signature Bank.

8. Compensation. Escrow Agent shall be entitled, for the duties to be performed by it hereunder, to a fee of $4,000.00, which fee shall be paid by the Company upon the signing of this Agreement. In addition, the Company shall be obligated to reimburse Escrow Agent for all fees, costs and expenses incurred or that become due in connection with this Agreement or the Escrow Account, including reasonable attorney’s fees. Neither the modification, cancellation, termination or rescission of this Agreement nor the resignation or termination of the Escrow Agent shall affect the right of Escrow Agent to retain the amount of any fee which has been paid, or to be reimbursed or paid any amount which has been incurred or becomes due, prior to the effective date of any such modification, cancellation, termination, resignation or rescission. To the extent the Escrow Agent has incurred any such expenses, or any such fee becomes due, prior to any closing, the Escrow Agent shall advise the Company and the Company shall direct all such amounts to be paid directly at any such closing. The Escrow Agent shall be entitled to a fee of $1,000 in the event the Agreement is amended for any reason in accordance with Section 10(d).


9. Notices. All notices, requests, demands and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if sent by hand-delivery, by facsimile (followed by first-class mail), by nationally recognized overnight courier service or by prepaid registered or certified mail, return receipt requested, to the addresses set forth below:

If to Underwriter:

Monarch Bay Securities, LLC

898 N. Sepulveda, Suite 475

El Segundo, CA 90245

Attention: Keith Moore, CEO

Fax: (815) 301-8099 Email: keith@monarchbayassociates.com

If to the Company:

ADOMANI, Inc.

620 Newport Center Drive. Suite 1100

Newport beach CA 92660

Attention: Michael K. Menerey, Chief financial Officer

Fax: (909) 931-1354

Email: mike.m@adomanielectric.com

If to Escrow Agent:

Signature Bank

950 Third Ave, 9th Floor,

New York, NY 10022

Attention: John D. Gonzalez, Group Director & SVP

Fax: 646-822-1520

 

10. General.

(a) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be entirely performed within such State, without regard to choice of law principles and any action brought hereunder shall be brought in the courts of the State of New York, located in the County of New York. Each party hereto irrevocably waives any objection on the grounds of venue, forum nonconveniens or any similar grounds and irrevocably consents to service of process by mail or in any manner permitted by applicable law and consents to the jurisdiction of said courts. EACH OF THE PARTIES HERETO HEREBY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

(b) This Agreement sets forth the entire agreement and understanding of the parties with respect to the matters contained herein and supersedes all prior agreements, arrangements and understandings relating thereto.

(c) All of the terms and conditions of this Agreement shall be binding upon, and inure to the benefit of and be enforceable by, the parties hereto, as well as their respective successors and assigns.


(d) This Agreement may be amended, modified, superseded or canceled, and any of the terms or conditions hereof may be waived, only by a written instrument executed by each party hereto or, in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. No waiver of any party of any condition, or of the breach of any term contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term of this Agreement. No party may assign any rights, duties or obligations hereunder unless all other parties have given their prior written consent.

(e) If any provision included in this Agreement proves to be invalid or unenforceable, it shall not affect the validity of the remaining provisions.

(f) This Agreement and any modification or amendment of this Agreement may be executed in several counterparts or by separate instruments and all of such counterparts and instruments shall constitute one agreement, binding on all of the parties hereto.

11. Form of Signature. The parties hereto agree to accept a facsimile transmission copy of their respective actual signatures as evidence of their actual signatures to this Agreement and any modification or amendment of this Agreement; provided, however, that each party who produces a facsimile signature agrees, by the express terms hereof, to place, promptly after transmission of his or her signature by fax, a true and correct original copy of his or her signature in overnight mail to the address of the other party.

12. No Third-Party Beneficiaries. This Agreement is solely for the benefit of the parties and their respective successors and permitted assigns, and no other person has any right, benefit, priority, or interest under or because of the existence of this Agreement.


IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first set forth above.

 

  ADOMANI, Inc.       Monarch Bay Securities, LLC
By:  

 

    By:  

 

  Name: Michael K. Menerey       Name: Keith Moore
  Title:   Chief Financial Officer       Title:   Chief Executive Officer
SIGNATURE BANK      
By:  

 

     
  Name:      
  Title:      
By:  

 

     
  Name:      
  Title:      


  Schedule I   
 

 

  

OFFERING DOCUMENTS


Schedule II

The Escrow Agent is authorized to accept instructions signed or believed by the Escrow Agent to be signed by any one of the following on behalf of the Company and Underwriter.

ADOMANI, Inc.

 

Name Michael K. Menerey    True Signature
                                                                                          

Monarch Bay Securities, LLC

 

Name Keith Moore    True Signature
                                                                                      
                                                                                      

 


Exhibit A

EXTENSION NOTICE

Date:                     

Signature Bank

950 Third Ave, 9th Floor,

New York, NY 10022

Attention: John D. Gonzalez, Group Director & SVP

Dear                     :

In accordance with the terms of Section 2(b) of an Escrow Deposit Agreement dated                     , by and among ADOMANI, Inc (the “Company”), Monarch Bay Securities, LLC (“Underwriter”), and Signature Bank (the “Escrow Agent”), the Company and Underwriter hereby notifies the Escrow Agent that the Termination Date has been extended to              , 20    , the Final Termination Date.

 

Very truly yours,
ADOMANI, Inc
By:  

 

Name:  

 

Title:  

 

Monarch Bay Securities, LLC
By:  

 

Name:   Keith Moore
Title:   Chief Executive Officer


Exhibit B

FORM OF ESCROW RELEASE NOTICE

Date:

Signature Bank

950 Third Ave, 9th Floor,

New York, NY 10022

Attention: John D. Gonzalez, Group Director & SVP

Dear                     :

In accordance with the terms of Section 2(c) of an Escrow Deposit Agreement dated as of              , 20     (the “Escrow Agreement”), by and between ADOMANI, Inc (the “Company”), Signature Bank (the “Escrow Agent”) and Monarch Bay Securities, LLC. (“Underwriter”), the Company and Underwriter hereby notify the Escrow Agent that the                      closing will be held on                      for gross proceeds of $        .

PLEASE DISTRIBUTE FUNDS BY WIRE TRANSFER AS FOLLOWS (wire instructions attached):

 

                                                                      :

   $            

                                                                      :

   $            

                                                                      :

   $            

 

Very truly yours,
ADOMANI, Inc
By:  

 

Name:  

 

Title:  

 

Monarch Bay Securities, LLC
By:  

 

Name:   Keith Moore
Title:   Chief Executive Officer

Exhibit 11.1

 

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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the inclusion in this Offering Statement of ADOMANI, Inc. and subsidiaries (collectively, the “Company”) on Form 1-A of our report dated August 17, 2016 except for Notes 5 and 11 as to which the date is October 5, 2016, with respect to the audited consolidated balance sheets of ADOMANI, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the years then ended. Our report contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.

We also consent to the reference to us under the heading “Experts” in such Offering Statement.

/s/ MaloneBailey, LLP

www.malonebailey.com

Houston, Texas

December 20, 2016

 

 

 

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