UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2017
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from to
Commission
File Number: 000-55900
MJ
HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
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NEVADA
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20-8235905
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(State
or other jurisdiction of
incorporation or organization)
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(I.R.S.
Employer
Identification No.)
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3275
South Jones Blvd, Las Vegas, NV 89146
(Address of principal executive offices)
(702)
879-4440
(Registrant’s telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
þ
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐
No
þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
þ
No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
þ
No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
þ
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company
þ
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(Do not check if a smaller reporting company)
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Emerging
growth company ☐
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If an emerging growth company,
indicate by check mark if the registrant has elected not to use extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 7(a)(2)(B) of the securities act.
o
Indicate
by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
þ
The
aggregate market value of the voting and non-voting shares of the Company’s Common Stock held by non-affiliates based on
the last sale of the Common Stock on June 30, 2017, was $721,992.
The
number of shares outstanding of the issuer’s Common Stock as of July 20, 2018, was 63,310,522.
MJ
HOLDINGS, INC.
TABLE OF CONTENTS
Forward-Looking
Statements
In
addition to historical information, this Annual Report on Form 10-K contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are those that predict or describe
future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements
as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,”
“estimate,” “project,” “assume” or other similar expressions, although not all forward-looking statements
contain these identifying words. All statements in this report regarding our future strategy, future operations, projected financial
position, estimated future revenue, projected costs, future prospects, and results that might be obtained by pursuing management’s
current plans and objectives are forward-looking statements. You should not place undue reliance on our forward-looking statements
because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many
of which are beyond our control. Important risks that might cause our actual results to differ materially from the results contemplated
by the forward-looking statements are contained in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations” of this report and in our subsequent filings with the SEC.
Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this
report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements,
even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Over time, our
actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that
are expressed or implied by our forward-looking statements, and such difference may be significant and materially adverse to our
stockholders.
PART
I
Item
1. Business
Company
Background
MJ
Holdings, Inc., a Nevada corporation (herein after “MJ Holdings”, the “Company”, “we”, “us”,
and “our”), is a holding company whose subsidiaries provide infrastructure, consulting and construction services,
in addition to holding, and managing third party state issued cultivation and production licenses.
MJ
Holdings was originally incorporated on November 17, 2006, as Securitas EDGAR Filings, Inc. under the laws of the State of Nevada.
Prior to the formation of Securitas EDGAR Filings Inc., the business was operated as Xpedient EDGAR Filings, LLC, a Florida Limited
Liability Company, formed on October 31, 2005. On November 21, 2005, Xpedient EDGAR Filings LLC amended its Articles of Organization
to change its name to Securitas EDGAR Filings, LLC. On January, 21 2009, Securitas EDGAR Filings LLC merged into Securitas EDGAR
Filings, Inc., a Nevada corporation. On February 14, 2014, we amended and restated our Articles of Incorporation and changed our
name to MJ Holdings, Inc.
From February 2014 to January 2017, we owned and leased real estate properties zoned for legalized marijuana
operations to licensed marijuana operators.
On November 22, 2016, in connection with a plan to divest ourselves of our real estate business, we submitted
to our stockholders an offer to exchange (the “Exchange Offer”) our common stock for shares in MJ Real Estate Partners,
LLC, (“MJRE”) a newly formed LLC formed for the sole purpose of effecting the Exchange Offer. On January 10, 2017,
the Company accepted for exchange 1,800,000 shares of the Company’s common stock in exchange for 1,800,000 shares of MJRE’s
common units, representing membership interests in MJRE. Effective February 1, 2017, the Company transferred its ownership interests
in the real estate properties and its subsidiaries, through which the Company holds ownership of the real estate properties, to
MJRE. MJRE also assumed the senior notes and any and all obligations associated with the real estate properties and business, effective
February 1, 2017.
Reverse
Merger
On
December 15, 2017, we acquired all of the issued and outstanding membership interests of Red Earth LLC, a Nevada limited liability
company (“Red Earth”) established in October 2016, in exchange for 52,732,969 shares of our common stock of the Company
and a promissory note in the amount of $900,000. The acquisition was accounted for as a reverse merger, whereby Red Earth was
considered the accounting acquirer and became a wholly-owned subsidiary of the Company. Upon the consummation of the acquisition,
the now-former members of Red Earth became the beneficial owners of approximately 88% of the Company’s common stock, obtained
controlling interest of the Company, and retained key management positions of the Company. In accordance with the accounting treatment
for a “reverse merger” or a “reverse acquisition,” the Company’s historical financial statements
prior to the reverse merger will be replaced with the historical financial statements of Red Earth prior to the reverse merger
in all future filings with the U.S. Securities and Exchange Commission (the “SEC”). The consolidated financial statements
after completion of the reverse merger will include the assets, liabilities, and results of operations of the combined company
from and after the closing date of the reverse merger, with only certain aspects of pre-consummation stockholders’ equity
remaining in the consolidated financial statements.
Our
corporate headquarters is located at 3275 South Jones Blvd Las Vegas, NV 89146 and our telephone number is (702) 879-4440. Our
website address is: www.MJHoldingsinc.com. No information available on or through our websites shall be deemed to be incorporated
into this Annual Report on Form 10-K. Our common stock, par value $0.001 (the “Common Stock”), is quoted on the OTC
Markets Group, Inc.’s Pink® Open Market under the symbol “MJNE.”
Our
Business
Through
our acquisition of Red Earth and their wholly owned subsidiary, HDGLV, LLC (“HDGLV”) we expect to commence legal marijuana
cultivation activities in the third quarter of 2018 upon approval by the Nevada Department of Taxation of the transfer of a Provisional
Cultivation License to Red Earth and the required state and city approvals for our cultivation facility. It is our intention to
grow our business through the acquisition of existing companies and/or through the development of new opportunities that can provide
a 360-degree spectrum of infrastructure (dispensaries), cultivation and production management, and consulting services in the
regulated cannabis industry.
Through
Red Earth, we hold a provisional State of Nevada issued cannabis cultivation license, and through HDGLV, we hold a triple-net
leasehold, with an option to buy, on a 17,298 square-foot building, which will be home to our cultivation facility.
Marijuana
Industry Overview
Marijuana
cultivation refers to the planting, tending, improving and harvesting of the flowering plant Cannabis, primarily for the production
and consumption of cannabis flowers, often referred to as “buds”. The cultivation techniques for marijuana cultivation
differ than for other purposes such as hemp production and generally references to marijuana cultivation and production do not
include hemp.
Cannabis
belongs to the genus Cannabis in the family Cannabaceae and for the purposes of production and consumption, includes three species,
C. sativa (“Sativa”), C. indica (“Indica”), and C. ruderalis (“Ruderalis”). Sativa and Indica
generally grow tall with some varieties reaching approximately 4 meters. The females produce flowers rich in tetrahydrocannabinol
(“THC”). Ruderalis is a short plant and produces trace amounts of THC but is very rich in cannabidiol (“CBD”),
which is an antagonist (inhibits the physiological action) to THC.
As
of December 2017, there are a total of 30 states, plus the District of Columbia, with legislation passed as it relates to
medicinal cannabis. These state laws are in direct conflict with the United States Federal Controlled Substances Act (21 U.S.C.
§ 811) (“CSA”), which places controlled substances, including cannabis, in a schedule. Cannabis is classified
as a Schedule I drug, which is viewed as having a high potential for abuse, has no currently-accepted use for medical treatment
in the U.S., and lacks acceptable safety for use under medical supervision.
As
of December 2017, 30 states, and the District of Columbia, have adopted laws that exempt patients who use medicinal cannabis under
a physician’s supervision from state criminal penalties. These are collectively referred to as the states that have de-criminalized
medicinal cannabis, although there is a subtle difference between de-criminalization and legalization, and each state’s
laws are different. Additionally, 8 states and the Washington D.C. now allow for recreational use of marijuana. (California became
the 9
th
state to legalize adult recreational marijuana use in January 2018).
Decriminalization of marijuana varies by state. As of January 2018, 13 states have decriminalized the
non-medical use and possession of marijuana for personal consumption. Decriminalization generally means that violators of local
marijuana laws may be subject to civil penalty rather than face criminal prosecution. In three states, Idaho, South Dakota and
Kansas, the cultivation, possession or use of marijuana is strictly prohibited and violators may be subject to criminal prosecution.
For
example, Nevada legalized marijuana for recreational use, effective July 1, 2017, making it legal for adults over the age of 21
to use marijuana and to possess up to one ounce of marijuana flowers and one-eighth of an ounce of marijuana concentrates. Individuals
are also permitted to grow up to six marijuana plants for personal use. In addition, businesses can legally, pursuant to state
regulations, cultivate, process, dispense, distribute, and test marijuana products under certain conditions.
The
dichotomy between federal and state laws has also limited the access to banking and other financial services by marijuana businesses.
Recently the U.S. Department of Justice and the U.S. Department of Treasury issued guidance for banks considering conducting business
with marijuana dispensaries in states where those businesses are legal, pursuant to which banks must now file a Marijuana Limited
Suspicious Activity Report that states the marijuana business is following the government’s guidelines with regard to revenue
that is generated exclusively from legal sales. However, since the same guidance noted that banks could still face prosecution
if they provide financial services to marijuana businesses, it has led to the widespread refusal of the banking industry to offer
banking services to marijuana businesses operating within state and local laws.
The United States Department of Justice
(the “DOJ”) has not historically devoted resources to prosecuting individuals whose conduct is limited to possession
of small amounts of marijuana for use on private property but has relied on state and local law enforcement to address marijuana
activity. In the event the DOJ reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing
medical marijuana and recreational marijuana in small amounts, there may be a direct and adverse impact to our business and our
revenue and profits.
Furthermore, H.R. 83, known as the Rohrabacher-Blumenauer
is an amendment to the annual appropriations bill that prohibits the Department of Justice from using federal funds to prevent
certain states, including Nevada and California, from implementing their own laws that authorized the use, distribution, possession,
or cultivation of medical marijuana. This prohibition is currently in place until September 30, 2018.
We
are monitoring the Trump administration’s, the DOJ’s and Congress’ positions on federal marijuana law and policy.
Based on public statements and reports, we understand that certain aspects of those laws and policies are currently under review,
but no official changes have been announced. It is possible that certain changes to existing laws or policies could have a negative
effect on our business and results of operations.
We
currently operate medical marijuana businesses in Nevada. Although the possession, cultivation and distribution of marijuana is
permitted in Nevada, provided compliance with applicable state and local laws, rules, and regulations, marijuana is illegal under
federal law. We believe we operate our business in compliance with applicable state laws and regulations. Any changes in federal,
state or local law enforcement regarding marijuana may affect our ability to operate our business. Strict enforcement of federal
law regarding marijuana would likely result in the inability to proceed with our business plans, could expose us to potential
criminal liability and could subject our properties to civil forfeiture. Any changes in banking, insurance or other business services
may also affect our ability to operate our business.
Red
Earth / HDGLV
Red
Earth’s assets are a provisional cultivation license to grow marijuana within the City of Las Vegas in the State of Nevada
and all of the outstanding membership interests in HDGLV LLC, which holds a triple net leasehold interest in a 17,298 square-foot
building located at 2310 Western Avenue in Las Vegas, Nevada, which we will operate as an indoor marijuana cultivation and an
agritourism destination. We expect to complete construction of this facility by early Q3 2018. This facility is intended to serve
as a draw for tourists who desire to visit, see, and learn about the inner-workings of a cannabis cultivation facility.
In April 2018, the State of Nevada finalized and approved the transfer of our provisional cultivation
license to Red Earth.
In July 2018, we completed the
first phase of construction on our cultivation facility and expect to obtain final approvals towards perfecting the cultivation
license from the appropriate authorities, but we can provide no assurances on the receipt and/or timing of the final approvals.
We
may face substantial competition in the operation of cultivation facilities in Nevada. Numerous other companies have also been
granted cultivation licenses, and, therefore, we anticipate that we will face competition from these other companies. Our management
team has experience in successfully developing, implementing, and operating marijuana cultivation and related businesses in other
legal cannabis markets. We believe our experience in cultivation and facility management will provide us with a competitive advantage
over our competitors.
Revenue
From
inception (October 17, 2016) to December 31, 2017, we had not generated any revenues. Subject to the receipt of the required State
of Nevada and City of Las Vegas approvals, we expect to commence operation of our cultivation facility in Q3 2018 and realize
revenues beginning in Q4 2018. There can be no assurance that we will receive the requisite approvals or that we will generate
meaningful revenues thereafter.
Employees
As
of December 31, 2017, we had 4 full-time employees.
Item
1A. Risk Factors
You
should carefully consider the risks, uncertainties and other factors described below, in addition to the other information set
forth in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes thereto. Any of
these risks, uncertainties and other factors could materially and adversely affect our business, financial condition, results
of operations, cash flows, or prospects. In that case, the trading price of our Common Stock could decline, and you may lose all
or part of your investment. An investment in our securities is speculative and involves a high degree of risk. You should not
invest in our securities if you cannot bear the economic risk of your investment for an indefinite period of time and cannot afford
to lose your entire investment. There may be additional risks that we do not presently know of or that we currently believe are
immaterial which could also impair our business and financial position. See also “Cautionary Note Regarding Forward-Looking
Statements.”
Risks
Relating to Our Business and Industry
The report of our independent registered
public accounting firm that accompanies our audited consolidated financial statements includes a going concern explanatory paragraph
in which such firm expressed substantial doubt about our ability to continue as a going concern.
Our financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal
course of business. However, we are a development stage company with current operations established in October 2016. The Company’s
primary asset is a provisional Medical Marijuana Establishment Registration Certificate issued by the State of Nevada for the cultivation
of medical marijuana. There is no assurance on the receipt and/or timing of final approvals from the appropriate authorities. We
have not generated any revenues from inception (October 17, 2016) to December 31, 2017 and had an accumulated deficit of $362,521
as of December 31, 2017. These factors, among others, raise substantial doubt about the Company’s ability to continue as
a going concern.
We
have a limited operating history, which may make it difficult for investors to predict future performance based on current operations.
We
have a limited operating history upon which investors may base an evaluation of our potential future performance. In particular,
we have not proven that we can sell cannabis products in a manner that enables us to be profitable and meet customer requirements,
obtain the necessary permits and/or achieve certain milestones to develop our cultivation businesses, enhance our line of cannabis
products, develop and maintain relationships with customers and strategic partners, to raise sufficient capital in the public
and/or private markets, or respond effectively to competitive pressures. As a result, there can be no assurance that we will be
able to develop or maintain consistent revenue sources, or that our operations will be profitable and/or generate positive cash
flow.
Any
forecasts we make about our operations may prove to be inaccurate. We must, among other things, determine appropriate risks, rewards,
and level of investment in our product lines, respond to economic and market variables outside of our control, respond to competitive
developments and continue to attract, retain, and motivate qualified employees. There can be no assurance that we will be successful
in meeting these challenges and addressing such risks and the failure to do so could have a materially adverse effect on our business,
results of operations, and financial condition. Our prospects must be considered in light of the risks, expenses, and difficulties
frequently encountered by companies in the early stage of development. As a result of these risks, challenges, and uncertainties,
the value of your investment could be significantly reduced or completely lost.
We
will likely need additional capital to sustain our operations and will likely need to seek further financing, which we may not
be able to obtain on acceptable terms or at all. If we fail to raise additional capital, as needed, our ability to implement our
business model and strategy could be compromised.
We
have limited capital resources and operations. To date, our operations have been funded primarily from the proceeds of equity
financings. We may require additional capital in the near future to develop business operations at our proposed production facilities
in Las Vegas, Nevada, to expand our production of our future franchise production lines, to develop our intellectual property
base, and establish our targeted levels of commercial production. We may not be able to obtain additional financing on terms acceptable
to us, or at all. In particular, because marijuana is illegal under federal law, we may have difficulty attracting investors.
Even
if we obtain financing for our near-term operations, we expect that we will require additional capital thereafter. Our capital
needs will depend on numerous factors including: (i) our profitability; (ii) the release of competitive products by our competition;
(iii) the level of our investment in research and development; and (iv) the amount of our capital expenditures, including acquisitions.
We cannot assure you that we will be able to obtain capital in the future to meet our needs.
If
we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership held by our
existing stockholders will be reduced and our stockholders may experience significant dilution. In addition, new securities may
contain rights, preferences, or privileges that are senior to those of our Common Stock. If we raise additional capital by incurring
debt, this will result in increased interest expense. If we raise additional funds through the issuance of securities, market
fluctuations in the price of our shares of Common Stock could limit our ability to obtain equity financing.
We
cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable
to us. If we are unable to raise capital when needed, our business, financial condition, and results of operations would be materially
adversely affected, and we could be forced to reduce or discontinue our operations.
We
face intense competition and many of our competitors have greater resources that may enable them to compete more effectively.
The
industries in which we operate in general are subject to intense and increasing competition. Some of our competitors may have
greater capital resources, facilities, and diversity of product lines, which may enable them to compete more effectively in this
market. Our competitors may devote their resources to developing and marketing products that will directly compete with our product
lines. Due to this competition, there is no assurance that we will not encounter difficulties in obtaining revenues and market
share or in the positioning of our products. There are no assurances that competition in our respective industries will not lead
to reduced prices for our products. If we are unable to successfully compete with existing companies and new entrants to the market
this will have a negative impact on our business and financial condition.
If
we fail to protect our intellectual property, our business could be adversely affected.
Our
viability will depend, in part, on our ability to develop and maintain the proprietary aspects of our intellectual property to
distinguish our products from our competitors’ products. We rely on copyrights, trademarks, trade secrets, and confidentiality
provisions to establish and protect our intellectual property.
Any
infringement or misappropriation of our intellectual property could damage its value and limit our ability to compete. We may
have to engage in litigation to protect the rights to our intellectual property, which could result in significant litigation
costs and require a significant amount of our time. In addition, our ability to enforce and protect our intellectual property
rights may be limited in certain countries outside the United States, which could make it easier for competitors to capture market
position in such countries by utilizing technologies that are similar to those developed or licensed by us.
Competitors
may also harm our sales by designing products that mirror our products or processes without infringing on our intellectual property
rights. If we do not obtain sufficient protection for our intellectual property, or if we are unable to effectively enforce our
intellectual property rights, our competitiveness could be impaired, which would limit our growth and future revenue.
We
may also find it necessary to bring infringement or other actions against third parties to seek to protect our intellectual property
rights. Litigation of this nature, even if successful, is often expensive and time-consuming to prosecute and there can be no
assurance that we will have the financial or other resources to enforce our rights or be able to enforce our rights or prevent
other parties from developing similar products or processes or designing around our intellectual property.
Although
we believe that our products and processes do not and will not infringe upon the patents or violate the proprietary rights of
others, it is possible such infringement or violation has occurred or may occur, which could have a material adverse effect on
our business.
We
are not aware of any infringement by us of any person’s or entity’s intellectual property rights. In the event that
products we sell or processes we employ are deemed to infringe upon the patents or proprietary rights of others, we could be required
to modify our products or processes or obtain a license for the manufacture and/or sale of such products or processes or cease
selling such products or employing such processes. In such event, there can be no assurance that we would be able to do so in
a timely manner, upon acceptable terms and conditions, or at all, and the failure to do any of the foregoing could have a material
adverse effect upon our business.
There
can be no assurance that we will have the financial or other resources necessary to enforce or defend a patent infringement or
proprietary rights violation action. If our products or processes are deemed to infringe or likely to infringe upon the patents
or proprietary rights of others, we could be subject to injunctive relief and, under certain circumstances, become liable for
damages, which could also have a material adverse effect on our business and our financial condition.
Our
trade secrets may be difficult to protect.
Our
success depends upon the skills, knowledge, and experience of our scientific and technical personnel, our consultants and advisors,
as well as our licensors and contractors. Because we operate in several highly competitive industries, we rely in part on trade
secrets to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We enter into confidentiality
or non-disclosure agreements with our corporate partners, employees, consultants, outside scientific collaborators, developers,
and other advisors. These agreements generally require that the receiving party keep confidential and not disclose to third parties’
confidential information developed by the receiving party or made known to the receiving party by us during the course of the
receiving party’s relationship with us. These agreements also generally provide that inventions conceived by the receiving
party in the course of rendering services to us will be our exclusive property, and we enter into assignment agreements to perfect
our rights.
These
confidentiality, inventions, and assignment agreements may be breached and may not effectively assign intellectual property rights
to us. Our trade secrets also could be independently discovered by competitors, in which case we would not be able to prevent
the use of such trade secrets by our competitors. The enforcement of a claim alleging that a party illegally obtained and was
using our trade secrets could be difficult, expensive, and time consuming and the outcome would be unpredictable. In addition,
courts outside the United States may be less willing to protect trade secrets. The failure to obtain or maintain meaningful trade
secret protection could adversely affect our competitive position.
Our
business, financial condition, results of operations, and cash flow may in the future be negatively impacted by challenging global
economic conditions.
Future
disruptions and volatility in global financial markets and declining consumer and business confidence could lead to decreased
levels of consumer spending. These macroeconomic developments could negatively impact our business, which depends on the general
economic environment and levels of consumer spending. As a result, we may not be able to maintain our existing customers or attract
new customers, or we may be forced to reduce the price of our products. We are unable to predict the likelihood of the occurrence,
duration, or severity of such disruptions in the credit and financial markets and adverse global economic conditions. Any general
or market-specific economic downturn could have a material adverse effect on our business, financial condition, results of operations,
and cash flow.
Our
future success depends on our key executive officers and our ability to attract, retain, and motivate qualified personnel.
Our
future success largely depends upon the continued services of our executive officers and management team. If one or more of our
executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily,
if at all. Additionally, we may incur additional expenses to recruit and retain new executive officers. If any of our executive
officers joins a competitor or forms a competing company, we may lose some or all of our customers. Finally, we do not maintain
“key person” life insurance on any of our executive officers. Because of these factors, the loss of the services of
any of these key persons could adversely affect our business, financial condition, and results of operations, and thereby an investment
in our stock.
Our
continuing ability to attract and retain highly qualified personnel will also be critical to our success because we will need
to hire and retain additional personnel as our business grows. There can be no assurance that we will be able to attract or retain
highly qualified personnel. We face significant competition for skilled personnel in our industries. In particular, if the marijuana
industry continues to grow, demand for personnel may become more competitive. This competition may make it more difficult and
expensive to attract, hire, and retain qualified managers and employees. Because of these factors, we may not be able to effectively
manage or grow our business, which could adversely affect our financial condition or business. As a result, the value of your
investment could be significantly reduced or completely lost.
We
may not be able to effectively manage our growth or improve our operational, financial, and management information systems, which
would impair our results of operations.
In
the near term, we intend to expand the scope of our operations activities significantly. If we are successful in executing our
business plan, we will experience growth in our business that could place a significant strain on our business operations, finances,
management, and other resources. The factors that may place strain on our resources include, but are not limited to, the following:
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The
need for continued development of our financial and information management systems;
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The
need to manage strategic relationships and agreements with manufacturers, customers,
and partners; and
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Difficulties
in hiring and retaining skilled management, technical, and other personnel necessary
to support and manage our business
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Additionally,
our strategy envisions a period of rapid growth that may impose a significant burden on our administrative and operational resources.
Our ability to effectively manage growth will require us to substantially expand the capabilities of our administrative and operational
resources and to attract, train, manage, and retain qualified management and other personnel. There can be no assurance that we
will be successful in recruiting and retaining new employees or retaining existing employees.
We
cannot provide assurances that our management will be able to manage this growth effectively. Our failure to successfully manage
growth could result in our sales not increasing commensurately with capital investments or otherwise materially adversely affecting
our business, financial condition, or results of operations.
If
we are unable to continually innovate and increase efficiencies, our ability to attract new customers may be adversely affected.
In
the area of innovation, we must be able to develop new technologies and products that appeal to our customers. This depends, in
part, on the technological and creative skills of our personnel and on our ability to protect our intellectual property rights.
We may not be successful in the development, introduction, marketing, and sourcing of new technologies or innovations, that satisfy
customer needs, achieve market acceptance, or generate satisfactory financial returns.
We
are dependent on the popularity of consumer acceptance of our product lines.
Our
ability to generate revenue and be successful in the implementation of our business plan is dependent on consumer acceptance and
demand of our product lines. Acceptance of our products will depend on several factors, including availability, cost, ease of
use, familiarity of use, convenience, effectiveness, safety, and reliability. If customers do not accept our products, or if we
fail to meet customers’ needs and expectations adequately, our ability to continue generating revenues could be reduced.
A
drop in the retail price of medical marijuana products may negatively impact our business.
The
demand for our products depends in part on the price of commercially grown marijuana. Fluctuations in economic and market conditions
that impact the prices of commercially grown marijuana, such as increases in the supply of such marijuana and the decrease in
the price of products using commercially grown marijuana, could cause the demand for medical marijuana products to decline, which
would have a negative impact on our business.
Federal
regulation and enforcement may adversely affect the implementation of medical cannabis laws and regulations may negatively impact
our revenues and profits.
Currently,
there are 30 states plus the District of Columbia that have laws and/or regulations that recognize, in one form or another, legitimate
medical uses for cannabis and consumer use of cannabis in connection with medical treatment. Many other states are considering
similar legislation. Conversely, under the CSA, the policies and regulations of the federal government and its agencies are that
cannabis has no medical benefit and a range of activities including cultivation and the personal use of cannabis is prohibited.
Unless and until Congress amends the CSA with respect to medical marijuana, as to the timing or scope of any such potential amendments
there can be no assurance, there is a risk that federal authorities may enforce current federal law, and we may be deemed to be
producing, cultivating, or dispensing marijuana in violation of federal law. Active enforcement of the current federal regulatory
position on cannabis may thus indirectly and adversely affect our revenues and profits. The risk of strict enforcement of the
CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain. In February 2017, the
Trump administration announced that there may be “greater enforcement” of federal laws regarding marijuana. Any such
enforcement actions could have a negative effect on our business and results of operations.
On
January 4, 2018, Attorney General Jeff Sessions, rescinded guidance previously to federal law enforcement, regarding Marijuana
Enforcement to all United States Attorneys in a memorandum known as the “Cole Memo”. The memorandum provided that
the DOJ is committed to the enforcement of the CSA, but, the DOJ is also committed to using its limited investigative and prosecutorial
resources to address the most significant threats in the most effective, consistent, and rational way.
The
guidance, which has since been rescinded set forth certain enforcement priorities that are important to the federal government:
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Distribution
of marijuana to children;
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Revenue
from the sale of marijuana going to criminals;
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Diversion
of medical marijuana from states where it is legal to states where it is not;
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Using
state authorized marijuana activity as a pretext of other illegal drug activity;
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Preventing
violence in the cultivation and distribution of marijuana;
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Preventing
drugged driving;
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Growing
marijuana on federal property; and
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Preventing
possession or use of marijuana on federal property.
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The
DOJ has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts
of marijuana for use on private property but has relied on state and local law enforcement to address marijuana activity. In the
event the DOJ reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical
marijuana and recreational marijuana in small amounts, there may be a direct and adverse impact to our business and our revenue
and profits. Furthermore, H.R. 83, known as the Rohrabacher-Blumenauer is an amendment to the annual appropriations bill that
prohibits the Department of Justice from using federal funds to prevent certain states, including Nevada and California, from
implementing their own laws that authorized the use, distribution, possession, or cultivation of medical marijuana. This prohibition
is currently in place until September 30, 2018.
We
could be found to be violating laws related to medical cannabis.
Currently,
there are 30 states plus the District of Columbia that have laws and/or regulations that recognize, in one form or another, legitimate
medical uses for cannabis and consumer use of cannabis in connection with medical treatment. Many other states are considering
similar legislation. Conversely, under the CSA, the policies and regulations of the federal government and its agencies are that
cannabis has no medical benefit and a range of activities including cultivation and the personal use of cannabis is prohibited.
Unless and until Congress amends the CSA with respect to medical marijuana, as to the timing or scope of any such amendments there
can be no assurance, there is a risk that federal authorities may enforce current federal law. The risk of strict enforcement
of the CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain. Because we cultivate,
produce, sell and distribute medical marijuana, we have risk that we will be deemed to facilitate the selling or distribution
of medical marijuana in violation of federal law. Finally, we could be found in violation of the CSA in connection with the sale
of any marijuana products. This would cause a direct and adverse effect on our subsidiaries’ businesses, or intended businesses,
and on our revenue and prospective profits.
Variations
in state and local regulation, and enforcement in states that have legalized medical cannabis, may restrict marijuana-related
activities, including activities related to medical cannabis, which may negatively impact our revenues and prospective profits.
Individual
state laws do not always conform to the federal standard or to other states laws. A number of states have decriminalized marijuana
to varying degrees, other states have created exemptions specifically for medical cannabis, and several have both decriminalization
and medical laws. As of February 2018, nine states and the District of Columbia have legalized the recreational use of cannabis.
Variations exist among states that have legalized, decriminalized, or created medical marijuana exemptions. For example, certain
states have limits on the number of marijuana plants that can be homegrown. In most states, the cultivation of marijuana for personal
use continues to be prohibited except for those states that allow small-scale cultivation by the individual in possession of medical
marijuana needing care or that person’s caregiver. Active enforcement of state laws that prohibit personal cultivation of
marijuana may indirectly and adversely affect our business and our revenue and profits.
Prospective
customers may be deterred from doing business with a company with a significant nationwide online presence because of fears of
federal or state enforcement of laws prohibiting possession and sale of medical or recreational marijuana.
Our
website is visible in jurisdictions where medicinal and/or recreational use of marijuana is not permitted and, as a result, we
may be found to be violating the laws of those jurisdictions.
Marijuana
remains illegal under federal law.
Marijuana
is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has
been legalized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana preempts state
laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed
with our business plan, especially in respect of our marijuana cultivation, production and dispensaries. In addition, our assets,
including real property, cash, equipment and other goods, could be subject to asset forfeiture because marijuana is
still federally illegal.
In
February 2017, the Trump administration announced that there may be “greater enforcement” of federal laws regarding
marijuana. Any such enforcement actions could have a negative effect on our business and results of operations.
We
are not able to deduct some of our business expenses.
Section
280E of the Internal Revenue Code prohibits marijuana businesses from deducting their ordinary and necessary business expenses,
forcing us to pay higher effective federal tax rates than similar companies in other industries. The effective tax rate on a marijuana
business depends on how large its ratio of nondeductible expenses is to its total revenues. Therefore, our marijuana business
may be less profitable than it could otherwise be.
We may not be able to attract or
retain any independent directors.
Our board of directors is not currently
comprised of a majority of independent directors. We may have difficulty attracting and retaining independent directors because,
among other things, we operate in the marijuana industry.
We
may not be able to successfully execute on our merger and acquisition strategy
Our
business plan depends in part on merging with or acquiring other businesses in the marijuana industry. The success of any acquisition
will depend upon, among other things, our ability to integrate acquired personnel, operations, products and technologies into
our organization effectively, to retain and motivate key personnel of acquired businesses, and to retain their customers. Any
acquisition may result in diversion of management’s attention from other business concerns, and such acquisition may be
dilutive to our financial results and/or result in impairment charges and write-offs. We might also spend time and money investigating
and negotiating with potential acquisition or investment targets, but not complete the transaction.
Although
we expect to realize strategic, operational and financial benefits as a result of our acquisitions, we cannot predict whether
and to what extent such benefits will be achieved. There are significant challenges to integrating an acquired operation into
our business.
Any
future acquisition could involve other risks, including the assumption of unidentified liabilities for which we, as a successor
owner, may be responsible. These transactions typically involve a number of risks and present financial and other challenges,
including the existence of unknown disputes, liabilities, or contingencies and changes in the industry, location, or regulatory
or political environment in which these investments are located, that our due diligence review may not adequately uncover and
that may arise after entering into such arrangements.
Laws
and regulations affecting the medical marijuana industry are constantly changing, which could detrimentally affect our cultivation,
and production operations
Local,
state, and federal medical marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could
require us to incur substantial costs associated with compliance or alter certain aspects of our business plan. In addition, violations
of these laws, or allegations of such violations, could disrupt certain aspects of our business plan and result in a material
adverse effect on certain aspects of our planned operations. In addition, it is possible that regulations may be enacted in the
future that will be directly applicable to certain aspects of our cultivation and production businesses. We cannot predict the
nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental
regulations or administrative policies and procedures, when and if promulgated, could have on our business.
We
may not obtain the necessary permits and authorizations to operate the medical marijuana business.
We
may not be able to obtain or maintain the necessary licenses, permits, authorizations, or accreditations for our cultivation and
production businesses, or may only be able to do so at great cost. In addition, we may not be able to comply fully with the wide
variety of laws and regulations applicable to the medical marijuana industry. Failure to comply with or to obtain the necessary
licenses, permits, authorizations, or accreditations could result in restrictions on our ability to operate the medical marijuana
business, which could have a material adverse effect on our business.
If
we incur substantial liability from litigation, complaints, or enforcement actions, our financial condition could suffer.
Our
participation in the medical marijuana industry may lead to litigation, formal or informal complaints, enforcement actions, and
inquiries by various federal, state, or local governmental authorities against us. Litigation, complaints, and enforcement actions
could consume considerable amounts of financial and other corporate resources, which could have a negative impact on our sales,
revenue, profitability, and growth prospects. We have not been, and are not currently, subject to any material litigation, complaint,
or enforcement action regarding marijuana (or otherwise) brought by any federal, state, or local governmental authority. Certain
of our operating subsidiaries, may in the future engage in the distribution of marijuana; however, we have not been, and are not
currently, subject to any material litigation, complaint or enforcement action regarding marijuana (or otherwise) brought by any
federal, state, or local governmental authority with respect to the business of any our subsidiaries.
We
may have difficulty accessing the service of banks, which may make it difficult for us to operate.
Since
the use of marijuana is illegal under federal law, many banks will not accept for deposit funds from businesses involved with
the marijuana industry. Consequently, businesses involved in the marijuana industry often have difficulty finding a bank willing
to accept their business. The inability to open or maintain bank accounts may make it difficult for us to operate our medical
marijuana businesses. If any of our bank accounts are closed, we may have difficulty processing transactions in the ordinary course
of business, including paying suppliers, employees and landlords, which could have a significant negative effect on our operations.
Litigation
may adversely affect our business, financial condition, and results of operations.
From
time to time in the normal course of our business operations, we may become subject to litigation that may result in liability
material to our financial statements as a whole or may negatively affect our operating results if changes to our business operations
are required. The cost to defend such litigation may be significant and may require a diversion of our resources. There also may
be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of
whether the allegations are valid or whether we are ultimately found liable. Insurance may not be available at all or in sufficient
amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance
coverage for any claims could adversely affect our business and the results of our operations.
Our
officers and directors have substantial equity ownership in the Company and substantial control over certain corporate actions.
As
of July 20, 2018, our officers and directors owned approximately 33.3% of our outstanding Common Stock and thus exercise substantial
control over stockholder matters, such as election of directors, amendments to the Articles of Incorporation, and approval of
significant corporate transactions.
If
we fail to implement and maintain proper and effective internal controls and disclosure controls and procedures pursuant to Section
404 of the Sarbanes-Oxley Act of 2002, our ability to produce accurate and timely financial statements and public reports could
be impaired, which could adversely affect our operating results, our ability to operate our business, and investors’ views
of us.
Our
internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP rules. Our internal controls
were adversely affected by deficiencies in the design or operation of our internal controls, which management considered to be
material weaknesses. These material weaknesses include the following:
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lack
of a majority of independent members and a lack of a majority of outside directors on
our Board of Directors (“Board”), resulting in ineffective oversight in the
establishment and monitoring of required internal controls and procedures;
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inadequate
segregation of duties consistent with control objectives; and
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ineffective
controls over period end financial disclosure and reporting processes.
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The
failure to implement and maintain proper and effective internal controls and disclosure controls could result in material weaknesses
in our financial reporting, such as errors in our financial statements and in the accompanying footnote disclosures that could
require restatements. Investors may lose confidence in our reported financial information and disclosure, which could negatively
impact our stock price.
We
do not expect that our internal controls over financial reporting will prevent all errors and all fraud. A control system, no
matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because
changes in conditions or deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Our
insurance coverage may be inadequate to cover all significant risk exposures.
We
will be exposed to liabilities that are unique to the products we provide. While we intend to maintain insurance for certain risks,
the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial
costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all
operational risks and liabilities. In particular, we may have difficulty obtaining insurance because we operate in the marijuana
industry. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse
effect on our business, financial condition, and results of operations. We do not have any business interruption insurance. Any
business disruption or natural disaster could result in substantial costs and diversion of resources.
If
our products are contaminated, we may have litigation and products liability exposure.
We
source some of our products from third-party suppliers. Although we are required by Nevada law to test the products we receive
from third-party suppliers, we may not identify all contamination in those products. Possible contaminates include pesticides,
molds and fungus. If a customer suffers an injury from our products, they may sue us in addition to the supplier and we may not
have adequate insurance to cover any such claims, which could result in a negative effect on our results of operations.
Some
of our lines of business rely on our third-party service providers to host and deliver services and data, and any interruptions
or delays in these hosted services, security or privacy breaches, or failures in data collection could expose us to liability
and harm our business and reputation.
Some
of our lines of business and services rely on services hosted and controlled directly by third-party service providers. We do
not have redundancy for all of our systems, many of our critical applications reside in only one of our data centers, and our
disaster recovery planning may not account for all eventualities. If our business relationship with a third-party provider of
hosting or software services is negatively affected, or if one of our service providers were to terminate its agreement with us,
we might not be able to deliver access our data, which could subject us to reputational harm and cause us to lose customers and
future business, thereby reducing our revenue.
We
may hold large amounts of customer data, some of which will likely be hosted in third-party facilities. A security incident at
those facilities or ours may compromise the confidentiality, integrity or availability of customer data. Unauthorized access to
customer data stored on our computers or networks may be obtained through break-ins, breaches of our secure network by an unauthorized
party, employee theft or misuse or other misconduct. It is also possible that unauthorized access to customer data may be obtained
through inadequate use of security controls by customers. Accounts created with weak passwords could allow cyber-attackers to
gain access to customer data. If there were an inadvertent disclosure of customer information, or if a third party were to gain
unauthorized access to the information we possess on behalf of our customers, our operations could be disrupted, our reputation
could be damaged and we could be subject to claims or other liabilities. In addition, such perceived or actual unauthorized disclosure
of the information we collect or breach of our security could damage our reputation, result in the loss of customers and harm
our business.
Because
of the data we expect to collect and manage using our hosted solutions, it is possible that hardware or software failures or errors
in our systems (or those of our third-party service providers) could result in data loss or corruption, cause the information
that we collect to be incomplete or contain inaccuracies that our customers regard as significant or cause us to fail to meet
committed service levels. Furthermore, our ability to collect and report data may be delayed or interrupted by a number of factors,
including access to the Internet, the failure of our network or software systems or security breaches. In addition, computer viruses
or other malware may harm our systems, causing us to lose data, and the transmission of computer viruses or other malware could
expose us to litigation. We may also find, on occasion, that we cannot deliver data and reports in near real time because of a
number of factors, including failures of our network or software. If we supply inaccurate information or experience interruptions
in our ability to capture, store and supply information in near real time or at all, our reputation could be harmed and we could
lose customers, or we could be found liable for damages or incur other losses. Moreover, states in which we operate may require
that we maintain certain information about our customers and transactions. If we fail to maintain such information, we could be
in violation of state laws.
Risks
Related to an Investment in Our Securities
We
expect to experience volatility in the price of our Common Stock, which could negatively affect stockholders’ investments.
The
trading price of our Common Stock may be highly volatile and could be subject to wide fluctuations in response to various factors,
some of which are beyond our control. The stock market in general has experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of companies with securities traded in those markets. Broad
market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual
operating performance. All of these factors could adversely affect your ability to sell your shares of Common Stock or, if you
are able to sell your shares, to sell your shares at a price that you determine to be fair or favorable.
The
relative lack of public company experience of our management team could adversely impact our ability to comply with the reporting
requirements of U.S. securities laws.
Our
management team lacks public company experience, which could impair our ability to comply with legal and regulatory requirements
such as those imposed by the Sarbanes-Oxley Act of 2002. Our senior management has limited experience in managing a publicly traded
company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis.
Our senior management may not be able to implement programs and policies in an effective and timely manner that adequately respond
to such increased legal, regulatory compliance, and reporting requirements, including the establishing and maintaining of internal
controls over financial reporting. Any such deficiencies, weaknesses, or lack of compliance could have a materially adverse effect
on our ability to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended, which is necessary
to maintain our public company status. If we were to fail to fulfill those obligations, our ability to continue as a U.S. public
company would be in jeopardy, we could be subject to the imposition of fines and penalties, and our management would have to divert
resources from attending to our business plan.
Our
Common Stock is categorized as “penny stock,” which may make it more difficult for investors to sell their shares
of Common Stock due to suitability requirements.
Our
Common Stock is categorized as “penny stock.” The Securities and Exchange Commission has adopted Rule 15g-9, which
generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain exceptions. The price of our Common Stock is significantly
less than $5.00 per share and is therefore considered “penny stock.” This designation imposes additional sales practice
requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock
rules require a broker-dealer buying our securities to disclose certain information concerning the transaction, obtain a written
agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities given the increased
risks generally inherent in penny stocks. These rules may restrict the ability and/or willingness of brokers or dealers to buy
or sell our Common Stock, either directly or on behalf of their clients, may discourage potential stockholders from purchasing
our Common Stock, or may adversely affect the ability of stockholders to sell their shares.
Financial
Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to
buy and sell our Common Stock, which could depress the price of our Common Stock.
In
addition to the “penny stock” rules described above, FINRA has adopted rules that require a broker-dealer to have
reasonable grounds for believing that the investment is suitable for that customer before recommending an investment to a customer.
Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable
efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information.
Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will
not be suitable for at least some customers. Thus, the FINRA requirements make it more difficult for broker-dealers to recommend
that their customers buy our Common Stock, which may limit your ability to buy and sell our shares of Common Stock, have an adverse
effect on the market for our shares of Common Stock, and thereby depress our price per share of Common Stock.
The
elimination of monetary liability against our directors, officers, and employees under Nevada law and the existence of indemnification
rights for our obligations to our directors, officers, and employees may result in substantial expenditures by us and may discourage
lawsuits against our directors, officers, and employees.
Our
Articles of Incorporation contain a provision permitting us to eliminate the personal liability of our directors to us and our
stockholders for damages for the breach of a fiduciary duty as a director or officer to the extent provided by Nevada law. We
may also have contractual indemnification obligations under any future employment agreements with our officers or agreements entered
into with our directors. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover
the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and
the resulting costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary
duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers
even though such actions, if successful, might otherwise benefit us and our stockholders.
We
may issue additional shares of Common Stock or preferred stock in the future, which could cause significant dilution to all stockholders.
Our
Articles of Incorporation authorize the issuance of up to 95,000,000 shares of Common Stock and 5,000,000 shares of preferred
stock, with a par value of $0.001 per share. As of July 20, 2018, we had 63,310,522 shares of Common Stock, outstanding; however,
we may issue additional shares of Common Stock or preferred stock in the future in connection with a financing or an acquisition.
Such issuances may not require the approval of our stockholders. Any issuance of additional shares of our Common Stock,
or equity securities convertible into our Common Stock, including but not limited to, preferred stock, warrants, and options,
will dilute the percentage ownership interest of all stockholders, may dilute the book value per share of our Common Stock, and
may negatively impact the market price of our Common Stock.
Anti-takeover
effects of certain provisions of Nevada state law hinder a potential takeover of us.
Nevada
has a business combination law that prohibits certain business combinations between Nevada corporations and “interested
stockholders” for three years after an “interested stockholder” first becomes an “interested stockholder,”
unless the corporation’s board of directors approves the combination in advance. For purposes of Nevada law, an “interested
stockholder” is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting
power of the outstanding voting shares of the corporation or (ii) an affiliate or associate of the corporation and at any time
within the three previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of
the then outstanding shares of the corporation. The definition of the term “business combination” is sufficiently
broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to
finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.
The
effect of Nevada’s business combination law is potentially to discourage parties interested in taking control of us from
doing so if they cannot obtain the approval of our Board. Both of these provisions could limit the price investors would be willing
to pay in the future for shares of our Common Stock.
Because
we do not intend to pay any cash dividends on our Common Stock, our stockholders will not be able to receive a return on their
shares unless they sell them.
We
intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any
cash dividends on our Common Stock in the foreseeable future. Declaring and paying future dividends, if any, will be determined
by our Board, based upon earnings, financial condition, capital resources, capital requirements, restrictions in our Articles
of Incorporation, contractual restrictions, and such other factors as our Board deems relevant. Unless we pay dividends, our stockholders
will not be able to receive a return on their shares unless they sell them. There is no assurance that stockholders will be able
to sell shares when desired or for prices that they deem acceptable.
I
tem
1B. Unresolved Staff Comments
The
disclosures are not applicable to us.
I
tem
2. Properties
Our principal office is located at 3275
South Jones Boulevard, Las Vegas, Nevada, where we occupy 3,250 square-feet subject to a monthly lease payment of $5,500. The
current lease is for a term of 18 months, expires on May 31, 2019, and is renewable at our option.
We hold a triple net leasehold interest in a 17,298 square-foot building
located at 2310 Western Avenue, Las Vegas, Nevada. The lease is for an initial term of 10 years, with a 12-month rent
abatement. The commencement date of the lease is June 29, 2017. The lease includes two options to extend, each
for an additional 5 years. The lease grants Tenant an option to purchase the property on or after the 25
th
month
of the lease and continuing through the 60
th
month of the lease for the sum of $2,607,880. Currently, we have no
intention to exercise the purchase option.
Item
3. Legal Proceedings
As
of the date of this Annual Report on Form 10-K, there are no legal proceedings which are pending or have been threatened against
us or any of our officers, directors or control persons of which management is aware.
Item
4. Mine Safety Disclosures
The
disclosures are not applicable to us.
PART
II
I
tem
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market
Information
Our
shares of common stock are currently quoted on the OTC Bulletin Board under the symbol MJNE. The following table sets forth the
high and low closing bid prices of our common stock for the quarterly periods for the years ended December 31, 2017 and 2016.
These bid prices represent prices quoted by broker-dealers on the OTC Bulletin Board. The quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions, and may not represent actual transactions.
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Closing Bid Price per Share
2017
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Closing Bid Price per Share
2016
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High
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Low
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High
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Low
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First Quarter
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1.08
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0.58
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0.62
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0.62
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Second Quarter
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1.00
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0.75
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1.00
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0.65
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Third Quarter
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0.95
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0.55
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1.00
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0.635
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Fourth Quarter
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4.10
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0.63
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3.50
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0.53
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Holders
As
of July 20, 2018, there were 103 shareholders of record. However, we believe that there are more beneficial holders of our common
stock as beneficial holders may hold their stock in “street” name.
Dividends
We
did not pay any cash dividends on our common stock during 2017 or 2016 and have no intention of doing so in the foreseeable future.
We intend to retain any earnings for use in our operations and the expansion of our business. Any future determination to declare
and pay cash dividends will be made at the discretion of our board of directors, subject to applicable laws and will depend on
our financial condition, results of operations, liquidity, capital requirements, general business conditions, any contractual
restriction on the payment of dividends and other factors that our board of directors may deem relevant.
Recent Sales of Unregistered Securities
In connection with and contemporaneously
with the Reverse Merger, in December 2017, we sold an aggregate of 3,524,496 shares of our common stock at a price of $0.75 per
share for gross proceeds of $2,643,372 to 43 otherwise unaffiliated third parties. Between January 2018 and the date of this Annual
Report, we sold an additional 762,000 shares of our common stock at a price of $0.75 per share for gross proceeds of $571,500 to
13 unaffiliated third parties. The proceeds of the common stock sales will be used to develop certain business opportunities, including
but not limited to monetizing the acquired Red Earth asset.
The shares were sold and issued pursuant
to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities
Act”), and Rule 506 of Regulation D promulgated thereunder (“Regulation D”) since, among other things, the transactions
did not involve a public offering or a general solicitation and the securities were acquired for investment purposes only and not
with a view to or for sale in connection with any distribution thereof.
During March and June 2018, we offered
and sold 6,448 shares of Common Stock to two unaffiliated third parties in exchange for providing professional services to us.
The issuances were made pursuant to the exemptions for registration afforded by Section 4(a)(2) of the Securities Act and Rule
506 of Regulation D, promulgated under the Securities Act.
All of the securities referenced in this section have not been registered under the Securities Act and
may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
Securities
Authorized for Issuance Under Equity Compensation Plans
None.
Purchases of Equity Securities by the
Issuer and Affiliated Purchasers
We did not, nor did any affiliated purchaser,
make any repurchases of our securities during the fourth quarter of the year ended December 31, 2017.
Item
6. Selected Financial Data
Smaller
reporting companies are not required to provide the information required by this item.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following management’s discussion and analysis of financial condition and results of operations should be read in conjunction
with our audited consolidated financial statements and related notes thereto included elsewhere in this report.
Company
Background
MJ
Holdings, Inc. is a holding company whose subsidiaries provide infrastructure, consulting and construction services, in addition
to holding, and managing third party state issued cultivation and production licenses.
MJ Holdings, Inc. was originally incorporated
on November 17, 2006, as Securitas EDGAR Filings, Inc. under the laws of the State of Nevada. Prior to the formation of Securitas
EDGAR Filings Inc., the business was operated as Xpedient EDGAR Filings, LLC, a Florida Limited Liability Company, formed on October
31, 2005. On November 21, 2005, Xpedient EDGAR Filings LLC amended its Articles of Organization to change its name to Securitas
EDGAR Filings, LLC. On January, 21 2009, Securitas EDGAR Filings LLC merged into Securitas EDGAR Filings, Inc., a Nevada corporation.
On February 14, 2014, we amended and restated our Articles of Incorporation and changed our name to MJ Holdings, Inc.
From February 2014 to January 2017, we owned and leased real estate properties zoned for legalized marijuana
operations to licensed marijuana operators.
On
November 22, 2016, in connection with a plan to divest ourselves of our real estate business, we submitted to our shareholders
an offer to exchange (the “Exchange Offer”) our common stock for shares in MJ Real Estate Partners, LLC, (“MJRE”)
a newly formed LLC formed for the sole purpose of effecting the Exchange Offer. On January 10, 2017, the Company accepted for
exchange 1,800,000 shares of the Company’s common stock in exchange for 1,800,000 shares of MJRE’s common units, representing
membership interests in MJRE. Effective February 1, 2017, the Company transferred its ownership interests in the real estate properties
and its subsidiaries, through which the Company holds ownership of the real estate properties, to MJRE. MJRE also assumed the
senior notes and any and all obligations associated with the real estate properties and business, effective February 1, 2017.
Reverse
Merger
On
December 15, 2017, we acquired all of the issued and outstanding membership interests of Red Earth LLC, a Nevada limited liability
company (“Red Earth”) established in October 2016, in exchange for 52,732,969 shares of common stock of the Company,
par value $0.001 and a Promissory Note in the amount of $900,000. The merger was accounted for as a reverse merger, whereby Red
Earth was considered the accounting acquirer and became a wholly-owned subsidiary of the Company. As a result of the acquisition,
the members of Red Earth became the beneficial owners of approximately 88% of the Company’s common stock immediately following
the acquisition, obtained controlling interest of the Company, and retained key management positions of the Company. In accordance
with the accounting treatment for a “reverse merger” or a “reverse acquisition,” the Company’s historical
financial statements prior to the reverse merger will be replaced with the historical financial statements of Red Earth prior
to the reverse merger, in all future filings with the U.S. Securities and Exchange Commission (the “SEC”). The consolidated
financial statements after completion of the reverse merger will include the assets, liabilities and results of operations of
the combined company from and after the closing date of the reverse merger.
Our
corporate headquarters is located at 3275 South Jones Blvd., Las Vegas, NV 89146, and our telephone number is (702) 879-4440.
Our website address is: www.MJHoldingsinc.com. No information available on or through our websites shall be deemed to be incorporated
into this Form 10-K. Our common stock, par value $0.001 (the “Common Stock”), is quoted on the OTC Markets Group,
Inc.’s listing service under the symbol “MJNE.”
Our
Business
Through our acquisition of Red Earth and
their wholly owned subsidiary, HDGLV, LLC (“HDGLV”) we expect to commence legal marijuana cultivation activities in
the third quarter of 2018 upon approval by the Nevada Department of Taxation of the transfer of a Provisional Cultivation License
to Red Earth and the required state and city approvals for our cultivation facility. It is our intention to grow our business through
the acquisition of existing companies and/or through the development of new opportunities that can provide a 360-degree spectrum
of infrastructure (dispensaries), cultivation and production management, and consulting services in the regulated cannabis industry.
Through Red Earth, we hold a provisional State of Nevada issued cannabis cultivation license, and through
HDGLV, we hold a triple-net leasehold, with an option to buy, on a 17,298 square-foot building, which will be home to our cultivation
facility.
Critical
Accounting Policies, Judgments and Estimates
Our
discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation
of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates
on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
An
accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters
that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or
changes in the accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements.
We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the
preparation of the consolidated financial statements.
Revenue
Recognition
The
Company recognizes revenue from the sales of products or services rendered when the following four revenue recognition criteria
have been met: persuasive evidence of an arrangement exists; the delivery has occurred or services have been rendered; the fee
is fixed or determinable; and collectability is reasonably assured.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives
and Hedging Activities.
Applicable
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 other GAAP 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.
The
Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated
from their host instruments) as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic
value of conversion options embedded in debt instruments 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.
Operating
Leases
The
Company leases production and warehouse facilities and office space under operating leases. Operating lease agreements may contain
rent escalation clauses, rent holidays or certain landlord incentives, including tenant improvement allowances. Rent expense with
scheduled rent increases or landlord incentives are recognized on a straight-line basis over the lease term, beginning with the
effective lease commencement date, which is generally the date in which the Company takes possession of or controls the physical
use of the property.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers
it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Tax
benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained
on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial
statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred
as a component of income tax expense. The Company has not recognized any tax benefits from uncertain tax positions for any of
the reporting periods presented.
Results
of Operations for the Year Ended December 31, 2017
The
Company’s historical financial statements prior to the reverse merger were replaced with the historical financial statements
of Red Earth, the “accounting acquirer,” based on the accounting treatment for reverse merger transactions. Since
Red Earth was established in October 2016 and had no results of operations during 2016, no comparisons to prior periods are available
for the Company’s 2017 results of operations.
The
Company has not generated any revenues from inception (October 17, 2016) to December 31, 2017. During the first quarter of 2018,
we began accepting customer deposits for the sale, design, installation and/or construction of greenhouse solutions to be used
in the cultivation process in the cannabis industry. We expect to begin generating revenues from these greenhouse projects during
the fourth quarter of 2018.
Operating
Expenses
General
and administrative expenses were $270,267 for the year ended December 31, 2017. The general and administrative expenses consisted
of facility costs of $179,615, of which $104,565 was for non-cash deferred rent expense, professional fees of $53,480, conferences
and travel expense of $24,481, and other administrative costs of $12,691.
Interest
Expense
The
Company recorded $64,521 of interest expense during the year ended December 31, 2017. The interest expense was associated with
an investor’s advance of $350,000 to fund the acquisition of a Provisional Grow License in February 2017. Interest expense
for the year was comprised of a $50,000 fee due to the investor for consideration of the advance and the amortization of debt
issuance costs paid in conjunction with securing the $350,000 advance.
Liquidity
and Capital Resources
The
following table summarizes the cash flows for the year ended December 31, 2017:
|
|
|
2017
|
|
|
Cash Flows:
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(122,453
|
)
|
|
Net cash used in investing activities
|
|
|
(317,535
|
)
|
|
Net cash provided by financing activities
|
|
|
2,953,851
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
2,513,863
|
|
|
Cash at beginning of year
|
|
|
—
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
2,513,863
|
|
The
Company had cash of $2,513,863 at December 31, 2017, compared with cash of $0 at December 31, 2016. The increase in cash during
2017 was attributed to cash provided by financing activities of $2,953,851, partially offset by $317,535 of cash used in investing
activities and $122,453 of cash used in operating activities.
Operating
Activities
Net
cash used in operating activities for the year ended December 31, 2017, was $122,453, which consisted of a net loss of $334,788,
plus an increase in prepaids and other assets of $22,883; partially offset by non-cash expenses of $169,086 and an increase in
accounts payable and accrued liabilities of $66,132.
Investing
Activities
Net
cash used in investing activities during the year ended December 31, 2017, was $317,535, which consisted of the purchase of a
provisional grow license issued in the State of Nevada for $300,000 and building improvements of $17,535.
Financing
Activities
During
2017, the Company raised $2,643,372 through the sale of shares of the Company’s common stock at $0.75 per share and will
continue to raise capital in 2018 to fund the build out and development of our business operations. In addition, the Company received
gross proceeds of $350,000 from an investor advance to fund the purchase of a provisional grow license issued by the State of
Nevada, partially offset by debt issuance costs of $14,521 and the $25,000 distribution to founding member.
The
Company expects to begin generating revenues during the third quarter of 2018 but will likely incur additional net losses during
this time period. Although we can provide no assurances, we believe our cash on hand and our ability to raise additional capital
will provide sufficient liquidity and capital resources to fund our business for the next twelve months.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements.
Seasonality
We
do not consider our business to be seasonal.
Commitments
and Contingencies
We
are subject to the legal proceedings described in “Item 3. Legal Proceedings” of this report. There are no legal proceedings
which are pending or have been threatened against us or any of our officers, directors or control persons of which management
is aware.
Inflation
and Changing Prices
Neither
inflation nor changing prices for the year ended December 31, 2017 had a material impact on our operations.
Item
8. Financial Statements and Supplemental Data
The
information required by this Item 8 is incorporated by reference herein from “Item 15. Exhibits and Financial Statement Schedules”
of this report.
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the
Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer,
to allow timely decisions regarding required disclosure.
We
carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2017. Based upon that evaluation, our Chief Executive
Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December
31, 2017.
Evaluation
of Internal Controls and Procedures
We
are responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined by
Securities Exchange Act Rule 13a-15(f). Our internal controls are designed to provide reasonable assurance as to the reliability
of our financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Internal
control over financial reporting has inherent limitations and may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable, not absolute, assurance with respect to financial statement preparation
and presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may
vary over time.
A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there
is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not
be prevented or detected on a timely basis.
Under
the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, we have evaluated the
effectiveness of our internal control over financial reporting as of December 31, 2017, as required by Securities Exchange Act
Rule 13a-15(c). In making our assessment, we have utilized the criteria set forth by the 2013 Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. We concluded that based on our evaluation, our
internal control over financial reporting was not effective as of December 31, 2017.
In
connection with the preparation of our financial statements for the year ended December 31, 2017, due to resource constraints,
material weaknesses became evident to management regarding our inability to generate all the necessary disclosure for inclusion
in our filings with the Securities and Exchanges Commission due to the lack of resources and segregation of duties. We lack sufficient
personnel with the appropriate level of knowledge, experience and training in GAAP to meet the demands for a public company, including
the accounting skills and understanding necessary to fulfill the requirements of GAAP-based reporting. This weakness causes us
to not fully identify and resolve accounting and disclosure issues that could lead to a failure to perform timely internal control
and reviews. In addition, the Company has not established an audit committee, does not have any independent outside directors
on the Company’s Board of Directors, and lacks documentation of its internal control processes.
The
Company is neither an accelerated filer nor a large accelerated filer, as defined in Rule 12b-2 under the Exchange Act, and there
is not otherwise included in this Annual Report an attestation report of the Company’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not required to be attested by the Company’s
registered public accounting firm pursuant to Item 308(b) of Regulation S-K.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2017,
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. During
2018, as our business operations expand, the Company plans to hire additional employees and engage outside professionals to address
the material weaknesses identified above.
Item 9B. Other Information.
None.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
Directors
& Executive Officers
The
names of our directors and executive officers and certain information about them are set forth below:
|
Name of Director
|
|
Age
|
|
Position with Company
|
|
Director Since
|
|
|
Paris Balaouras
|
|
46
|
|
CEO and Chairman of the Board of Directors
|
|
December 15, 2017
|
|
|
John R. Wheeler
|
|
66
|
|
CFO
|
|
-
|
|
|
Andrew Boutsikakis
|
|
41
|
|
President
|
|
-
|
|
Paris Balaouras
was appointed CEO
and Chairman of the Board of Directors of MJ Holdings, Inc. on December 15, 2017. Mr. Balaouras has significant experience in the
development and operations of legal cannabis businesses, including license acquisition, facility management, cannabis cultivation
and legislative initiatives. During the past five years Mr. Balaouras has raised over $100,000,000 for the development, construction
and launch of cannabis related businesses in Arizona, California and Nevada. Mr. Balaouras was the founding and managing partner
of Acres Medical, LLC until February 2016. While with Acres Medical Paris was instrumental in raising investment capital for the
acquisition of five Nevada Medical and Recreational Marijuana Establishment Certificates, the development and opening of a 20,000
sq. ft dispensary in Las Vegas, and the opening of a 37-acre cultivation facility in the Amargosa Valley, creating the largest
cultivation site in the State of Nevada. In 2016, while serving as the Principal Officer at Natural Remedy Patient Center, Paris
obtained an Arizona dispensary, cultivation and production license. Mr. Balaouras is a member of the NDA (Nevada Dispensary Association),
ASA (Americans for Safe Access) and NORML (the National Organization for the Reform of Marijuana Laws).
John
R. Wheeler, Jr.
has over 40 years of experience in accounting and 10 years with companies in the cannabis industry. Mr. Wheeler
graduated from the University of Arizona with a Bachelors in Accounting and received his CPA license in 1979. Starting his career,
Mr. Wheeler worked for the IRS for 6 years and later worked for multiple CPA companies in California for 10 years. For the last
27 years, Mr. Wheeler ran his own CPA companies: Rocky Wheeler CPA and Wheeler & Associates CPA’s.
Andrew
Boutsikakis
has over 15 years of sales experience in financial services, communications and business development. In 2014
Mr. Boutsikakis formed AB Consulting Group to focus his efforts in the emerging medical marijuana industry in Nevada and Arizona.
AB Consulting provided corporate consulting services primarily in sales, licensing and mergers & acquisition to the legal
cannabis industry. Previously, Andrew was the sales director at Markets Media and director of business development at Cohere Communication.
In March of 2017, Mr. Boutsikakis became a consultant for Red Earth, LLC and joined MJ Holdings, Inc as their President in December
2017.
Significant Employees
We do not currently have any significant
employees other than our executive officers.
Family
Relationships
There
are no familial relationships by and between Mr. Balaouras and any director, executive officer, or person nominated or chosen
by the Company to become a director or executive officer.
Board
Committees
Our board does not have a standing audit
committee, a compensation committee, a nominating and governance committee
, or committees
performing similar functions, and, therefore, the entire board of directors performs such functions. The Company’s common
stock is not currently listed on any national exchange and we are not required to maintain such committees by any self-regulatory
agency. Management does not believe it is necessary for the board of directors to appoint such committees because the volume of
matters that currently and historically has come before the board of directors for consideration permits each director to give
sufficient time and attention to such matters to be involved in all decision making.
The
Company does not currently have an audit committee financial expert. Management does not believe it is necessary to for the board
of directors to designate an audit committee financial expert at this time due to our limited operating history and the limited
volume of matters that come before the board of directors requiring such an expert.
Director
Compensation
Our
board does not have any non-employee directors and no additional compensation is paid to any of our employee directors for serving
as a director.
Section
16(a) Beneficial Ownership Reporting Compliance
We
are a voluntary filer and Section 16(a) of the Securities Exchange Act of 1934, as amended, is not applicable to us.
Code
of Ethics
The
Company has adopted a code of ethics within the meaning of Item 406 of Regulation S-K promulgated under the Securities Act of
1933, as amended, titled, “Business Conduct: “Code of Conduct and Policy,” that applies to all of the Company's
employees, including its principal executive officer, principal financial officer and principal accounting officer, and the Board.
The Company intends to disclose any changes in or waivers from its code of ethics by posting such information on its website or
by filing a Current Report on Form 8-K.
Item
11. Executive Compensation
Summary
Compensation Table
The
following table provides certain summary information concerning the compensation earned for services rendered to the Company for
the fiscal years ended December 31, 2017 and 2016, by our Chief Executive Officer and our two other most highly compensated executive
officers (the “named executive officers”) who served in such capacities at the end of the fiscal year ended December
31, 2017. Except as provided below, none of our named executive officers received any other compensation required to be disclosed
by law in excess of $10,000 annually.
|
Name and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock Awards ($)
|
|
|
Option Awards ($)
|
|
|
Non-Equity Incentive Plan Compensation ($)
|
|
|
Change in Pensions Value and Nonqualified Deferred Compensation Earnings
($)
|
|
|
All Other Compensation ($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paris Balaouras
|
|
2017
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Chief Executive Officer
|
|
2016
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John R. Wheeler
|
|
2017
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Chief Financial Officer
|
|
2016
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Boutsikakis
|
|
2017
|
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,000
|
|
|
President
|
|
2016
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shawn Chemtov
|
|
2017
|
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
150,000
|
|
|
Former co-Chief Executive Officer
|
|
2016
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adam Laufer
|
|
2017
|
|
|
$
|
74,120
|
|
|
$
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
149,120
|
|
|
Former co-Chief Executive Officer
|
|
2016
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table provides information with respect to outstanding stock option awards for shares of our common stock classified
as exercisable and unexercisable as of December 31, 2017, for the named executive officers.
|
|
|
|
Option Awards
|
|
|
|
Stock Awards
|
|
|
|
Name
|
|
|
Number
of Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
|
|
Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
|
Option
Exercise
Price
($)
|
|
|
|
Option
Expiration
Date
|
|
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
|
|
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)
|
|
|
|
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested (#)
|
|
|
|
Equity
Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares,
Units
or Other
Rights
That Have
Not Vested ($)
|
|
|
(a)
|
|
|
(b)
|
|
|
|
(c)
|
|
|
|
(d)
|
|
|
|
(e)
|
|
|
|
(f)
|
|
|
|
(g)
|
|
|
|
(h)
|
|
|
|
(i)
|
|
|
|
(j)
|
|
|
Paris Balaouras
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
John R. Wheeler
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Andrew Boutsikakis
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Shawn Chemtov
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Adam Laufer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Item
12. Security Ownership of Certain Beneficial Owners and Management
The
following table sets forth information regarding the beneficial ownership of our common stock as of July 20, 2018:
|
|
●
|
each
person whom we know beneficially owns more than 5% of our common stock;
|
|
|
|
|
|
|
●
|
each
of our named executive officers and directors; and
|
|
|
|
|
|
|
●
|
all
of our executive officers and directors as a group.
|
Except as otherwise indicated, each person
and each group shown in the table has sole voting and investment power with respect to the shares of common stock indicated. For
purposes of the table below, in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, a person is deemed
to be the beneficial owner, of any shares of our common stock over which he or she has or shares, directly or indirectly, voting
or investment power or of which he or she has the right to acquire beneficial ownership at any time within 60 days. As used in
this Annual Report, “voting power” is the power to vote or direct the voting of shares and “investment power”
includes the power to dispose or direct the disposition of shares. Common stock beneficially owned and percentage ownership was
based on 63,310,522 shares outstanding on July 20, 2018.
|
Name of Beneficial Owner/Management and Address
|
|
Number of Shares of Common Stock Beneficially Owned
|
|
|
Percent of Total Shares of Common Stock Beneficially Owned
|
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paris Balaouras (1) (3)
|
|
|
20,319,500
|
|
|
|
32.1
|
%
|
|
Chief Executive Officer and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John R. Wheeler (2) (3)
|
|
|
700,000
|
|
|
|
1.1
|
%
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Boutsikakis (3)
|
|
|
150,000
|
|
|
|
0.2
|
%
|
|
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (3 persons)
|
|
|
21,169,500
|
|
|
|
33.4
|
%
|
|
Five Percent Beneficial Owner:
|
|
|
|
|
|
|
|
|
|
Red Dot Development LLC (4)
|
|
|
25,056,484
|
|
|
|
39.6
|
%
|
|
(1)
|
Mr.
Balaouras beneficially owns 20,319,500 shares of our common stock, held by Roll On LLC, a limited liability company in which Mr.
Balaouras is a member and manager.
|
|
|
|
|
(2)
|
Mr.
Wheeler acquired his shares in our recent private placement at $0.75 per share, for an aggregate cost of $500,000.
|
|
|
(3)
|
The business address is 3275 South Jones Boulevard, Suite
104, Las Vegas, NV 89146.
|
|
|
(4)
|
The business address is 400 South 4
th
Street,
Suite 500, Las Vegas, NV 89101. The managing member of Red Dot Development LLC is Ron Sassano.
|
Item
13. Certain Relationships and Related Transactions, and Director Independence.
Transactions with Related Persons
The
following is a description of transactions since October 17, 2016, to which we have been a party in which:
|
|
●
|
the amounts involved exceeded or will
exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years;
and
|
|
|
|
|
|
|
●
|
our
directors and executive officers or holders of more than 5% of our common stock, or any
member of the immediate family of the foregoing persons or entities affiliated with them,
had or will have a direct or indirect material interest.
|
On December 15, 2017, as part of the Reverse
Merger transaction, the Company issued a convertible note payable in the amount of $900,000 to the now-former members of Red Earth.
At the time of the transaction, Paris Balaouras, the Company’s Chief Executive Officer, was a 50% partner and managing member
of Red Earth.
In
December 2017, upon completion of the Reverse Merger, the Company’s $400,000 debt obligation was assumed by Paris Balaouras,
the Chief Executive Officer of the Company.
Board
Composition and Director Independence
Our
business and affairs are managed under the direction of the board of directors. Our board of directors is currently comprised
of one member, Mr. Paris Balaouras. Because of his relationship to the Company, Mr. Balaouras is not “independent” under
the rules of any national securities exchange or Rule 10A-3 under the Securities Exchange Act of 1934, as amended.
Item
14. Principal Accountant Fees and Services.
Paritz
& Company, P.A. (“Paritz”) has served as the Company’s independent registered public accounting firm for the
years ended December 31, 2017 and 2016. In accordance with the requirements of the Sarbanes-Oxley Act of 2002, all audit and audit-related
services and all non-audit services performed by our current independent public accounting firm are approved in advance by our
Board of Directors, including the proposed fees for any such service, in order to assure that the provision of any such service
does not impair the accounting firm’s independence. The Board of Directors is informed of each service actually rendered.
Independent
Auditor Fees
The
following table sets forth fees billed, or expected to be billed, to the Company by the Company’s independent auditors for
the years ended December 31, 2017 and 2016, for (i) services rendered for the audit of the Company’s annual financial statements
and the review of the Company’s quarterly financial statements; (ii) services rendered that are reasonably related to the
performance of the audit or review of the Company’s financial statements that are not reported as Audit Fees; (iii) services
rendered in connection with tax preparation, compliance, advice and assistance; and (iv) all other services:
|
|
|
Paritz & Company, P.A.
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Audit fees
|
|
$
|
28,200
|
|
|
$
|
15,475
|
|
|
Audit related fees
|
|
|
-
|
|
|
|
500
|
|
|
Tax fees
|
|
|
-
|
|
|
|
-
|
|
|
Other fees
|
|
|
-
|
|
|
|
-
|
|
|
Total Fees
|
|
$
|
28,200
|
|
|
$
|
15,975
|
|
PART
IV
Item
15. Exhibits, Financial Statement Schedules
(a)
List of Documents filed as part of this report:
(1)
Financial Statements
|
|
●
|
Report
of Paritz & Co., Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
●
|
Consolidated
Balance Sheets as of December 31, 2017 and 2016
|
|
|
|
|
|
|
●
|
Consolidated
Statements of Operations for the year ended December 31, 2017 and from inception (October
17, 2016) to December 31, 2016
|
|
|
|
|
|
|
●
|
Consolidated
Statements of Changes in Stockholders’ Equity for the year ended December 31, 2017 and
from inception (October 17, 2016) to December 31, 2016
|
|
|
|
|
|
|
●
|
Consolidated
Statements of Cash Flows for the year ended December 31, 2017 and from inception (October
17, 2016) to December 31, 2016
|
|
|
|
|
|
|
●
|
Notes
to Consolidated Financial Statements
|
(2)
Financial Statement Schedules
Schedules
are omitted because they are not applicable, or because the required information is included in the financial statements or notes
thereto.
(b)
Exhibits.
The
following exhibits are filed herewith or incorporated herein by reference.
|
*
|
Filed
herewith.
|
|
|
|
|
(1)
|
Incorporated
by reference to the Registrant’s Periodic Report on Form 8-K as filed with the SEC on February 28, 2014.
|
|
|
|
|
(2)
|
Incorporated
by reference to Registration Statement on Form S-1, filed with the Securities and Exchange Commission, Registration Statement
File No. 333-167824, on June 28, 2010.
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Stockholders and Board of Directors of
MJ
Holdings, Inc.
Las
Vegas, NV
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of MJ Holdings, Inc. (the “Company”) as of December 31,
2017 and 2016, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for
the year ended December 31, 2017 and for the period from inception (October 17, 2016) to December 31, 2016, and the related notes
(collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations
and its cash flows for the year ended December 31, 2017 and for the period from inception (October 17, 2016) to December 31, 2016,
in conformity with accounting principles generally accepted in the United States of America.
Going
Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in
Note 4 to the financial statements, the Company’s primary asset is a provisional Medical Marijuana Establishment Registration
Certificate issued by the State of Nevada for the cultivation of medical marijuana. There is no assurance on the receipt and/or
timing of final approvals from the appropriate authorities. The Company has not generated any revenues from inception (October
17, 2016) to December 31, 2017 and has an accumulated deficit of $362,521. These factors, among others, raise substantial doubt
about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are described
in Note 4. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/
Paritz& Company, P.A.
We
have served as the Company’s auditor since 2011.
Hackensack,
NJ
July
26, 2018
MJ
Holdings, Inc.
Consolidated
Balance Sheets
As
of December 31, 2017 and 2016
|
|
|
2017
|
|
|
2016
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,513,863
|
|
|
$
|
—
|
|
|
Prepaid assets
|
|
|
5,500
|
|
|
|
—
|
|
|
Total current assets
|
|
|
2,519,363
|
|
|
|
—
|
|
|
Deposits
|
|
|
42,383
|
|
|
|
25,000
|
|
|
Intangible assets, net of accumulated amortization of $0
|
|
|
300,000
|
|
|
|
—
|
|
|
Property and equipment, net of accumulated depreciation of $0
|
|
|
17,535
|
|
|
|
—
|
|
|
Noncurrent assets held for disposition
|
|
|
584
|
|
|
|
—
|
|
|
Total Assets
|
|
$
|
2,879,865
|
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
70,382
|
|
|
$
|
—
|
|
|
Convertible note payable due to related party
|
|
|
900,000
|
|
|
|
—
|
|
|
Total current liabilities
|
|
|
970,382
|
|
|
|
—
|
|
|
Deferred rent
|
|
|
104,565
|
|
|
|
—
|
|
|
Total Liabilities
|
|
|
1,074,947
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.001, 5,000,000 shares authorized; 0 shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, par value $0.001, 95,000,000 shares authorized; 62,675,407 and 52,732,969 shares issued and outstanding as of December 31, 2017 and 2016, respectively
|
|
|
62,675
|
|
|
|
52,733
|
|
|
Additional paid-in capital
|
|
|
1,704,764
|
|
|
|
—
|
|
|
Common stock to be issued of 533,333 shares
|
|
|
400,000
|
|
|
|
—
|
|
|
Accumulated deficit
|
|
|
(362,521
|
)
|
|
|
(27,733
|
)
|
|
Total Stockholders’ Equity
|
|
|
1,804,918
|
|
|
|
25,000
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
2,879,865
|
|
|
$
|
25,000
|
|
See
accompanying notes to financial statements
MJ
Holdings, Inc.
Consolidated
Statements of Operations
|
|
|
For the Year Ended December 31,
2017
|
|
|
From Inception (October 17, 2016) to December 31,
2016
|
|
|
Net revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
270,267
|
|
|
|
—
|
|
|
Total operating expenses
|
|
|
270,267
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(270,267
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(64,521
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(334,788
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(334,788
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share:
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
53,149,168
|
|
|
|
52,732,969
|
|
|
Net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
See
accompanying notes to financial statements
MJ
Holdings, Inc.
Consolidated
Statements of Changes in Stockholders’ Equity
For
the year ended December 31, 2017 and from Inception (October 17, 2016) to December 31, 2016
|
|
|
|
Preferred
Stock
|
|
|
|
Common
Stock
|
|
|
|
Common
Stock to be
|
|
|
|
Additional
Paid-in
|
|
|
|
Accumulated
|
|
|
|
Total
Stockholders’
|
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Issued
|
|
|
|
Capital
|
|
|
|
Deficit
|
|
|
|
Equity
|
|
|
Balance
at Inception (October 17, 2016)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued to founder
|
|
|
—
|
|
|
|
—
|
|
|
|
52,732,969
|
|
|
|
52,733
|
|
|
|
—
|
|
|
|
(25,000
|
)
|
|
|
(27,733
|
)
|
|
|
—
|
|
|
Capital
contribution
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,000
|
|
|
|
—
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2016
|
|
|
—
|
|
|
|
—
|
|
|
|
52,732,969
|
|
|
|
52,733
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(27,733
|
)
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(25,000
|
)
|
|
|
—
|
|
|
|
(25,000
|
)
|
|
Effect
of reverse merger
|
|
|
—
|
|
|
|
—
|
|
|
|
6,951,275
|
|
|
|
6,951
|
|
|
|
—
|
|
|
|
(510,617
|
)
|
|
|
—
|
|
|
|
(503,666
|
)
|
|
Issuance
of common stock in private placement
|
|
|
—
|
|
|
|
—
|
|
|
|
2,991,163
|
|
|
|
2,991
|
|
|
|
—
|
|
|
|
2,240,381
|
|
|
|
—
|
|
|
|
2,243,372
|
|
|
Common
stock subscribed, but not issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
400,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
400,000
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(334,788
|
)
|
|
|
(334,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
|
|
—
|
|
|
$
|
—
|
|
|
|
62,675,407
|
|
|
$
|
62,675
|
|
|
$
|
400,000
|
|
|
$
|
1,704,764
|
|
|
$
|
(362,521
|
)
|
|
$
|
1,804,918
|
|
See
accompanying notes to financial statements
MJ
Holdings, Inc.
Consolidated
Statements of Cash Flows
|
|
|
For the year ended December 31,
2017
|
|
|
From Inception (October 17, 2016) to December 31,
2016
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(334,788
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs
|
|
|
14,521
|
|
|
|
—
|
|
|
Amortization of deferred rent expense
|
|
|
104,565
|
|
|
|
—
|
|
|
Non-cash interest expense
|
|
|
50,000
|
|
|
|
—
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaid assets
|
|
|
(5,500
|
)
|
|
|
—
|
|
|
Deposits
|
|
|
(17,383
|
)
|
|
|
(25,000
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
66,132
|
|
|
|
—
|
|
|
Net Cash Used in Operating Activities
|
|
|
(122,453
|
)
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of provisional grow license
|
|
|
(300,000
|
)
|
|
|
—
|
|
|
Purchase of property, equipment, and building improvements
|
|
|
(17,535
|
)
|
|
|
—
|
|
|
Net Cash Used in Investing Activities
|
|
|
(317,535
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
|
Capital contribution
|
|
|
—
|
|
|
|
25,000
|
|
|
Distribution
|
|
|
(25,000
|
)
|
|
|
—
|
|
|
Proceeds from issuance of common stock
|
|
|
2,243,372
|
|
|
|
—
|
|
|
Proceeds from common stock to be issued
|
|
|
400,000
|
|
|
|
—
|
|
|
Proceeds from issuance of note payable
|
|
|
350,000
|
|
|
|
—
|
|
|
Payment of debt issuance costs
|
|
|
(14,521
|
)
|
|
|
—
|
|
|
Net Cash Provided by Financing Activities
|
|
|
2,953,851
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
2,513,863
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of year
|
|
|
—
|
|
|
|
—
|
|
|
Cash at end of year
|
|
$
|
2,513,863
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Net liabilities incurred in connection with reverse merger
|
|
$
|
(503,666
|
)
|
|
$
|
—
|
|
See
accompanying notes to financial statements
MJ
Holdings, Inc.
Notes
to the Consolidated Financial Statements
December
31, 2017
Note
1 — Description of Business
MJ
Holdings, Inc. is a holding company whose subsidiaries provide infrastructure, consulting and construction services, in addition
to holding, and managing third party state issued cultivation and production licenses.
MJ
Holdings, Inc. was originally incorporated on November 17, 2006, as Securitas EDGAR Filings, Inc. under the laws of the State
of Nevada. Prior to the formation of Securitas EDGAR Filings Inc., the business was operated as Xpedient EDGAR Filings, LLC, a
Florida Limited Liability Company, formed on October 31, 2005. On November 21, 2005, Xpedient EDGAR Filings LLC amended its Articles
of Organization to change its name to Securitas EDGAR Filings, LLC. On January, 21 2009, Securitas EDGAR Filings LLC merged into
Securitas EDGAR Filings, Inc., a Nevada corporation. On February 14, 2014, we amended and restated our Articles of Incorporation
and changed our name to MJ Holdings, Inc.
On
November 22, 2016, in connection with a plan to divest ourselves of our real estate business, we submitted to our shareholders
an offer to exchange (the “Exchange Offer”) our common stock for shares in MJ Real Estate Partners, LLC, (“MJRE”)
a newly formed LLC formed for the sole purpose of effecting the Exchange Offer. On January 10, 2017, the Company accepted for
exchange 1,800,000 shares of the Company’s common stock in exchange for 1,800,000 shares of MJRE’s common units, representing
membership interests in MJRE. Effective February 1, 2017, the Company transferred its ownership interests in the real estate properties
and its subsidiaries, through which the Company held ownership of the real estate properties, to MJRE. MJRE also assumed the senior
notes and any and all obligations associated with the real estate properties and business, effective February 1, 2017.
Reverse
Merger
On
December 15, 2017, we acquired all of the issued and outstanding membership interests of Red Earth LLC, a Nevada limited liability
company (“Red Earth”) established in October 2016, in exchange for 52,732,969 shares of common stock of the Company,
par value $0.001 and a Promissory Note in the amount of $900,000. The merger was accounted for as a reverse merger, whereby Red
Earth was considered the accounting acquirer and became a wholly-owned subsidiary of the Company. As a result of the acquisition,
the members of Red Earth became the beneficial owners of approximately 88% of the Company’s common stock immediately following
the acquisition, obtained controlling interest of the Company, and retained key management positions of the Company. In accordance
with the accounting treatment for a “reverse merger” or a “reverse acquisition,” the Company’s historical
financial statements prior to the reverse merger will be replaced with the historical financial statements of Red Earth prior
to the reverse merger, in all future filings with the U.S. Securities and Exchange Commission (the “SEC”). The consolidated
financial statements after completion of the reverse merger will include the assets, liabilities and results of operations of
the combined company from and after the closing date of the reverse merger.
Note
2 — Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Red Earth, LLC, HDGLV,
LLC, Icon Management, LLC, and Prescott Management, LLC. Intercompany balances and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Significant estimates and assumptions are required in
the determination of the fair value of financial instruments and the valuation of long-lived and indefinite-lived assets. Some
of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates.
Fair
Value of Financial Instruments
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. This topic also establishes a fair value hierarchy that requires classification based on observable and
unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data
(observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
|
|
●
|
Level
one - Quoted market prices in active markets for identical assets or liabilities;
|
|
|
|
|
|
|
●
|
Level
two - Inputs other than level one inputs that are either directly or indirectly observable;
and
|
|
|
|
|
|
|
●
|
Level
three - Unobservable inputs developed using estimates and assumptions, which are developed
by the reporting entity and reflect those assumptions that a market participant would
use.
|
Determining
which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy
disclosures each quarter.
Financial
instruments include cash, payables, and debt obligations. Except as described below, due to the short-term nature of the financial
instruments, there are no financial instruments measured at fair value on a recovery basis.
Warrants
to Purchase Common Stock and Other Derivative Financial Instruments
We
classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement
or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our
own stock. We classify as assets or liabilities any contracts that require net-cash settlement (including a requirement to net
cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share settlement). We assess the classification of warrants issued
to purchase our common stock and any other financial instrument at each reporting date to determine whether a change in classification
between assets and liabilities is required.
Cash
Cash
includes cash on hand and deposits placed with banks or other financial institutions, which are unrestricted as to withdrawal
and use and with an original maturity of three months or less. The Company maintains its cash in bank deposit accounts.
The
Company has cash in financial institutions in excess of Federally insured limits. However, the Company has not experienced any
losses in such accounts and believes it is not exposed to any significant credit risk on its cash balances. Cash exceeding federally
insured limits amounted to $2,263,863 as of December 31, 2017.
Debt
Issuance Costs
Costs
associated with obtaining, closing, and modifying loans and/or debt instruments such as, but not limited to placement agent fees,
attorney fees and state documentary fees are capitalized, netted against the carrying amount of the debt instrument, and charged
to interest expense over the term of the loan.
Long
–lived Assets
Long-lived
assets, including real estate property and intangible assets, are reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their
carrying amounts to future undiscounted cash flows the assets are expected to generate. If the assets are considered to be impaired,
the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair value. We did not
record any impairments of long-lived assets during the year ended December 31, 2017, and from inception (October 17, 2016) to
December 31, 2016.
Revenue
Recognition
The
Company recognizes revenue from the sales of products or services rendered when the following four revenue recognition criteria
have been met: persuasive evidence of an arrangement exists; the delivery has occurred or services have been rendered; the fee
is fixed or determinable; and collectability is reasonably assured.
The
Company has not generated any revenues for the year ended December 31, 2017, and from inception (October 17, 2016) to December
31, 2016.
Stock-Based
Compensation
The
Company estimates the fair values of share-based payments on the date of grant using a Black-Scholes option pricing model, which
requires assumptions for the expected volatility of the share price of our common stock, the expected dividend yield, and a risk-free
interest rate over the expected term of the stock-based financial instrument.
Since
the number of outstanding and free-trading shares of the Company’s common stock is limited and the trading volume is relatively
low, we do not have sufficient company specific information regarding the volatility of our share price on which to base an estimate
of expected volatility. As a result, we use the average historical volatilities of similar entities within our industry as the
expected volatility of our share price.
The
expected dividend yield is 0% as the Company has not paid any dividends on its common stock and does not anticipate it will pay
any dividends in the foreseeable future.
The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant date with a remaining term
equal to the expected term of the stock-based award.
For
stock-based financial instruments issued to parties other than employees, we use the contractual term of the financial instruments
as the expected term of the stock-based financial instruments.
The
assumptions used in calculating the fair value of stock-based financial instruments represent our best estimates, but these estimates
involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different
assumptions, our stock-based compensation expense could be materially different in the future.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives
and Hedging Activities.
Applicable
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 other GAAP 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.
The
Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated
from their host instruments) as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic
value of conversion options embedded in debt instruments 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.
Operating
Leases
The
Company leases production and warehouse facilities and office space under operating leases. Operating lease agreements may contain
rent escalation clauses, rent holidays or certain landlord incentives, including tenant improvement allowances. Rent expense with
scheduled rent increases or landlord incentives are recognized on a straight-line basis over the lease term, beginning with the
effective lease commencement date, which is generally the date in which the Company takes possession of or controls the physical
use of the property.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers
it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Tax
benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained
on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial
statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred
as a component of income tax expense. The Company has not recognized any tax benefits from uncertain tax positions for any of
the reporting periods presented.
Recent
Accounting Pronouncements
In
December 2017, the Securities and Exchange Commission (“SEC”) released accounting guidance for the accounting for
income taxes for the reporting period that includes the enactment of the Tax Act. The Bulletin provides guidance in those situations
where the accounting for certain income tax effects of the Tax Act will be incomplete by the time financial statements are issued
for the reporting period that includes the enactment date. For those elements of the Tax Act that cannot be reasonably estimated,
no effect will be recorded. The SEC has provided in the Bulletin that in situations where the accounting is incomplete for certain
effects of the Tax Act, a measurement period which begins in the reporting period that includes the enactment of the Tax Act and
ends when the entity has obtained, prepared and analyzed the information is needed in order to complete the accounting requirements.
The measurement period shall not exceed one year from enactment.
In
February 2016, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard update related
to accounting for leases. The guidance introduces a lessee model that requires most leases to be reported on the balance sheet.
The accounting standard update aligns many of the underlying principles of the new lessor model with those in the FASB’s
new revenue recognition standard. The guidance also eliminates the requirement in current U.S. GAAP for an entity to use bright-line
tests in determining lease classification. This accounting standard update will be effective for the Company beginning in the
first quarter of fiscal 2020, with early adoption in fiscal 2019 permitted. The Company is currently evaluating the impact of
this accounting standard update on its consolidated financial statements.
In
May 2014, FASB issued guidance to clarify the principles for recognizing revenue. The core principle of the guidance is that an
entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a comprehensive
framework for revenue recognition that supersedes current general revenue guidance and most industry-specific guidance. In addition,
the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing,
and uncertainty of revenue that is recognized. An entity should apply the guidance either retrospectively to each prior reporting
period presented or retrospectively with the cumulative adjustment at the date of the initial application. In July 2015, the FASB
delayed the effective date of the new guidance to annual reporting periods beginning after December 15, 2017, including interim
periods within that reporting period. Early adoption is now permitted after the original effective date of December 15, 2016.
The Company is still evaluating the impact of adopting the new accounting guidance but does not expect the adoption to have a
material impact on its consolidated financial statements.
Note
3 — Reverse Merger
On
December 15, 2017, the Company acquired all of the issued and outstanding membership interests of Red Earth LLC, a Nevada limited
liability company (“Red Earth”) established in October 2016, in exchange for 52,732,969 shares of common stock of
the Company, par value $0.001 and a Promissory Note in the amount of $900,000. The merger was accounted for as a reverse merger,
whereby Red Earth was considered the accounting acquirer and became a wholly-owned subsidiary of the Company. As a result of the
acquisition, the members of Red Earth became the beneficial owners of approximately 88% of the Company’s common stock immediately
following the acquisition, obtained controlling interest of the Company, and retained key management positions of the Company.
In accordance with the accounting treatment for a “reverse merger,” Red Earth was treated as the “acquiring company”
and MJ Holdings was treated as the “acquired company.” The Company’s historical financial statements prior to
the reverse merger were replaced with the historical financial statements of Red Earth prior to the reverse merger in all future
filings with the U.S. Securities and Exchange Commission (the “SEC”). The consolidated financial statements after
completion of the reverse merger will include the assets, liabilities and results of operations of the combined company from and
after the closing date of the reverse merger.
The
assets acquired and liabilities assumed recorded from the acquisition of MJ Holdings were recognized at their fair values as of
the effective acquisition date, December 15, 2017. The following table summarizes the fair values assigned to the assets acquired
and liabilities assumed:
|
|
|
December 15, 2017
|
|
|
Assets Acquired:
|
|
|
|
|
|
Website (recorded as Asset Held for Disposition)
|
|
$
|
584
|
|
|
|
|
|
|
|
|
Liabilities Assumed:
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(4,250
|
)
|
|
Convertible note payable due to related party
|
|
|
(900,000
|
)
|
|
Less: Assumption of existing liability by related party (see Note 7)
|
|
|
400,000
|
|
|
|
|
|
|
|
|
Net Liabilities Acquired
|
|
$
|
(503,666
|
)
|
Note
4 — Going Concern
The
Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and settlement of liabilities and commitments in the normal course of business. In December 2017, the Company acquired 100% of
the assets and operations of Red Earth, as discussed above in Note 3, and changed its business operations to provide a 360-degree
spectrum of infrastructure, construction, cultivation management, production management, distribution consulting and operating
services to cultivation and production operators in the regulated cannabis industry.
Red Earth is a development stage company
established in October 2016. The Company’s primary asset is a provisional Medical Marijuana Establishment Registration Certificate
issued by the State of Nevada for the cultivation of medical marijuana. There is no assurance on the receipt and/or timing of final
approvals from the appropriate authorities. The Company has not generated any revenues from inception (October 17, 2016) to December
31, 2017 and has an accumulated deficit of $362,521. These factors, among others, raise substantial doubt about the Company’s
ability to continue as a going concern.
During
2017, the Company raised $2.6 million through the sale of the Company’s common stock at $0.75 per share and will continue
to raise capital in 2018 to fund the build out and development of our business operations. The Company expects to begin generating
revenues during the third quarter of 2018 but will likely incur additional net losses during this time period. Although we can
provide no assurances, we believe our cash on hand and our ability to raise additional capital will provide sufficient liquidity
and capital resources to fund our business for the next twelve months.
In
the event the Company experiences liquidity and capital resource constraints because of unanticipated operating losses, we may
need to raise additional capital in the form of equity and/or debt financing. If such additional capital is not available on terms
acceptable to us or at all, then we may need to curtail our operations and/or take additional measures to conserve and manage
our liquidity and capital resources, any of which would have a material adverse effect on our financial position, results of operations,
and our ability to continue in existence. These financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Note 5 — Intangible Assets
In
October 2016, Red Earth entered into an Asset Purchase and Sale Agreement with the owner of a provisional Medical Marijuana Establishment
Registration Certificate (the “Provisional Grow License”) issued by the State of Nevada for the cultivation of medical
marijuana for $300,000. To initiate the purchase and transfer the Provisional Grow License, the Company paid a $25,000 deposit
to the seller in October 2016. In February 2017, an investor advanced the Company $350,000 (see Note 7) to fund the purchase of
the Provisional Grow License.
The Provisional Grow License remains in a provisional status until the Company has completed the
build out of a cultivation facility and obtained approval from the State of Nevada to begin cultivation in the approved facility.
Once approval from the State of Nevada is received and the Company begins the cultivation process, the intangible asset will be
amortized over its useful life.
Note
6 — Convertible Note Payable Due to Related Party
As
part of the Reverse Merger transaction described above in Note 3, on December 15, 2017, the Company issued a convertible note
payable in the amount of $900,000 to the members of Red Earth. The managing partner and 50% owner of Red Earth at
the time of the transaction was Paris Balaouras, the Company’s Chief Executive Officer. The convertible note payable is
due October 15, 2018. The note is convertible into shares of the Company’s common stock at the holder’s discretion
at a conversion price of $0.75 per share. The note accrues interest, commencing six months from the issuance date, at a rate equal
to one half of one percent (0.50%) per annum. Interest shall be payable on the maturity date or the conversion date, if applicable.
The
Company assessed the embedded conversion feature of the note payable and determined that the fair value of the underlying common
stock at inception did not exceed the conversion price of the convertible note. Since, at the time the convertible note was issued,
the Company’s common stock had limited publicly traded volume, the Company based the fair value of the Company’s common
stock on the sales of the Company’s common stock, which were sold at $0.75 per share, described below in Note 8.
Note
7 — Note Payable to Fund Acquisition of Provisional Grow License
In
February 2017, an investor advanced the Company $350,000 to fund the acquisition of the Provisional Grow License discussed above
in Note 5. The Company incurred $14,521 of debt issuance costs in association with the advance. The note, plus a $50,000 fee for
consideration of the advance, was due within sixty days upon approval by the State of Nevada of the transfer of the Provisional
Grow License to the Company. In December 2017, upon completion of the Reverse Merger discussed above in Note 3, the debt obligation,
including the $50,000 fee, was assumed by Paris Balaouras, the Chief Executive Officer of the Company. The Company recorded $64,521
of interest expense, the $50,000 fee plus the $14,521 of debt issuance costs, during the year ended December 31, 2017.
Note
8 — Sales of Unregistered Securities.
In
connection with and contemporaneous with the Reverse Merger, for the year ended December 31, 2017, the Company sold and issued
an aggregate of 2,991,163 shares of the Company’s common stock at a price of $0.75 per share for proceeds of $2,243,372
as part of an offering of the Company’s securities. In addition, the Company sold $400,000, or 533,333 additional shares
of common stock, as part of the offering, but the shares had not been issued as of December 31, 2017, and were presented in the
consolidated balance sheet as common stock to be issued under the equity section. The proceeds of the common stock sales will
be used to develop certain business opportunities, including but not limited to monetizing the acquired Red Earth assets describe
above in Note 3.
The
shares were issued pursuant to an exemption from the registration requirements under Section 4(2) of the Securities Act of 1933,
as amended (the “Securities Act”), and Rule 506 of Regulation D promulgated thereunder (“Regulation D”)
since, among other things, the transactions did not involve a public offering and the securities were acquired for investment
purposes only and not with a view to or for sale in connection with any distribution thereof. Offers and sales were made solely
to persons qualifying as “accredited investors” (as such term is defined by Rule 501 of Regulation D).
The
securities offered will not be and have not been registered under the Securities Act and may not be offered or sold in the United
States absent registration or an applicable exemption from registration requirements.
Note
9 — Stock Based Compensation
Warrants
Prior
to the Reverse Merger, the Company had issued warrants as compensation for consulting services. The warrants expire between June
2019 and October 2019. A summary of the warrants issued, exercised and expired is as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Avg.
|
|
|
|
|
|
|
|
Exercise
|
|
|
Warrants:
|
|
Shares
|
|
|
Price
|
|
|
Balance at Inception (October 17, 2016)
|
|
|
166,665
|
|
|
$
|
5.88
|
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
Balance at December 31, 2016
|
|
|
166,665
|
|
|
$
|
5.88
|
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
Balance at December 31, 2017
|
|
|
166,665
|
|
|
$
|
5.88
|
|
Note
10 — Commitments and Contingencies
Operating
Leases
The
Company leases an office facility and a production / warehouse facility under two non-cancelable operating leases that expire
in May 2019 and June 2027, respectively. Future minimal rental and lease commitments under non-cancelable operating leases with
terms in excess of one year as of December 31, 2017, are as follows:
|
|
|
Amount
|
|
|
Fiscal year ending December 31:
|
|
|
|
|
2018
|
|
$
|
162,270
|
|
|
2019
|
|
|
249,090
|
|
|
2020
|
|
|
230,640
|
|
|
2021
|
|
|
230,640
|
|
|
2022
|
|
|
230,755
|
|
|
Thereafter
|
|
|
1,043,315
|
|
|
Total minimum lease payments
|
|
$
|
2,146,710
|
|
Rent
expense, including deferred rent expense of $104,565, incurred pursuant to operating leases for the year ended December 31, 2017,
was $112,815.
Litigation
There
are no legal proceedings which are pending or have been threatened against us or any of our officers, directors or control persons
of which management is aware.
Note
11 — Income Taxes
The Company had no operation in 2016 and had no net loss carryforward to the year 2017.
The
Company did not incur any federal or state income tax expense or benefit for the year ended December 31, 2017.
The
provision for income taxes differs from the amounts which would result from applying the federal statutory rate of 34% to the
Company’s loss before income taxes as follows:
|
|
|
December 31, 2017
|
|
|
Computed “expected” income tax benefit
|
|
$
|
(113,828
|
)
|
|
State income tax benefit, net of federal benefit
|
|
|
15,209
|
|
|
Change in valuation allowance
|
|
|
(191,667
|
)
|
|
Permanent differences, net
|
|
|
(106,919
|
)
|
|
Change in federal income tax rate
|
|
|
120,784
|
|
|
IRC section 382 limitations on future NOL utilization
|
|
|
249,208
|
|
|
Write-off of property & equipment deferred tax asset
|
|
|
27,213
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
—
|
|
Temporary
differences that give rise to the components of deferred tax assets and liabilities are as follows:
|
|
|
2017
|
|
|
Deferred tax assets:
|
|
|
|
|
|
Deferred expenses
|
|
$
|
176,030
|
|
|
Property and equipment
|
|
|
(65
|
)
|
|
Capitalized start-up expenses
|
|
|
48,078
|
|
|
Deferred tax assets
|
|
|
224,043
|
|
|
Less: Valuation allowance
|
|
|
(224,043
|
)
|
|
Net deferred tax assets
|
|
$
|
—
|
|
As
of December 31, 2017, the Company did not have any net operating losses for federal or state income tax purposes. All of the federal
and state net operating losses incurred through December 15, 2017, are subject to 100 percent limitation under the provisions
of Internal Revenue Code section 382 due to various ownership changes and the continuity of business requirement.
The
U.S. Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017 and introduces significant changes to U.S. income
tax law. Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21%. The Company’s deferred tax assets
were calculated to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%. As of December 31, 2017, management
determined a valuation allowance against the net deferred tax assets of $224,043. In assessing the ability to realize a portion
of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal
of deferred tax liabilities and projected future taxable income in making the assessment.
For
2017 and prior years, the Company filed federal and state income tax returns. These returns remain subject to examination by taxing
authorities for all years after December 31, 2013.
Note
12 — Basic and Diluted Earnings (Loss) per Common Share
Basic
earnings (loss) per share is computed by dividing the net income or net loss available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated using the treasury
stock method and reflects the potential dilution that could occur if warrants were exercised and were not anti-dilutive.
For
the year ended December 31, 2017, basic and diluted loss per common share were the same since there were no potentially dilutive
shares outstanding during the respective periods. The outstanding warrants as of December 31, 2017, to purchase 166,665 shares
of common stock were not included in the calculations of diluted loss per share because the impact would have been anti-dilutive.
Note
13 — Subsequent Events
In
January 2018, the $900,000 convertible note payable due to a related party was repaid in full.
From
January 2018 through June 2018, the Company sold and issued an aggregate of 628,667 shares of the Company’s common stock
at $0.75 per share for gross proceeds of $471,500. In addition, the Company received $100,000 pursuant to a stock subscription
agreement to purchase 133,333 shares of common stock at $0.75 per share, but the shares had not been issued as of the filing of
this Annual Report.
In
March 2018 and June 2018, the Company issued an aggregate of 6,448 shares of the Company’s common stock in exchange for
professional services.
In
April 2018, the State of Nevada finalized and approved the transfer of the Provisional Grow License, discussed above in Note 5,
to the Company.
In April 2018, the Company entered into a management
agreement with a Nevada company (the “Licensed Operator”) that holds a cultivation license, such that it can lawfully
engage in the cultivation of marijuana for sale under the laws of the State of Nevada. The term of the agreement is for 8 years.
The Licensed Operator has engaged the Company to develop, manage, and operate a licensed cultivation facility on 3 acres of property
owned by the Licensed Operator. The Company, at its sole cost and expense, has agreed to complete the construction of an outdoor
grow facility meeting the local and state building codes and regulations to cultivate marijuana.
Upon completion of the build-out of the outdoor
grow facility and obtaining the appropriate approvals from the local and state authorities, the Company has agreed to generate
sales of at least $5 million per year from product cultivated from the outdoor grow facility. The Licensed Operator may terminate
the agreement if annual sales fall below the $5 million minimum requirement as defined in the agreement. Prior to the termination
of the agreement by the Licensed Operator, the Company may cure any applicable deficiency by paying 10% of the deficiency to the
Licensed Operator.
Pursuant to the management agreement, the Licensed
Operator will retain 15% of the net revenues generated from product cultivated from the outdoor grow facility and pay 85% of the
net revenues to the Company. Upon execution of the agreement, the Company paid $300,000 to the Licensed Operator as consideration
for the opportunity to construct and manage the outdoor grow facility on the Licensed Operator’s property. In exchange for
the initial consideration, the Licensed Operator has agreed not to retain 15% of the first $2 million of net revenues generated
from the outdoor grow facility. In addition, once the outdoor grow facility begins production, the Company has agreed to pay the
Licensed Operator $7,000 per month for compliance, security, and other administration costs incurred by the Licensed Operator during
the term of the agreement.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
MJ HOLDINGS, INC.
|
|
|
|
|
|
|
By:
|
/s/ Paris Balaouras
|
|
|
|
Paris Balaouras
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
Date: July 27, 2018
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the registrant and in the capacities
and on the dates indicated have signed this report below.
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Paris Balaouras
|
|
Chief
Executive Officer and Director
|
|
July
27, 2018
|
|
Paris
Balaouras
|
|
(principal
executive officer)
|
|
|
|
|
|
|
|
|
|
/s/
John R. Wheeler
|
|
Chief
Financial Officer
|
|
July
27, 2018
|
|
John
R. Wheeler
|
|
(principal
financial and accounting officer)
|
|
|
27
Exhibit 10.1
Assignment of Lease
1. Names
This lease assignment is made by ATG HOLDINGS LLC,
Assignor, and MJ HOLDINGS INC, Assignee.
2. Assignment
For valuable consideration, Assignor assigns to Assignee
all of Assignor’s rights in the attached lease dated November 1, 2017, which covers the premises located at 3275 South Jones, Suite
104, Las Vegas, NV 89146.
3. Effective Date
This assignment will take effect on January 1, 2018.
4. Acceptance
Assignee accepts this assignment and assumes the
lease and all its terms. From the effective date of this assignment, Assignee will pay the rent to Landlord and will perform all
of Assignor’s other obligations under the lease.
5. Condition of Premises
Assignor has inspected the premises and will accept
possession of the premises in as-is condition, subject to obligations under the lease and prevailing law.
6. Certification
Assignor and Assignee certify that:
|
|
A.
|
Assignee accepts and assumes all obligations under the
lease from Assignor.
|
|
|
B.
|
Landlord waived the security deposit, so there is no security deposit to replace or transfer.
|
|
|
C.
|
Assignor is not currently in default in performing any obligations under the lease.
|
|
|
D.
|
The lease has not been modified and it remains in full effect as written.
|
|
|
E.
|
The Co-Tenant, Royal Union and its affiliates, has the
right of occupancy for 50% of the premises and all shared common area space (hallways, bathrooms, kitchen, open areas, etc.) at
no cost during the time the lease continues in force and effect. In the event of any default under the lease by Assignee, Co-Tenant
shall have the right to immediately assume the remainder of the lease and cure any default to Landlord, and Co-Tenant shall automatically
assume all rights under the lease from Assignee.
|
|
Assignment of Lease
|
Page 1
|
|
7. Expenses
The parties hereto will bear their separate expenses
in connection with this Agreement and its performance.
8. Landlord’s Consent
Landlord consent is not required to this assignment
and to Assignee taking over all Assignor’s rights and obligations under the lease as an affiliate company.
9. Release
Assignee releases Assignor from liability for
the payment of rent and from the performance of all other lease obligations from the effective date of this assignment.
10. Successors and Assignees
This agreement binds and benefits the heirs, successors,
arid assignees of the parties.
11. Governing Law
This Agreement shall be governed by and construed
in accordance with the laws of the State of Nevada and each of the parties hereto submits to the non-exclusive jurisdiction of
the courts of the State of Nevada in connection with any disputes arising out of this Assignment.
12. Modification
This agreement may be modified only by a writing
signed by the party against whom such modification is sought to be enforced.
13. Waiver
If any party waives any provision of this
agreement at any time, that waiver will only be effective for the specific instance and purpose for which that waiver was
given. If any party fails to exercise or delays exercising any of its rights or remedies under this agreement, that party
retains the right to enforce that term or provision at a later time.
|
Assignment of Lease
|
Page 2
|
|
14. Severability
If a court determines that any provision of this
agreement is invalid or unenforceable, any invalidity or unenforceability will affect only that provision. Such provision shall
be modified, amended or limited only to the extent necessary to make it valid and enforceable.
CO-TENANT:
|
Assignment of Lease
|
Page 3
|
|
LEASE AGREEMENT
THIS LEASE made and entered into
by and between DIJ, a Nevada Limited Partnership, hereinafter referred to as “Landlord” and ATG HOLDINGS, LLC hereinafter
referred to as “Tenant”.
FUNDAMENTAL LEASE
PROVISIONS
|
Date:
|
|
November 1, 2017
|
|
|
|
|
|
Landlord:
|
|
DIJ, a Nevada Limited Partnership
|
|
|
|
|
|
Tenant:
|
|
ATG HOLDINGS, LLC
|
|
|
|
|
|
Location of Leased Premises:
|
|
The Falls Office Park
|
|
|
|
Suite 104
|
|
|
|
3275 South Jones Boulevard
|
|
|
|
Las Vegas, Nevada 89146
|
|
|
|
Approximately 6,445 square feet. Tenant acknowledges and agrees that any representation of the square footage of the Premises by Landlord IS APPROXIMATE and represents the Landlord’s best guess, and neither Landlord nor Broker guarantee its accuracy.
|
|
|
|
|
|
Lease Term:
|
|
Eighteen (18) months
|
|
|
|
|
|
Minimum Annual Rental:
|
|
$46,200
(plus CAM, NNN)
|
|
|
|
|
|
Percentage Rental:
|
|
N/A
|
|
|
|
|
|
Tenant’s Initial Share of Common expenses:
|
|
Pro-rata Share (See Section 5.02)
|
|
|
|
|
|
Tenant’s Tax obligation:
|
|
Pro-rata Share (See Section 5.01)
|
|
|
|
|
|
Tenant’s Initial Share of Common Insurance Coverage:
|
|
Pro-rata Share (See Section 17.01)
|
|
|
|
|
|
Security Deposit:
|
|
Waived
|
|
|
|
|
|
Permitted Use:
|
|
Offices
|
Tenant represents and warrants that it shall obtain approval
from all governmental authorities regarding operation of its purposed business in the Premises on or before November 15, 2017,
and that the terms of this Lease shall not be delayed or cancelled due to Tenant’s inability to obtain a business license
or any other governmental approval or documentation necessary to open and operate its business.
WITNESSETH:
That for and in consideration
of the rent herein specified to be paid by Tenant and the covenants and conditions herein set forth to be kept and performed by
Tenant, Landlord hereby leases to Tenant and Tenant does hereby takes, accepts and hires from Landlord the Premises hereinafter
described for the period, and at the rental, subject to, and upon the terms and conditions herein set forth as follows:
1.
REFERENCES
References in the Fundamental
Lease Provisions to other sections of this Lease are for convenience and each reference to the Fundamental Lease Provisions shall
be construed to incorporate all of the terms provided under each such Lease Provision. In the event of any conflict between said
Fundamental Lease Provision and the balance of the Lease, the latter shall control.
2.
PREMISES
2.01 In consideration of
the rents, covenants and agreements contained herein, Landlord leases to Tenant, and Tenant leases from Landlord certain office
space comprising a building and land containing approximately 6,445 square feet of building in the City of Las Vegas, County of
Clark, State of Nevada. The leased office space is referred to herein as the “Premises” and the location, dimension
and approximate area thereof are delineated in red on Exhibit “A”, which is made a part hereof. The office complex
containing the Premises is referred to herein as the “The Falls Office Park”. This Lease is subject to covenants,
conditions, reservations, restrictions, easements, rights, rights-or-way and other matters of record, if any, and any future matters
and encumbrances which may be recorded by Landlord or its predecessors in the office of the County Recorder of the County in which
the Premises are located.
2.02 It is expressly understood
that the Premises do not include the roof or exterior face of the walls (excepting storefronts and windows) and the use of the
foregoing is expressly reserved to Landlord.
2.03 The term “Floor Area”
as used throughout this Lease shall be deemed to mean and include all areas for the exclusive use and occupancy by a tenant of
Landlord, measured from the exterior surface of exterior walls and from the extensions thereof, in the case of openings and from
the center of interior demising partitions, and shall include, without limitation, restrooms, mezzanines, warehousing or storage
areas, clerical or offices areas and employee areas.
2.04 Notification by Landlord
in writing that the Premises is ready for possession or delivery of keys to the Premises to Tenant shall constitute delivery of
possession to Tenant.
3.
TERM
3.01
Length of Term.
The term
of this Lease shall be for a period of One (1) consecutive full Lease Year(s), and Six (6) months, as the term Lease Year is hereinafter
defined, plus the partial Lease Years, if any, on which this Lease Agreement is executed.
3.02
Commencement Date and Obligation
to Pay Rent.
The commencement date for this Lease Term and Tenant’s obligation to pay rent hereunder shall commence on
November 15, 2017(the “Commencement Date”).
3.03
Lease Year define.
The
term “Lease Year” as used herein shall mean a period of twelve (12) full consecutive calendar months.
3.04
Tenant’s Certificate.
Tenant shall, within fifteen (15) days after the Commencement Date, and thereafter at Landlord’s request, execute and deliver
to Landlord a written declaration in recordable form: (1) ratifying this Lease; (2) expressing the Commencement Date and termination
date hereof; (3) certifying that this Lease is in full force and effect and has not been assigned, modified, supplemented or amended
(except by such writings as shall be stated); (4) to best of Tenant’s knowledge that all conditions under this Lease to be
performed by Landlord have been satisfied; (5) to best of Tenant’s knowledge that there are no defenses or offsets against
the enforcement of this Lease by the Landlord, or stating those claimed by Tenant; (6) the amount of advance rental, if any, (or
none if such is the case) paid by Tenant; (7) the date to which rental has been paid; and (8) such other information as Landlord
may reasonably request, with the understanding by Tenant that Landlord’s mortgage lenders and/or purchasers shall be entitled
to rely upon such declaration.
4.
RENT
4.01 Tenant hereby covenant
and agrees to pay to Landlord rent for the Premises as follows:
a) The monthly rent (the “Basic
Rent”) for the Premises shall commence upon the Commencement Date as set forth in Paragraph 3.2 above. If the Lease is effective
after the first day of the month, the rent shall be prorated for that month.
b) Upon the commencement
of Basic Rent provided for herein above, the monthly rent for the Premises shall be:
|
Year
|
|
Per Square Foot
|
|
|
Monthly Payment
(plus CAM, NNN)
|
|
|
|
|
|
|
|
|
|
|
First 6 months
|
|
$
|
0.5587
|
|
|
$
|
3,600
|
|
|
First full year
|
|
$
|
0.6361
|
|
|
$
|
4,100
|
|
c) In no event, however, shall
the adjusted Basic Rent for any period be less than the Basic Rent during the prior Lease Year.
d) All rents shall be paid without
set-off or demand, and without abatement or deduction to Landlord at the address specified in this Lease, unless and until Tenant
is otherwise notified. Time is of the essence in the payment of all forms of rent payable hereunder.
e) In addition to the Basic
Rent described in this Paragraph 4.01, Tenant shall pay all utilities, taxes, insurance, fees, charges or assessments, and common
area expenses imposed upon the Premises and The Falls Office Park and all other costs of every nature and kind arising by virtue
of Tenant’s use and/or possession of the Premises and The Falls Office Park. It is intended that this Lease shall be a net,
net, net Lease. Landlord shall have the right at any time and from time to time to adjust this estimated amount based on actual
amounts incurred and on projected costs for fixture periods. When the actual amounts of such charges have been determined, and
if Tenant shall have paid an amount less than it is required to pay, Tenant shall pay the balance due within ten (10) days after
receipt of said statement, and if Tenant shall have paid an amount greater than it is required to pay, the additional amount shall
be credited to Tenant’s next such payments.
4.02 All monthly installments
of Basic Rent and CAM shall be payable in advance on the first day of the month in lawful money of the United States at the place
Landlord shall designate from time to time, without notice, demand, set-off or deduction whatsoever. CAM Fees and all other monies
due and owing under this Lease shall be considered additional rent. If Tenant shall fail to pay an installment of Basic Rent or
installment of Adjustments to Rent (CAM) as set forth in Section 5 within five (5) days of the due date thereof, then Landlord
shall be entitled to a late charge equal to ten percent (10%) of such unpaid amount, provided, however, that nothing contained
herein shall give Tenant the right to pay any such installment of Basic Rent other than on the due date thereof and Landlord’s
collection of such late fee shall not waive any other rights which Landlord may have hereunder or at law or in equity in respect
to such late payments. Landlord and Tenant agree that such late charges represent a reasonable sum considering all of the circumstances
existing on the date of this Lease, including the relationship of the sum to the loss to Landlord that could reasonably be anticipated
by such non-payment by Tenant, and the anticipation that proof of actual damages would be costly or inconvenient to determine.
4.03 In the event Tenant shall make
any payment to Landlord of Basic Rent, Adjustments to Rent, or any other charge due under this Lease, and such payment is made
by check, if such check is returned to Landlord due to non-sufficient funds available in the account on which it is drawn, or if
such check is dishonored for any other reason whatsoever, Tenant shall immediately pay to Landlord the amount due in the form of
a money order or cashier’s check together with a Seventy-Five and No/100 Dollars ($75.00) processing fee to cover Landlord’s
costs in processing the returned check. Landlord shall have the right thereafter to require that all future payments of rent by
Tenant be made in the form of a money order, cashier’s check, or other means Landlord deems appropriate.
5.
ADJUSTMENTS TO RENT/CAM
5.01
Taxes
a) Tenant shall pay its proportionate
share of all real estate taxes, as herein after defined, levied or assessed by lawful taxing authorities against the land, buildings
or improvements comprising The Falls Office Park that will be included in the CAM fee.
b) “Real Estate Taxes”
shall mean all taxes, assessments, levies and charges, whether special, extraordinary, or otherwise, whether foreseen or unforeseen,
which may be levied, assessed or imposed upon, on account of or with respect to (i) the ownership of and/or all other taxable interests
in all land situated in The Falls Office Park and/or (ii) all buildings, structures, and other improvements situated thereon.
c) Tenant shall pay one-twelfth of
its proportionate share of Real Estate Taxes each month in the CAM fee in advance on the first day of each month with its payment
of Basic Rent. The amount of Real Estate Taxes upon which each payment is based shall be the most current notice(s) of assessment
of tax bills concerning the entire The Falls Office Park or, if there are none, such amount as Landlord may reasonably estimate
in its sole discretion. Should the taxing authorities include in such Real Estate Taxes the value of any improvements made by tenant,
or include machinery, equipment, fixtures, inventory or other personal property of Tenant, then Tenant shall also pay the entire
Real Estate Taxes for such items. If the amount paid by Tenant is more than said actual amount due (as determined from the notice(s)
of assessment or tax bill(s) actually covering the period in question), the excess shall be credited on Tenant’s next succeeding
payment(s) pursuant to this subsection. If the amount paid by Tenant is less than said actual amount due, Tenant shall pay to Landlord
the deficiency within ten (10) days after notice from Landlord. A tax bill submitted by Landlord to Tenant shall be conclusive
evidence of the amount of taxes assessed or levied, as well as the items taxed.
d) Tenant shall be solely responsible
for and shall pay before delinquency all municipal, county, state or federal taxes assessed during the term of this Lease against
any personal property of any kind owned by or placed in, upon or around the Premises by Tenant. Tenant shall not be responsible
for any delinquent fee or interest due to governing authorities for failure to pay real estate taxes due on the property leased
in a timely manner.
5.02
Common Area Expenses
a) Tenant shall pay to
Landlord its proportionate share of The Falls Office Park’s Operating Costs, also sometimes referred to herein as CAM. Tenant’s
“proportionate share” shall be determined by multiplying such expenses by a fraction, the numerator of which is the
total number of square feet of Floor Area in the Premises and the denominator of which is the total number of square feet of actual
Floor Area of the buildings located in The Falls Office Park. Landlord shall periodically determine Floor Area for purposes of
the above calculation and Landlord’s determination shall be conclusive. The Falls Office Park “Operating Cost”
means the total cost and expense incurred in operating, maintaining, and repairing The Falls Office Park, and its Common Areas
(as herein after defined) actually used or available for customers and other invitees of the tenants of The Falls Office Park,
excluding only items of expense commonly known and designed as carrying charges, loan payments, interest, income tax, and depreciation,
but specifically including, without limitation, repairs, replacements, maintenance, surfacing, resurfacing, painting, restriping,
cleaning, sweeping, janitorial services, management fees, trash bin rentals, planting and landscaping, signs and markers, lighting
and other utilities, fire protection or detection service, parking control and security service and all personnel to implement
such services, maintenance by Landlord of structural components described in Paragraph 12.02; removal of snow, trash, rubbish,
garbage, graffiti, and other refuse; all real property and personal property taxes and assessments (as defined in Paragraph 5.01)
levied or assessed; premiums for all forms of insurance described in Paragraph 5.03 as well as Worker’s Compensation Insurance
and any other insurance carried by and deemed advisable by Landlord; wages and salaries for personnel employed to operate the
Common Area, and cost (if purchased) of machinery and equipment used for Common Area maintenance or rental thereof (if rented
or leased). “Common Area” means all areas, space, equipment, and special services provided for the common or joint
use and benefit of the tenants or occupants of The Falls Office Park, or portions thereof, their employees, agents, servants,
customers and other invitees, including without limitation parking areas, access roads, driveways, retaining walls, landscaped
areas, truck service ways or tunnels, loading docks, pedestrian malls, courts, stairs, ramps and sidewalks, comfort and first-aid
stations, washrooms and parcel pickup stations. Notwithstanding the foregoing, Tenant understands and agrees that the HVAC units
that service its Premises may be located inside the Common Areas, but shall not be included as part of the Operating Costs of
the Common Areas. Repair, maintenance and replacement of such HVAC units shall remain the sole responsibility of the Tenant pursuant
to Paragraph 12.01 herein below.
b) Tenant’s proportionate
share of The Falls Office Park’s Operating Costs/CAM shall be computed on the basis of periods of twelve consecutive calendar
months as determined be Landlord and payments toward the same shall be made by Tenant as additional rent in advance in equal installments
on the first day of each calendar month in an amount to be established by the Landlord. Within ninety (90) days after the end of
each twelve (12) month period, Landlord shall furnish to Tenant a statement showing The Falls Office Park’s Operating Costs/CAM
for the preceding period and any adjustments to be made as a result thereof. In the case of deficiency, Tenant shall promptly remit
the amount of such deficiency to Landlord within ten (10) days of receipt of such statement. In the case of surplus, Landlord shall
apply said surplus to payment next falling due from Tenant under this subsection (b).
c) Landlord hereby grants
to Tenant the non-exclusive right in common with others during the Term of this Lease to use the Common Area of The Falls Office
Park for itself, its employees, agents, customers, invitees and licensees, excluding any number parking spaces that may be designated
for other tenants. The Common Area shall be subject to the exclusive control and management of Landlord or such other persons or
nominees as Landlord may designate to exercise such management or control in whole or in part over the Common Area, in Landlord’s
place and stead, and Landlord, and Landlord’s nominees and assignees, shall have the right to establish, modify, amend and
enforce reasonable rules and regulations with respect to the Common Area. Tenant agrees to abide by and conform with such rules
and regulations, to cause its concessionaires, and its and their employees and agents, to so abide and conform, and to use its
best efforts to cause its customers, invitees and licenses so to abide and conform. Landlord shall have the right to temporarily
close all or any portion of the Common Area to make additional improvements or repairs or alterations to The Falls Office Park.
Landlord shall give Tenant two (2) days prior written notice, excluding any emergencies, when doing such improvements or repairs
or alterations to The Falls Office Park. Landlord shall have the unqualified right to increase or reduce the Common Area and to
rearrange the parking spaces, driveways and improvements on the Common Area. Landlord shall have the sole right to place vending
or amusement devices and public telephones on the Common Area. Tenant agrees that its officers, agents, employees, vendors, suppliers
and other independent contractors will use such access roads and receiving areas and will operate trucks and trailers in delivering
merchandise to and from the Premises at such days and hours upon and over such access roads as are designated therefore by Landlord
as a means of ingress to and egress from the Premises. The use of such access roads by Tenant and Tenant’s officers, agents,
employees, vendors, suppliers and other independent contractors shall be subject to the rules and regulations established by Landlord
with respect to the use thereof. All automobiles, trucks and other vehicles of Tenant and its agents, employees, subtenants and
concessionaires, shall be parked only where and as permitted by Landlord from time to time, and officers, agents and employees
of Tenant shall park their vehicles only in such places or in such particular area, if any, as may be designated from time to time
by Landlord as employee parking areas.
5.03
Insurance.
Tenant shall
pay its proportionate share of the cost of all insurance procured by Landlord pursuant to Section 17 hereof, within its CAM fee
at the same time and in the same manner as Tenant pays Basic Rent.
6.
SECURITY DEPOSIT
Waived
7.
CONSTRUCTION
7.01
Changes to The Falls Office
Park
. Landlord hereby reserves the right at any time to make changes, alterations or additions in or on the building in which
the Premises are contained or anywhere in The Falls Office Park. Tenant shall not in such event claim or be allowed any damages
or right to terminate this Lease for injury or inconvenience occasioned thereby as long as it does not unreasonably interrupt or
interfere with Tenant’s business.
8.
USE
Tenant shall use the Premises
solely for the purpose of conducting its business, which is expressly limited to Offices (“Permitted Use”). Said business
shall be operated under the trade name________, or any subsidiary of same. Tenant shall not use the Premises or permit the Premises
to be used for any other purpose or purposes except with the prior written consent of Landlord.
9.
CONTINUOUS OPERATION
Tenant covenants to operate all of
the Premises continuously during the entire term of the Lease with due diligence and efficiency. In the event of breach by Tenant,
Landlord shall have, in addition to any and all remedies herein provided or at law, the right, at its option, to collect not only
the Basic Rent herein provided, but as Additional Rent, in amount equal to one-thirtieth (1/30th) of the monthly installment of
the Basic Rent herein provided for each and every day that Tenant shall fail to conduct its business as herein provided. The parties
agree that in the event of such breach by Tenant, Landlord’s damages would be impossible or impracticable to determine and
that the provisions for recovery of future rent by Landlord, set forth herein, is a reasonable estimate by the parties of the damage
that Landlord would incur for lost rent costs and such other items.
10.
LAWS, WASTE, NUISANCE
Tenant shall not: (i)
Use or permit the Premises to be used for any purpose other than the Permitted Use, and Tenant further covenants and agrees
to comply promptly with all statutes, ordinances, rules, orders or regulations or any governmental authority regulating the
use or occupation or physical condition of the Premises or requiring improvement thereof; (ii) Use or permit the use of the
Premises in any manner that will tend to create a nuisance or disturb other tenants or occupants of The Falls Office Park or
tend to adversely affect or injure the reputation of The Falls Office Park; (iii) Conduct or permit to be conducted in the
Premises any fire sale, auction, bankruptcy sale, second-hand sale, going-out-of-business sale or other promotions or sales
without Landlord’s prior written consent, except for periodic sales in the normal course of business; (iv) Allow any
activity to be conducted on the Premises or store any material on the Premises which will increase premiums for or violate
the terms of any insurance policy maintained by or for the benefit of Landlord or The Falls Office Park or any other occupant
thereof. In no event shall any explosive, radioactive or dangerous materials be stored in or about the Premises; (v) Use or
allow the Premises to be used for sleeping quarters, dwelling rooms or for any unlawful purpose or permit any cooking on the
Premises without Landlord’s prior written consent; (vi) Solicit business, distribute advertising, obstruct, or place or
permit to be placed any merchandise, vending, video or amusement machines on, or otherwise use in the conduct of its
business, any part of the Common Areas of The Falls Office Park, including the sidewalks in front of or adjacent to the
Premises; (vii) Erect or install any exterior signs or window or door signs, advertising media or window or door lettering or
placards; install any exterior lighting, plumbing fixtures, shades or awnings; make any exterior decoration or painting;
build any fences, walls barricades or other obstructions; or, install any radio, television, phonograph, antennae, loud
speakers, sound amplifiers, flashing or revolving lights, or similar devices on the roof, exterior walls or in the windows of
the Premises or make any changes to the exterior of the Premises, including the storefront, without Landlord’s prior
written consent. Any signs, lights, advertising material, loud speakers or anything installed by Tenant on the Premises,
which may be seen, heard or experienced outside the Premises, must be designed or approved by the Landlord in writing. Tenant
shall not display, paint or place, or cause to be displayed, painted or placed any handbills, bumper stickers, or other
advertising devices on any permanent or temporary structure, trailer or vehicles parked in the Common Area of The Falls
Office Park nor or within five hundred (500) feet of The Falls Office Park boundaries, nor shall Tenant distribute or cause
to be distributed in The Falls Office Park any handbills or other advertising devices; (viii) Interfere with any other
tenants’ use of the Common Areas or cause or permit any waste in the Premises or in The Falls Office Park; or (ix)
Directly or indirectly own, operate or have any interest in the ownership or operation of any business similar in character
to that conducted by Tenant in the Premises within the radius of five (5) miles from the Premises.
11,
SIGNS, AWNINGS, AND CANOPIES
Tenant shall not place
or suffer to be placed or maintained on any exterior door, wall, window or glass of any window or door of the Premises, or elsewhere
in The Falls Office Park, any sign, awning, canopy, or advertising matter on without first obtaining Landlord’s written approval.
Tenant further agrees to maintain any such sign, awning, canopy, decoration, lettering, advertising matter, or other items as may
be approved in good condition and repair at all times. Landlord may, at Tenant’s cost, remove any item erected in violation
of this Section. Exception is noted in section 30.11 of this Lease.
12.
MAINTENANCE
12.01
Maintenance by Tenant.
Notwithstanding any insurance that may be carried by Landlord, Tenant nevertheless covenants and agrees that it shall at Tenant’s
sole cost and expense, at all times during the Term of this Lease, keep the Premises, and each and every part thereof including,
without limitation, all plumbing and electrical conduits, utility meters, wiring, fixtures and pipes and all sewers, floors, flooring,
walls, lighting, storefronts, windows, plate glass and glazing, air conditioning and heating systems (HVAC), in good condition
and repair at all times during the Term hereof and that it shall make promptly any and all repairs, renewals and replacements which
may at any time be necessary or proper to put and keep the Premises in good condition and repair, and to keep the Premises and
all appurtenances thereto in a good, clean, safe, operational, and wholesome condition at all times during the Term of this Lease.
In the event that the Premises contain air conditioning and heating systems (HVAC), Tenant’s said obligation shall include
the retaining by Tenant of a HVAC service company approved by Landlord, to service and maintain the air conditioning and heating
systems (HVAC) on a regular periodic inspection and service basis calling for inspection and servicing not less frequently than
once each quarter. Tenant expressly agrees to pay promptly for any and all labor done or material furnished for any work or repair,
maintenance, improvements, replacements, alterations or additions done by the Tenant in connection with such items. Tenant agrees
that its acceptance of the Premises (evidenced by Tenant’s entry into possession thereof) shall constitute unqualified proof
that the Premises are, as of the Term Commencement Date, in a tenantable and good condition; that Tenant will take good care thereof,
and Tenant hereby waives the right to make repairs at Landlord’s expense. Tenant shall also be responsible for all repairs
and replacement of structural, equipment, wiring, roofing, cladding, doors, and operating systems due to tenant’s negligent
acts or omissions.
12.02
Maintenance by Landlord.
Landlord
shall maintain the structural components of The Falls Office Park including all exterior walls, foundations, roof, wiring for lighting,
plumbing fixtures, sewage facilities, and electric motors in good order, condition and repair, including the replacement thereof
when necessary, and including reasonable periodic painting or other reasonable maintenance necessary to keep them in good operating
order, all as part of The Falls Office Park’s Operating Cost/CAM. Should Tenant be negligent for building structure damage
and/or operating systems damage, the Tenant shall pay Landlord the costs of making such repairs, plus twenty percent (20%) for
overhead, as additional rent immediately upon presentation of a bill therefore failure to pay such amount immediately shall constitute
a default by Tenant hereunder. Landlord shall have the right to enter the Premises at any time with such men and equipment as may
be deemed necessary by Landlord to make such repairs. In no event shall Landlord be liable to any person, including Tenant, its
agents or employees for any loss, damage (including water damage), theft, or destruction of or to any merchandise, fixtures, money
or other property belonging to that person as a result of Landlord’s failure promptly or correctly to perform any of the
foregoing repairs or occasioned by acts of Landlord or its agents or employees while making such repairs.
12.03
Landlord’s Right to Cure.
If Tenant refuses or neglects to repair property as required hereunder to the reasonable satisfaction of Landlord, or fails to
diligently commence such repairs as soon as reasonably possible after five (5) days written notice to Tenant, then Landlord may
make such repairs without liability on its part to Tenant for any loss or damage that may accrue to Tenant’s merchandise,
fixtures, or other property or to Tenant’s business by reason thereof, and Tenant shall pay Landlord’s cost for making
such repairs as additional rent, plus twenty percent (20%) for overhead immediately upon presentation of a bill thereof. Failure
of Tenant to pay such amount immediately shall constitute a default by Tenant hereunder.
13.
ALTERATIONS
Tenant shall not make any alterations,
additions, changes or modifications (“Alterations”) to the Premises without first obtaining Landlord’s prior
written consent, in each instance. Whether any such work is done by Tenant or by Landlord on Tenant’s behalf, Tenant shall
indemnify, defend and hold Landlord harmless from any claims and/or damages from such work. Tenant shall also comply with NRS 108
et seq. in commencing and completing alterations, including, but not limited, bond and notice requirements thereto. Landlord shall
have the right to record and serve statutory notices of non responsibility. In no event shall Tenant be allowed to make any Alterations
to the Premises without first obtaining all approvals from all governmental authorities regarding operation of its purposed business
in the Premises. Any Alterations to the Premises or the building of which they are a part which are required by reason of any present
or future law, ordinance, rule, regulation or order of any governmental authority having jurisdiction over the Premises or The
Falls Office Park or of any insurance company insuring the Premises, and regardless of whether or not such Alterations pertain
to the nature, construction or structure of the building or to the use made thereof by Tenant, shall be at the sole cost of Tenant
regardless of whether the work is performed by Landlord or Tenant. All Alterations, to or upon the Premises, except removable trade
fixtures, shall at once when made or installed be deemed to have attached to the real property and to have become the property
of the Landlord. The foregoing includes, without limitation, any modifications to the Premises required by the Americans with Disabilities
Act. If the cost of any Alterations equal or exceed Five Thousand Dollars ($5,000.00), then Tenant shall provide Landlord a performance
bond in the contract amount prior to commencement of any such work.
In addition to the forgoing, Tenant shall comply with the
terms of Nevada Revised Statutes (NRS) Chapter 108 in all instances, including without limitation using a construction control
account to pay its contractor and subcontractors. All “Tenant’s Work” shall be performed by a duly licensed and
qualified contractor(s).
14.
UTILITIES
Tenant covenants and agrees to
pay before delinquency all charges for trash, gas, heat, sewer, power, electricity, telephone, storm drain, water service, and
all other meter charges and any other utility charges including any hook-up or connection or tap-in fees or charges which may accrue
with respect to the Premises during construction, or thereafter during the Term of this Lease whether the same be charged or assessed
at flat rates, measured by separate meters or prorated by the utility company or Landlord. Said charges shall be paid directly
to the entity collecting the same. In the event Landlord supplies any such utilities or services, then Tenant shall pay as Additional
Rent in accordance with Paragraph 4.02 a utility charge to reimburse Landlord for utilities furnished or services provided by Landlord
to the Premises. Tenant agrees that it will not install any equipment which will exceed or overload the capacity of any utility
facilities and that if any equipment installed by Tenant shall require additional utility facilities, Tenant shall be solely responsible
for and shall promptly pay for the same. Furthermore, if Tenant constructs any improvements that would cause the Premises to be
assessed additional sewer fees, Tenant shall be responsible for said additional sewer fees separate and apart from the CAM currently
being paid by Tenant as Additional Rent. In the event Tenant fails to pay any such amount to Landlord within ten (10) days after
receipt by Tenant from Landlord of a bill therefor, or upon failure of Tenant to pay any other sums required under this Lease within
ten (10) days from the date of such payments are due, and until all such amounts are paid in full, Landlord may cut off and discontinue,
without further notice to Tenant, any such utilities furnished to the Premises by Landlord. In the event Landlord does not provide
any or all of such utilities or services, Tenant agrees, at its own expense to pay to the appropriate collecting company the cost
for all such utilities used upon the Premises from and after delivery of possession thereof by Landlord. If any such charges are
not paid when due, Landlord may, but shall not be required to, pay the same and any amount so paid by Landlord shall immediately
thereafter become due to Landlord from Tenant as Additional Rent. Regardless of the entity which shall supply any utility or provide
any service referred to in this Paragraph, Landlord shall in no event be liable to Tenant for any interruption in the service of
any such utilities to the Premises, howsoever such interruption may be caused; and this Lease shall, in any event, continue in
full force and effect, with no abatement of rent whatsoever despite any such interruptions.
15.
ASSIGNMENT AND SUBLETTING,
15.01
Prohibited.
Tenant
shall not, and shall not have the power to, assign or sublet this Lease or any interest therein whether voluntarily, by operation
of law, or otherwise without the written permission and consent of Landlord, said consent shall not be unreasonably withheld, being
first had and obtained and any such attempted assignment or subletting without Landlord’s prior written consent shall be
null and void and shall confer no interest in this Lease or in the Premises, to anyone. Should Tenant desire to assign this Lease
or sublet the Premises or any part thereof, Tenant shall in each instance, give written notice of its intention to do so to Landlord
it least thirty (30) days or more before the effective date of any such proposed subletting or assignment, specifying in such notice
whether Tenant proposes to assign, or sublet, and the proposed date thereof, and specifically identifying the proposed assignee
or sublessee. Such notice must be accompanied by a recent financial statement of the proposed assignee or sublessee, together with
all pertinent data necessary for Landlord to determine the credit, character, quality of business operation, merchandising reputation
and experience and business standing of the proposed assignee or sublessee, including but not limited to a business resume, bank
account reference numbers and an executed release authorizing Landlord to obtain information from any consumer credit reporting
agencies. In the case of a proposed subletting, such notice shall also be accompanied by a copy of the proposed sublease, or if
same is not available, a letter of commitment, or letter of intent. Within thirty (30) days after Landlord’s receipt of such
notice and the accompanying documentation required hereunder, Landlord shall approve or disapprove the proposed assignment in writing
Landlord’s approval of any other assignment, or an assignment to a different assignee, or to any subsequent or prior assignment.
Consent of Landlord to any such assignment or subletting shall not be unreasonably withheld if: (i) At the time of such proposed
assignment or subletting Tenant is not in default in the performance and observance of any of the covenants and conditions of this
Lease; (ii) The assignee or subtenant of Tenant shall expressly assume in writing all of Tenant’s obligations hereunder,
(iii) Tenant shall provide proof to Landlord that the assignee or, subtenant has a financial condition which is satisfactory to
Landlord in Landlord’s sole discretion; and (iv) The Premises continue to be used solely for the Permitted Use and the assignee
or subtenant is, in Landlord’s reasonable opinion, capable of operating such business. In connection with any assignment
or sublease, Tenant or the assignee of Tenant shall pay to Landlord the sum of Seven Hundred Fifty and No /100 Dollars ($750.00)
to compensate Landlord for fees and costs involved with such assignment or transfer, Any such subletting or assignment, even with
the consent of Landlord, shall not relieve Tenant or any guarantor from liability for payment of all forms of rental and other
charges herein provided or from the obligations of Tenant and/or guarantor to keep and be bound by the terms, conditions and covenants
of this Lease. The acceptance of rent from any other person shall not be deemed to be a waiver of any of the provisions of this
Lease, or consent to the assignment or subletting of the Premises. Consent to any assignment or subletting shall not be deemed
consent to any future assignment or subletting.
Notwithstanding the above, Landlord acknowledges Tenant has multiple entities occupying
(ATG Holdings, Royal Union and their affiliates).
15.02
Landlord’s Right
in Event of Assignment/Sublease.
If the Premises or any portion thereof are assigned or sublet or occupied by any person other
than the Tenant, Landlord may collect Basic Rent and other charges reserved hereunder, but such collection shall not constitute
the recognition of such assignment or sublease or other party as the Tenant hereunder or release of Tenant from the further performance
of all covenants and obligations of Tenant herein contained.
16.
INDEMNITY
16.01 Tenant hereby agrees to defend, pay,
indemnify and safe free and harmless Landlord from any and all claims, demands, fines, suits, actions, proceedings, orders, decrees
and judgments of any kind or nature by or in favor of anyone whomsoever and from and against any and all costs and expense, including
reasonable attorney’s fees, resulting from or in connection with loss of life, bodily or personal injury or property damage
arising, directly or indirectly, out of or for or on account of any occurrence in, upon, at or from the Premises or its appurtenances,
except nothing herein mentioned shall excuse or exculpate Landlord or its employees, agents or contractors from its or their negligence;
and in such case the indemnification and hold harmless provision herein shall not apply. Tenant and all those claiming by, through,
or under Tenant shall store their property in and shall occupy and use the Premises and any improvements therein appurtenances
thereto and all portions of the The Falls Office Park solely at their own risk and Tenant and all those claiming by, through, or
under Tenant hereby release personal or bodily injury, damage of merchandise, equipment, fixtures or other property, or damage
to business or for business or for business interruption, arising, directly or indirectly, out of or from any present or future
condition or state of repair thereof. Landlord shall not be responsible or liable for damages at any time to Tenant, or to those
claiming by, through, or under Tenant for any loss of life, bodily or personal injury, damage to property or business, or business
interruption that may be occasioned by or through the acts, omissions or negligence of any other persons, or any other tenants
or occupants of any portion of The Falls Office Park.
16.02 Landlord shall not be responsible
or liable for damages at any time for any defects, latent or otherwise, in any building or improvements in The Falls Office Park
or any of the equipment, machinery, utilities, appliances or apparatus therein, nor shall Landlord be responsible or liable for
damages at any time for loss of life, or injury or damage to any person or to any property or business or Tenant, or those claiming
by through or under Tenant, caused by or resulting from the backing of water, steam, gas, sewage, snow or ice in any part of the
premises or caused by or resulting from acts of God or the elements, or resulting from any defect of negligence in the occupancy,
construction, operation or use of any buildings or improvements in The Falls Office Park, including the Premises or any of the
equipment, fixtures, machinery, appliances or apparatus therein.
16.03 Tenant shall keep the Premises
and any improvements located thereon, and all of the right, title and interest of Tenant and Landlord therein free and clear of
all liens or claims which may ripen into such a lien or encumbrance. In the event Tenant fails to do so, Landlord may pay such
lien or encumbrance or claim, and on or before the tenth (10th) day of the month following the month during which such payment
is made, Tenant shall pay to Landlord such sums so paid, plus such reasonable costs and attorneys’ fees as may have been
incurred by Landlord; provided, however, that in the event Tenant in good faith disputes such lien or encumbrance and with reasonable
promptness furnishes an indemnity bond or other undertaking in an amount sufficient either to procure the release of such lien
or encumbrance or to indemnify against the principal amounts thereof, together with such costs or attorneys’ fees as may
be covered by said lien or encumbrance, then the furnishing of such bond or undertaking shall be deemed due compliance with the
foregoing provision.
17.
INSURANCE
17.01
Fire and All Risk Liability Insurance.
Landlord shall procure and Tenant shall pay as part of its CAM fee its proportionate share of the cost of insurance insuring the
Landlord against loss or damage to the Premises and property by reason of fire and other casualties with a qualified insurance
company or companies qualified to do business in the State of Nevada and in an amount and of such coverage as are satisfactory
to and approved by Landlord but in no event shall the amount of such insurance be less than the cost of totally replacing the building
and other improvements of the Premises, exclusive of the cost of excavations, footings below floor level and foundations thereof
against a) a loss or damage by fire; b) all peril customarily covered under extended coverage endorsements; c) vandalism and malicious
mischief; and d) all risk coverage for physical damage to Premises. Landlord (and at Landlord’s option, the lender interested
under any mortgage or similar instrument than encumbering the premises) shall be solely responsible for determined the amount of
fire and extended coverage insurance and the specific endorsements or be maintained. Landlord (and, at Landlord’s option,
the lender interested under any mortgage or similar instrument then affecting the Premise) shall be named as an insured on each
such policy. The proceeds of such insurance in case of loss of the obligations of Landlord to repair and/or rebuild the Premises
pursuant to Section 18.
17.02
Fire Insurance on Tenant’s
Fixtures.
At all times during the term hereof, Tenant shall keep in force, at its sole cost and expense, fire, all peril customarily
covered under extended coverage endorsements, and vandalism and malicious mischief insurance in companies acceptable to Landlord
equal to the replacement cost of Tenant’s improvements, trade fixtures, furnishings, equipment, and contents upon the Premises.
17.03
Liability Insurance
on Tenant’s Fixtures.
Tenant agrees to secure and keep in force from and after the date Landlord first allows Tenant
on the Premises to perform Tenant’s construction work and throughout the Lease term, at Tenant’s own cost and expense,
Commercial General Liability insurance, covering Tenant against death, bodily and personal injury and property damage in the amount
of One Million Dollars ($1,000,000) per occurrence, Two Million Dollars ($2,000,000) aggregate, or in such other amount as Landlord
may reasonably determine is necessary. Such insurance coverage shall include products liability and completed operations coverage
and include a contractual liability endorsement covering the indemnity against injury to persons and damage to property set forth
in Paragraph 16 hereof including a personal injury endorsement covering such wrongful acts as false arrest, false imprisonment,
malicious prosecution and libel and slander. Tenant shall also secure and keep in force Workmen’s Compensation or similar
insurance to the extent required by law.
17.04
Provisions to be Contained
in Policies.
All insurance provided for in the Lease shall be effected under enforceable policies issued by insurers approved
by Landlord within ten (10) days after the Commencement Date of this Lease or on or before the day Tenant begins Tenant’s
work on the Premises under Section 13 hereof, whichever is first. All policies shall provide by their terms that they are non-cancellable
except on twenty (20) days prior written notice to Landlord. At least twenty (20) days prior to the expiration date of any policy,
the original renewal policy for such insurance shall be delivered by the Tenant to the Landlord. Within forty-five (45) days after
the premium on any policy shall fall due and payable, the Landlord shall be furnished with satisfactory evidence of its payment.
All policies shall name Landlord and mortgagor and Tenant as additional insured. All such policies shall contain a provision that
Landlord, although named as an insured, shall nevertheless be entitled to recover under such policies for any loss occasioned to
it its, servants, agents and employees by reason of the negligence of Tenant. All such insurance shall provide that the coverage
afforded shall not be affected by the performance of any work in or about the Premises.
17.05
Subrogation.
Notwithstanding
any other provisions contained in this Lease, Tenant hereby waives any rights it may have against the Landlord on account of any
loss or damage to its property (including the Premises and its contents and property on other portions of The Falls Office Park)
which arises from any risk generally covered by the insurance required to be carried, hereunder, whether or not Landlord may have
been negligent or at fault in causing such loss or damage. Tenant shall obtain a clause or endorsement in the policies of such
insurance which it obtains in connection with the Premises or The Falls Office Park to the effect that the insurer waives or shall
otherwise be denied, the right of subrogation against the Landlord for loss covered by such insurance. It is understood that such
subrogation waivers may be operative only as long as such waivers are available in the state where The Falls Office Park is situated
and do not invalidate any such policies. If such subrogation waivers are allegedly not operative in such state, notice of such
fact shall be promptly given by Tenant to Landlord.
17.06
Lenders.
Any
mortgage lender interested in any part of The Falls Office Park may, at Landlord’s option, be afforded coverage under any
policy required to be secured by Landlord or Tenant hereunder, by use of a mortgagee’s endorsement to the policy concerned.
17.07
Blanket Policy.
If the Tenant provides any insurance required by this Lease in the form of a blanket policy, the Tenant shall furnish satisfactory
proof that such blanket policy complies in all respects with the provisions of this Lease, and that the coverage there under is
at least equal to the coverage which would be provide under a separate policy covering only the Premises.
17.08
Increases in Insurance
Premiums.
Tenants shall not stock, use, or sell any article or do anything in or about the Premises which may be prohibited
by Landlord’s insurance policies carried on the remainder of The Falls Office Park or any endorsements or forms attached
thereto, or which will increase any insurance rates. Tenant shall pay on demand any increase in Premiums that may be charged on
insurance carried by Landlord resulting from Tenant’s use and occupancy of the Premises or The Falls Office Park, whether
or not Landlord has consented to the same.
17.09
Blanket Policy.
If Tenant provides any insurance required by this Lease in the form of a blanket policy, Tenant shall furnish satisfactory proof
that such blanket policy complies in all respects with the provisions of this Lease, and that the coverage thereunder is at least
equal to the coverage which would be provided under a separate policy covering only the Premises.
18.
DESTRUCTION
If the Premises shall be partially damaged
by any casualty insured against under Landlord’s insurance policy, Landlord shall, upon receipt of the insurance proceeds,
repair the Premises and, until such repair is complete, the Basic Rent shall be abated proportionately as to the portion of the
Premises rendered untenantable. Notwithstanding the foregoing, if a) the Premises by reason of such occurrence are rendered wholly
untenantable, or b) the Premises should be damaged as a result of a risk which is not covered by Landlord’s insurance, or
c) the Premises should be damaged in whole or in part during the last three (3) years of the Term of this Lease or of any renewal
hereof, or d) the Premises or the building of which it is a part, whether the Premises are damaged or not, are all damaged to the
extent of fifty (50%) percent or more of the then monetary value thereof, or e) any or all of the building or common areas of The
Falls Office Park cannot in the sole judgment of the Landlord be operated as an integral unit, then and in any such events, Landlord
may either elect to repair the damage or may cancel this Lease by notice of cancellation within one hundred eighty (180) days after
such event and thereupon this Lease shall expire and Tenant shall vacate and surrender the Premises in a manner and in at least
a condition equal to that existing prior to the destruction or casualty. All work of restoration shall be done in substantial conformance
with Tenant’s plans and specification with 180 days after insurance companies release funds to Landlord. Notwithstanding
the above, the decision as to whether the Premises are untenantable shall rest with Landlord.
19.
CONDEMNATION
19.01
Total Condemnation.
If the whole of the Premises shall be acquired or taken by condemnation proceeding, then this Lease shall cease and terminate as
of the date title vesting in such proceeding.
19.02
Partial Condemnation.
If any part of the Premises shall be taken as aforesaid, and such partial taking shall render that portion not so taken unsuitable
for the business of Tenant (except for the amount of floor space), then this Lease shall cease and terminate as aforesaid. If such
partial taking is not extensive enough to render the Premises unsuitable for the business of Tenant, then this lease shall continue
in effect that the minimum rent shall be reduced in the same proportion that the floor area of the premise taken bears to the original
floor area leased and Landlord shall, upon receipt of the award in condemnation, make all necessary repair or alterations to the
building in which the Premises are located so as to constitute the portion of the building not taken a complete architectural unit,
but the cost of such work to be done by Landlord shall not in any event exceed the amount received by Landlord as damages for the
part of the Premises so taken. Amount received by Landlord shall mean that part of the award which is free and clear to Landlord
of any collection by mortgage lenders for the value of the diminished fee. Notwithstanding the above, the decision as to whether
the Premises are untenantable shall remain with Landlord.
19.03
Landlord’s
Option to Terminate.
If more than twenty (20%) percent of the floor area of the building in which the Premises are located
shall be taken as aforesaid. Landlord may, by written notice to tenant, terminate this Lease. If this Lease is terminated as provided
in this subsection, Basic Rent and any Adjustments to Rent shall be paid up to the day that possession is so taken by public authority
and Landlord shall make an equitable refund of any Basic Rent paid by Tenant in advance.
19,04
Award.
Tenant
shall not be entitled to and expressly waives all claim to any condemnation award for any taking, whether whole or partial and
whether for diminution in value of the leasehold or to the fee, although Tenant shall have the right, to the extent that the same
shall not reduce Landlord’s award, to claim from the condemner, but not from the Landlord, such compensation as may recoverable
by Tenant in its own right for damages to Tenant’s business and fixtures.
19.05
Definition.
As used in
this Section, the term “Condemnation Proceeding” means any action or proceeding in which any interest in the Premises
is taken for any public or quasi-public purpose by any lawful authority through exercise of the power of eminent domain or right
of condemnation or by purchase or otherwise in lieu thereof.
20.
EVENTS OF DEFAULT, REMEDIES
20.01
Default
by Tenant.
Upon the occurrence of any of the following events, Landlord shall have the remedies set forth in Section 20.02:
a) Tenant
fails to pay any rent or any other sum due hereunder for five (5) days after the same shall be due.
b) Tenant shall fail, neglect
or refuse to keep and perform any of the covenants, conditions, stipulations or agreements herein contained and agreed to be kept
and performed by Tenant, other than the payment of money, and such default shall continue for a period of more than ten (10) days
after notice thereof in writing has been given to Tenant by Landlord; provided, however, that if the cause for giving such notice
involves the making of repairs or other matters reasonably requiring a longer period of time, Tenant shall be deemed to comply
with such notice if Tenant has commenced such performance within ten (10) days of such notice and is diligently prosecuting compliance
therewith, said time not to exceed at total of thirty (30) consecutive days.
c) Tenant or its agent shall
falsify any report required to be furnished to Landlord hereunder.
d) Tenant or any guarantor
of this Lease shall become bankrupt or insolvent or file any debtor proceedings or have taken against it a petition in bankruptcy
or insolvency, reorganization, or appointment of a receiver or trustee in any court pursuant to state or federal statue, or petition
for or enter into an arrangement; or suffers this Lease to be taken under a writ of execution.
e) Tenant violates a Section
herein of this Lease.
f) Any attachment or levy
of execution or similar seizure of the Premises or Tenant’s merchandise, fixtures or other property at the Premises or any
foreclosure, repossession, or sale tender any chattel mortgage, security agreement or conditional sales contract covering Tenants
merchandise, fixtures or other property at the Premises; or the appointment of a receiver or trustee to take assignment by Tenant
for the benefit of creditors; or any other action taken or suffered by Tenant under any State or Federal insolvency or bankruptcy
act and the continuation thereof for more than twenty (20) days.
g) Tenant shall desert or vacate any substantial
portion of the Premises for a period or five (5) or more days, excluding vacations.
20.02
Remedies.
Upon
the occurrence of the events set forth in Section 20.01, Landlord shall have the option to the extent provided by Nevada law to
take any of the following actions upon giving such notice as required by law or, if no requirement is set forth, by giving a five
(5) day written notice to Tenant:
a) Immediately reenter and remove
all persons and property from the Premises, storing said property in a public place, warehouse or elsewhere at the cost of, and
for the account of, Tenant. No such reentry or taking possession of the premises by Landlord shall be considered or constructed
to be a forcible entry.
b) Collect by suit or otherwise
each installment of rent or other sum as it becomes due hereunder, enforce by suit or otherwise any term or provision hereof required
to be kept or performed on the part of Tenant.
c) Terminate this Lease. In the
event of such termination, Tenant agrees to immediately surrender possession of the Premises. Should Landlord terminate this Lease,
it may recover from Tenant all damages it may incur by reason of Tenant’s breach, including the cost of recovering the Premises,
reasonable attorney’s fees, and the worth at the time of such termination of the excess, if any of the amount of rent and
charges equivalent to rent reserved in this Lease for the remainder of the stated term, all of which amounts shall be immediately
due and payable from Tenant to Landlord. In determining the rent which would be payable by Tenant hereunder subsequent to default,
such shall be the Basic Rent and CAM, together with any and all adjustments and/or additional rents for the date of default through
the balance of the term of the Lease.
d) Should Landlord re-enter,
as provided above, or should it take possession pursuant to legal proceedings or pursuant to any notice provided by law, and whether
or not the Lease is terminated, it may be necessary to relet the Premises or any part thereof for such term or terms (which may
be for a term extending beyond the term of the Lease) and at such rent or rents and upon such other terms and conditions as Landlord
in its sole discretion may deem advisable. Upon each such reletting, said rent shall be applied, first, to the payment of any indebtedness
other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs and expenses of such reletting, including
without limitation tenant improvements and brokerage fees; and third, to the payment of rent due and unpaid hereunder; and the
residue, if any, shall be held by Landlord and applied in payment of future rent as the same may become due and payable hereunder.
If such rents received from such reletting during any month be less than that to be paid during such month by Tenant hereunder,
Tenant shall pay any such deficiency shall be calculated and paid monthly. No such re-entry and reletting of Premises by Landlord
shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant
pursuant to subsection c) above, or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding
any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach.
e) Neither this Lease nor
any interest herein nor any estate created hereby shall pass by operation of law under any State or Federal insolvency or bankruptcy
act to any trustee, receiver, assignee for the benefit of creditors, or any person whatsoever without the prior written consent
of Landlord.
f) Nothing contained in
this Lease shall limit Landlord to the remedies set forth in this Paragraph 20. The remedies given to Landlord in this Paragraph
20 shall be in addition to and supplemental to all other rights or remedies which the Landlord may have under the laws of the State
of Nevada then in force. Upon Tenant’s default Landlord shall be entitled to exercise any right or remedy then provided by law,
including without limitation, the right to obtain injunctive relief and the right to recover all damages caused by Tenant’s
default in the performance of any of its obligations under this Lease.
g) The waiver by Landlord of any such breach
of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or any
subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder
by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord’s knowledge of such proceedings
breach at the time of acceptance of such rent. No covenant, term, or condition of this Lease shall be deemed to have been waived
by Landlord unless such waiver is in writing signed by Landlord.
21.
ACCESS TO PREMISES
Landlord shall have the
right to place, maintain, and repair all utility equipment of any kind upon and under the Premises as may be necessary for the
servicing of the Premises and other portions of The Falls Office Park. Landlord shall have the right to tender the Premises at
all times during normal business hours to inspect or to exhibit the same to prospective purchasers, mortgagees, tenants, and lessees,
and to make such repairs, additions, alterations, or improvements as Landlord may deem desirable after eight (8) hour verbal notice
to Tenant.
22.
HAZARDOUS MATERIALS
Tenant shall not cause or permit any
Hazardous Material (as hereinafter defined) to be brought upon, kept or used in or about the Premises by Tenant, its agents, employees,
contractors or invitees, without the prior written consent of Landlord, which consent may be granted or withheld at Landlord’s
sole discretion. For the purpose of this Lease, “Hazardous Material” shall include oil, flammable explosives, asbestos,
urea formaldehyde, radioactive materials or waste (with the exception of waste typically found in a dental practice), or other
hazardous, toxic, contaminated or polluting materials, substances or wastes, including, without limitation, any “hazardous
substances”, “hazardous wastes”, “hazardous materials” or “toxic substances” as such
terms are defined in the Resource Conservation and Recovery Act and the Comprehensive Environment Response, Compensation and Liability
Act, and in any other law, ordinance, rule, regulation or order promulgated by the federal or state government, or any other governmental
entity having jurisdiction over The Falls Office Park or the parties to this Lease. If Tenant breaches the obligations set forth
in this paragraph, or if the presence of Hazardous Material in the Premises or at The Falls Office Park caused or permitted by
Tenant (whether or not Landlord has given its consent to the presence of such Hazardous Material in the Premises) results in contamination
of the Premises or any other part of The Falls Office Park, or if contamination of The Falls Office Park by Hazardous Material
otherwise occurs for which Tenant is legally liable, the Tenant shall indemnify, defend and hold Landlord harmless from any and
all claims, judgments, damages, penalties, fines, costs, liabilities or losses, including, without limitation, diminution in value
of The Falls Office Park, damages for the loss or restriction on use of rentable space or floor in or of any amenity of The Falls
Office Park, damages arising from any adverse impact on leasing space in The Falls Office Park, sums paid in settlement of claims,
and any attorney’s fees, consultant fees and expert fees which arise during or after the term of this Lease as a result of
such contamination. This indemnification of Landlord by Tenant shall survive expiration or termination of this Lease and includes,
without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal or
restoration work required by any federal, state or local government agency or political subdivision because of Hazardous Material
present in, on or under the Premises. Without limiting the foregoing, if the presence of any Hazardous Material caused or permitted
by Tenant or its agents, employees, contractors or invitees, results in any contamination of The Falls Office Park, Tenant shall
promptly take all actions, at its sole expense, as are necessary to return The Falls Office Park to the condition existing prior
to the introduction of any such Hazardous Material; provided that Landlord’s approval of such actions shall first be obtained,
which approval shall not be unreasonably withheld so long as such actions would not potentially have any material adverse long-term
or short-term effects on The Falls Office Park. Tenant shall promptly notify Landlord of any such contamination.
23.
FINANCING
23.01
Amendment.
Tenant
agrees that from time to time it shall, if so requested by Landlord and if doing so will not substantially and adversely affect
Tenant’s economic interest under this Lease, join with Landlord in amending the terms of this Lease so as to meet the reasonable
needs or requirements of any lender which is considering furnishing or which has furnished any of the financing.
23.02
Subordination.
Tenant
agrees that, should the Landlord at any time desire to place a deed of trust upon The Falls Office Park, Tenant shall execute any
subordination agreement required by the holder of the note secured by the deed of trust for the benefit of the lender, and shall
further execute any and all estoppel certificates in the form as required by lender. Failure of Tenant to execute the required
subordination documentation or estoppel certificates shall constitute a breach of the term and conditions of the Lease.
24.
ATTORNMENT
In the event of the sale
or assignment of Landlord’s interest in the building of which the Premises are a part, or in the event of any proceedings
brought for the foreclosure of, or in the event of exercise of the power of sale under, any mortgage or other security instrument
made by Landlord covering the Premises, Tenant shall attorn to the assignee or purchaser and recognize such purchaser as Landlord
under this Lease.
25.
RIGHT TO CURE
25.01 In the event of breach,
default or noncompliance hereunder by Landlord, Tenant shall, before exercising any right or remedy available to it, give Landlord
written notice of the claimed breach, default or noncompliance. If prior to its giving such notice Tenant has been notified in
writing (by way of Notice of Assignment of Rents and Lease, or otherwise) of the address of a lender which has furnished any of
the financing referred to in Section 23.01 hereof, concurrently with giving the aforesaid notice to Landlord, Tenant shall, by
registered mail, transmit a copy thereof to such lender. For the thirty (30) days following the giving of the written notice(s)
required by the foregoing portion of this Section (or such longer period of time as may be reasonably required to cure a matter
which, due to its nature, cannot reasonably be rectified within thirty (30) days), Landlord shall have the right to cure the breach,
default or noncompliance involved.
25.02 If Landlord has failed to cure
a default within said period or any additional time as may be necessary, if within such thirty (30) day period any lender has commenced
and is diligently pursuing the actions of remedies necessary to cure the breach, default or noncompliance involved (including,
but not limited to, commencement and prosecution of proceedings to foreclose or otherwise exercise its right under its mortgage
or other security agreement if necessary to effect such cure), this Lease shall not be terminated by Tenant so long such actions
or remedies are being diligently pursued by said lender.
26.
QUIET ENJOYMENT
Tenant, upon paying the rents and observing
and performing all of term, covenants and conditions on its part to be performed hereunder, shall peaceable and quietly enjoy
the Premises for the terms hereof.
27.
SURRENDER OF PREMISES
At the expiration of this
Lease, Tenant shall surrender the Premises in the same condition as they were delivered upon possession thereof under this Lease,
reasonable wear and tear excepted, and shall deliver all keys to Landlord. Before surrendering the Premises, Tenant shall remove
all of its personal property and trade fixtures and such alterations or additions to the Premises made by Tenant as may be specified
for removal by Landlord, and shall repair any damage caused by such property or the removal thereof. If Tenant fails to remove
its personal property and fixtures upon at the expiration of this Lease, the same be deemed abandoned and shall become the property
of Landlord. No act or conduct of Landlord, except a written acknowledgment of acceptance or surrender signed by Landlord, shall
be deemed to be or constitute an acceptance of the surrender of the Premises by Tenant prior to the expiration of the Term of this
Lease.
28.
HOLDING OVER
In the event Tenant shall
hold over the Premises after the expiration of the Term hereof with the consent of Landlord, either express or implied, such holding
over shall be construed to be only a tenancy from month-to-month, subject to all the covenants, conditions and obligations hereof
and Tenant hereby agrees to pay Landlord the Basic Rent, but no less than 110% of the then current rental rate, for the rental
of the space during the time Tenant shall hold over the Premises.
29.
PAST DUE SUMS
If Tenant fails to pay, when the same is due and payable, any Basic Rent, additional
rent or other sum required to be paid by it hereunder, such unpaid amounts shall bear interest from the due date thereof to the
date of payment at the rate of ten (10%) percent per annum.
30.
MISCELLANEOUS PROVISIONS
30.01
No Partnership
. Landlord does not by this Lease, in any way or for
any purpose, become a partner or joint venture of Tenant in the conduct of its business or otherwise. The provisions of this Lease
relating to percentage rent are included solely for the purpose of providing a method whereby rent is to be measured and ascertained.
30.02
Force Majeure
. Landlord
and Tenant shall be excused for the period of any delay in the performance of any obligations hereunder when prevented from so
doing because of causes beyond such party’s control, including labor disputes, civil commotion, war, governmental regulations or
controls, fire or other casualty, inability to obtain any material or services, or acts of God.
30.03
No Waiver
.
Failure of Landlord to insist upon the strict performance of any provision or to exercise any option hereunder shall not be deemed
a waiver of said breach. No provision of this Lease shall be deemed to have been waived unless such waiver is in writing signed
by Landlord.
30.04
Anti Terrorism Compliance
.
Tenant represents and warrants that it is not an entity listed on the U.S. Treasury’s Office of Foreign Assets Control Specially
Designated National list (as amended from time to time), that it is not an entity Landlord is prohibited to do business with under
anti-terrorism laws, ant that it will not do any business with any entity that will violate anti-terrorism laws.
30.05
Notices
. Any
notice, demand, request or other instrument which may be or is required to be given under this Lease shall be delivered in person
or sent by United States mail, certified or registered, postage prepaid, and shall be addressed, if to Tenant, either at the Premises
as set forth below or at any other current address for Tenant which is known to Landlord. Either party may designate such other
address as shall be given by written notice.
|
To Landlord:
|
|
To Tenant:
|
|
DIJ, A NV LIMITED PARTNERSHIP
|
|
ATG HOLDINGS, LLC
|
|
3275 S Jones Blvd #105
|
|
3275 S. Jones Blvd. Suite 104
|
|
Las Vegas, NV 89146
|
|
Las Vegas, NV 89146
|
|
Phone: (702) 363-4788
|
|
Phone: _____________
|
30.06
Partial Invalidity
.
If any provision of this Lease or application thereof to any
person or circumstance shall to any
extent be invalid, the remainder of this Lease or the application of such provision to persons or circumstances other than those
held invalid shall not be affected thereby and each provision of this Lease shall be valid and enforced to the fullest extent
permitted by law.
30.07
Tenant defined; Use
of Pronouns
. The word “Tenant shall be deemed and taken to mean the person, partnership, corporation or other entity executing
this document as Tenant herein. If there is more than one Tenant, any notice required or permitted by the terms of this Lease may
be given by or any one thereof, and shall have the same force and effect as if given by or to all thereof. The use of the neuter
singular pronoun to refer to Landlord or Tenant shall be deemed a proper reference even though Landlord or Tenant may be individuals
or corporations. The necessary grammatical changes required to make the provisions of this Lease apply in the plural sense where
there is more than one Landlord or Tenant and to corporations, associations, partnerships or individuals, males or females, shall
in all instances be assumed as though in each case fully expressed.
30.08
Provisions Binding,
Etc
. Except as otherwise provided, all provisions herein shall be binding upon and shall inure to the benefit of the parties,
their legal representatives, heirs, successors and assigns. Each provision to be performed by Tenant shall be construed to be
both a covenant and a condition and if there shall be more than one Tenant, they shall all be bond jointly and severally by such
provisions. In event of any sale or assignment (except for purposes of security or collateral) by Landlord of The Falls Office
Park, the Premises, or this Lease, Landlord shall, after date of sale and after the Commencement Date (irrespective of when such
sale or assignment occurs), be entirely relieved of all its obligations which shall, as of the time of such sale or assignment
or on the Commencement Date, whichever is later, automatically pass to Landlord’s successor in interest.
30.09
Entire Agreement,
Etc
. This Lease and the Exhibits, if any, attached hereto, set forth the entire agreement between parties. All Exhibits mentioned
in this Lease are incorporated herein by this reference. Any guarantee attached hereto is an integral part of this Lease and constitutes
consideration given to Landlord to enter into this Lease. Any prior conversations or writings are merged herein and extinguished.
No subsequent amendment to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by Landlord
and Tenant. Submission of this Lease for examination does not constitute an option for the Premises and becomes effective as a
lease only upon execution and delivery thereof by Landlord to Tenant. The captions and section numbers appearing herein are inserted
only as a matter of convenience and are not intended to define, limit, construe or describe the scope or intent of any Section
or Paragraph.
30.10
Recourse by
Tenant
. Anything in this Lease to the contrary notwithstanding
;
in the event that Landlord shall be liable to
Tenant for damage sustained by Tenant as a result of Landlord’s breach, it is expressly understood and agreed that any
money judgment resulting from any default or other claim arising under this Lease shall be satisfied only out of the rents,
issues, profits and other income (“income”) actually received from the operation of The Falls Office
Park,
and no other real, personal or mixed property of Landlord, (the term “Landlord” for the purpose of this Paragraph
shall also mean without limitation, any and all trustees, members, managers, shareholders, officers, directors, partners,
both general and or limited, if any, which comprise Landlord, wherever situated), shall be subject to levy on any such
judgment obtained against Landlord; and if such income is insufficient for the payment of such judgment, Tenant will not
institute any further action, suit, claim of demand, in law or in equity, against Landlord for or on the account of such
deficiency. Tenant hereby waives, to the extent waivable under law, any right to satisfy said money judgment against Landlord
except from income received by Landlord from the operation of The Falls Office Park.
30.11
Signage
.
Lessee shall be granted signage on the building visible both from Desert Inn and Jones Blvd subject to Landlord’s prior
written approval, said approval will not be unreasonably withheld.
30.12
Parking
. Landlord
will provide non-exclusive onsite parking spaces for the Lessee, and only 8 of those shall be covered spaces.
30.13
Attorney’s
Fees
. In case suit landlord shall incur legal fees and costs to enforce any provisions of this Lease, including
without limitation, unlawful detainer of the Premises, or for the recovery of any rent due under the provisions of this
Lease, or because of the breach of any covenant herein contained on the part of Tenant to be kept or performed, the Landlord
shall be entitled to reimbursement and/or and award of reasonable attorney’s fees and costs.
30.14
Interpretation
. As used
in this Lease and whenever required by the context thereof, each number, both singular or plural, shall include all numbers, and
each gender shall include all genders. “Landlord” and “Tenant” as used in this Lease or in any other instrument
referred to in or made a part of this Lease shall likewise include both the singular and the plural, a corporation, co-partnership,
individual or person acting in any fiduciary capacity as executor, administrator, trustee, or in any other representative capacity.
All covenants herein contained on the part of Tenant shall be joint and several.
30.15
Applicable State Law
.
The laws of the State of Nevada shall govern the validity, construction, performance and enforcement of this Lease. Any and all
disputes arising from this Agreement shall be resolved within the State of Nevada, County of Clark, unless otherwise mutually agreed
to by the parties.
30.16
Brokers
.
Tenant represents and warrants that there are no claims for brokerage commission or finder’s fees in connection with
the execution of this Lease except as listed below, and Tenant agrees to indemnify and hold harmless Landlord against all
liabilities and costs arising from such claims, including without limitation, attorney’s fees and costs in connection
therewith.
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LISTING BROKER:
|
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REAL ESTATE ASSET MANAGEMENT, LLC
|
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AGENT:
|
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Jeff
Susa
|
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COOPERATING BROKER:
|
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None
|
A “Cooperating Broker”
is defined as any broker other than the Listing Broker entitled to a share of any commission arising under this Lease.
30.17
No Option
. The submission
of this Lease for examination does not constitute a reservation of, or option for the Premises and this Lease shall become effective
as a Lease only upon complete execution thereof by both Landlord and Tenant.
30.18
Entire
Instrument
. It is understood that there are no oral agreements between the parties affecting this Lease and this Lease
supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements, representations and
understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter
thereof and none thereof shall be used to interpret or construe this Lease.
30.19
Bankruptcy
. If at
any time during the term of this Lease there shall be filed by or against Tenant in any court pursuant to any statute either of
the United States or of any State a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver
or trustee of all or a portion of Tenant’s property, or if Tenant makes an assignment for the benefit of creditors or petitions
for, or enters into, an arrangement (any of which are referred to herein as “a bankruptcy event”), then the following
provisions shall apply:
A. At
all events any receiver or trustee in bankruptcy shall either expressly assume or reject this Lease within forty-five (45) days
following the entry of an “Order for Relief”.
B. In
the event of an assumption of the Lease by a debtor or by a trustee, such debtor or trustee shall within fifteen (15) days after
such assumption (1) cure any default or provide adequate assurances that the defaults will be promptly cured; and (2) compensate
Landlord for actual pecuniary loss or provide adequate assurances that compensation will be made for actual pecuniary loss; and
(3) provide adequate assurance of future performance.
C. Where
a default exists in the Lease, the trustee or debtor assuming the Lease may not require Landlord to provide services or supplies
incidental to the Lease before its assumption by such trustee or debtor, unless Landlord is compensated under the terms of the
Lease for such services and supplies provided before the assumption of such Lease.
D. The
debtor or trustee may only assign this Lease if: (1) it is assumed; and (2) adequate assurance of future performance by the assignee
is provided, whether or not there has been a default under the Lease. Any consideration paid by any assignee in excess of the rental
reserved in the Lease shall be the sole property of, and paid to, Landlord.
E. The Landlord shall
be entitled to the fair market value for the Premises and the services provided by Landlord (but in no event less than the rental
reserved in the Lease)
subsequent to the commencement of a bankruptcy event.
F. Landlord specifically
reserves any and all remedies available to Landlord in this Lease or at law or in equity in respect of a bankruptcy event by
Tenant to the extent such remedies are permitted by law.
30.20
Rules and
Regulations
. Tenant acknowledges that Landlord may from time to time adopt rules and regulations as may be necessary
to assure the proper running of The Falls Office Park.
30.21
Timely Performance
.
Time is of the essence for each condition, term, and provision of this Lease.
30.22
Counterparts
.
This Agreement may be executed in counterparts, each of which shall constitute an original.
30.23
Mutuality
. Each
of the Parties declares that he or she has had the opportunity of independent legal counsel and advice, and that each fully
understands the facts and has been fully informed of all legal rights and liabilities; that after such advice and knowledge,
each believes this Lease to be fair, just and reasonable, and that each signs the Lease freely and voluntarily. This Lease
shall be construed as being drafted by both Parties and shall inure to the benefit of both the same.
30.24
As -Is Condition
. Notwithstanding
anything herein to the contrary, Tenant acknowledges and agrees that Tenant is accepting the condition of the Premises in an “As-Is”
condition without any representations or warranties.
Landlord will repair the one (1) HVAC currently non-operational.
30.25
Confidentiality
.
Tenant agrees the terms of this Lease are of a sensitive nature, and disclosure of the same will be harmful and damaging
to Landlord’s interests. As such, Tenant agrees and covenants that neither Tenant nor its employees or agents shall disclose
any information regarding this Lease, including, but not limited to the amount of Basic Rent that the Tenant is paying to any
third parties, including but not limited to any other tenants in The Falls Office Park. Tenant shall be liable to Landlord for
any damages incurred by Landlord for breach of this provision. In addition, Landlord shall have the right, as its sole discretion,
to either terminate this Lease should Tenant violate the terms of this provision, or immediately increase Tenant’s Basic
Rent to the holdover rental rate stated in Paragraph 28 herein.
30.26
This lease is
subject to the successful cancellation of lease dated September 12, 2014 between DIJ, a Nevada Limited Partnership and Michael
Q. Hesser.
IN WITNESS WHEREOF, the
parties have duly executed this Lease the day and year herein above written.
|
LANDLORD:
|
|
TENANT:
|
|
|
|
|
|
|
DIJ, A NEVADA LIMITED PARTNERSHIP
|
|
ATG HOLDINGS, LLC
|
|
|
|
|
|
|
|
By:
|
SSS, a Nevada Limited Liability Company
Its General Partner
|
|
|
|
|
|
|
|
|
|
|
/s/ Jeff Susa
|
|
/s/ Dimitri Deslis
|
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By:
|
Jeff Susa
|
|
By:
|
Dimitri Deslis
|
|
Its:
|
Managing Member
|
|
Its:
|
Manager
|
GUARANTY
GUARANTY OF LEASE AGREEMENT dated November 1, 2017 between
DIJ, A Nevada Limited Partnership
(hereinafter
referred to as “Landlord”) and ATG HOLDINGS, LLC (hereinafter referred to as “Guarantor”).
FOR VALUABLE CONSIDERATION,
receipt of which is hereby acknowledged, the undersigned Guarantor hereby unconditionally and irrevocably guarantees to Landlord,
its successors and assigns, the full and prompt payment of the rent and all other sums and charges payable by Tenant, its successors
and assigns, under the Lease and further hereby guarantees the full and timely performance and observance of all the covenants,
terms, conditions and agreements therein provided to be performed and observed by Tenant, its successors and assigns. The Guarantor
hereby convenants and agrees to and with. Landlord, its successors and assigns, that if default shall at any time be made by Tenant,
its successors and assigns, in the payment of any such rent and any and all other sums and charges payable by Tenant, its successors
and assigns, under the Lease or if Tenant should default in the performance and observance of any of the covenants, terms, conditions
or agreements contained in the Lease, the Guarantor will forthwith pay such rent and other sums and charges and any arrears thereof
to Landlord, its successors and assigns, and will forthwith faithfully perform and fulfill all of the such terms, covenants, conditions
and agreements and will forthwith pay to Landlord all damages, costs and expenses that may arise in consequence of any default
by Tenant, its successors and assigns, under the Lease, including without limitation all reasonable attorney’s fees incurred
in nonjudicial actions, at trial, and upon appeal and disbursements incurred by Landlord or caused by any such default and/or
by the enforcement of this Guaranty.
This Guaranty is an
absolute and unconditional guaranty of payment and of performance. It shall be enforceable against the Guarantor without the
necessity of any suit or proceedings on Landlord’s part of any kind or nature whatsoever against Tenant, its successors
and assigns, and without the necessity of any notice of nonpayment, non performance or nonobservance, any notice of
acceptance of this Guaranty or any other notice of demand to which the Guarantor might otherwise be entitled, all of which
the Guarantor hereby expressly waives. The Guarantor hereby expressly agrees that the validity of this Guaranty and the
obligations of the Guarantor hereunder will in no way be terminated, affected, diminished or impaired by reason of the
assertion or the failure to assert by Landlord against Tenant, or against Tenant’s successors and assigns, of any of
the rights or remedies reserved to Landlord pursuant to the provisions of the Lease or by relief of Tenant from any of
Tenant’s obligations under the Lease or otherwise by (a) the release or discharge of Tenant in any creditors’
proceedings, receivership, bankruptcy or other proceedings; (b) the impairment, limitation or modification of the liability
of Tenant or the estate of Tenant in bankruptcy or of any remedy for the enforcement of Tenant’s said liability under
the Lease, resulting from the operation of any present or future provision of the National Bankruptcy Act or other stature or
from the decision in any court; or (c) the rejection or disaffirmance of the Lease in any such proceedings.
This Guaranty shall
be a continuing guaranty and the liability of the Guarantor shall in no way be affected, modified or diminished by reason of
any assignment, amendment, renewal, supplement, modification or extension of the Lease or by reason of any modification or
waiver of or change in any of the terms, covenants, conditions or provisions of the Lease, or by reason of any extension of
time that may be granted by Landlord to Tenant, its successors or assigns or a changed or different use of the premises
consented to in writing by Landlord, or by reason of any dealings or transactions or matters or things occurring between
Landlord and Tenant, its successors and assigns, whether or not notice thereof is given to the Guarantor.
Landlord’s consent to any assignment
or assignments, and the successive assignments by Tenant and Tenant’s assigns of the Lease made either with or without notice to
the Guarantor, shall in no manner whatsoever release the Guarantor from any liability as Guarantor.
The assignment by Landlord of the Lease
and/or the rights and proceeds thereof, made either with or without notice to the Guarantor, shall in no manner whatsoever release
the Guarantor from any liability as Guarantor.
All of Landlord’s rights and remedies
under the Lease or under this Guaranty are intended to be distinct, separate and cumulative, and no such right and remedy therein
or herein mentioned is intended to be in exclusion of or a waiver of any of the others. The obligation of the Guarantor hereunder
shall not be released by Landlord’s receipt, application or release of security given for the performance and observance of covenants
and conditions required to be performed and observed by Tenant under the Lease, nor shall the Guarantor be released by the maintenance
of or execution upon any lien which Landlord may have or assert against Tenant and or Tenant’s assets.
Until all the covenants and conditions
in the Lease on Tenant’s part to be performed and observed are fully performed and observed, the Guarantor (a) shall have no right
of subrogation against Tenant by reason of any payments or acts or performance by Guarantor, in compliance with the obligations
of the Guarantor hereunder; (b) waives any right to enforce any remedy which the Guarantor now or hereafter shall have against
Tenant by reason of any one or more payment or acts or performance in compliance with the obligations of the Guarantor hereunder;
(c) subordinates any liability or indebtedness of Tenant now or hereafter held by the Guarantor to the obligations of Tenant to
Landlord under the Lease; and (d) waives any right provided by law to cause Landlord either to commence a proceeding against Guarantor
to enforce the terms of the Guaranty or to waive Landlord’s right to commence such a proceeding.
Guarantor hereby
submits itself to the jurisdiction of the courts of the State of Nevada and hereby irrevocable appoints Tenant, or if Tenant
is more than one person then any one of them, the manager, assistant manager and any acting manager of the facility being
operated at any time during the term of the Lease at the premises and (if Tenant is a corporation, trustee or partnership)
all persons of Tenant upon whom service of process may be served for service upon Tenant as its agents for the service of
process in any action against Guarantor arising out of this Guarantor in the jurisdiction in which the premises are located.
This provision does not affect any right to serve process under Guarantor in any other manner permitted by law.
IN WITNESS WHEREOF,
Guarantor has executed this Guaranty this day of November, 2017.
“Guarantor”
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By:
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/s/ Dimitri Deslis
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Print:
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Dimitri Deslis
|
|
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Social Security Number: ___________________
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Exhibit
10.2
LEASE
AGREEMENT
ARTICLE
ONE BASIC TERMS
This
Article One
contains the Basic Terms of this Lease between Landlord and Tenant named below. Other Articles, Sections and
Paragraphs of this Lease referred to in this
Article One
explain and define the Basic Terms and are to be read in conjunction
with the Basic Terms.
Section
1.01
Date of Lease:
June 29, 2017.
Section
1.02
Landlord:
GDC Realty, L.L.C., a Nevada limited liability company.
Address
of Landlord: GDC Realty, L.L.C.
932
Vegas Valley Drive
Las
Vegas, NV 89109
Attention;
James C. Dillingham
Section
1.03
Tenant:
HDGLV L.L.C., a Nevada limited liability company.
Address
of Tenant: HDGLV L.L.C
9340
W. Martin Avenue
Las
Vegas, NV 89121
Attention:
Dimitri Deslis
Section
1.04
Premises:
The
“Premises”
shall be all of that certain commercial real property, inclusive
of the current building containing approximately 17,298 square feet (the
“Building”
), and all other improvements
and fixtures located thereon, and rights appurtenant thereto, located at 2310 Western Avenue, Las Vegas, Nevada (APN#162-04-404-002),
and identified on Exhibit “A” attached hereto, and shall include the right to utilize all parking improvements and
other portions of the property. The square footage figure for the Premises, as recited in this
Section 1.04,
is approximate.
No adjustment will be made to the Base Rent or any other amounts payable by Tenant under this Lease (or to any other provisions
of this Lease) if the actual square footage, however measured, is more or less than the square footage recited.
Section
1.05
Term.
(a)
Lease
Term:
Ten (10) years, plus any applicable extension(s) thereof.
(b)
Lease
Commencement Date:
The Lease Term shall commence on the date (the
“Commencement Date”
) that
is thirty (30) days following the date Tenant is given full access to and possession of the Property.
(c)
Lease
Expiration Date:
June 30, 2027.
Section
1.06
Permitted Uses:
(See
Article Five
) only for operation of a legally permitted cultivation of cannabis
and related storage, warehousing, and distribution, and related office administration; all as permitted by, and in strict accordance
with, the laws of the State of Nevada or any other mutually agreed legal use.
Section
1.07
Initial Security Deposit:
(Sec
Section 3.02
) an amount equal to the sum of the first and last month’s
Base Rent or $38,632.93.
Section
1.08
Brokers:
N/A
Section
1.09
Rent and Other Charges Payable by Tenant:
(a) BASE
RENT:
|
Lease
Period
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|
Monthly
Payment
|
|
|
Annual
Rent
|
|
|
Lease
Months 1 through 12
|
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$
|
0.00
|
*
|
|
$
|
0.00
|
|
|
Lease
Months 13 through 60
|
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$
|
19,220.00
|
|
|
$
|
230,640.00
|
|
|
Lease
Months 61 through 72
|
|
$
|
19,239.22
|
|
|
$
|
230,870.64
|
|
|
Lease
Months 73 through 84
|
|
$
|
19,258.46
|
|
|
$
|
231,101.52
|
|
|
Lease
Months 85 through 96
|
|
$
|
19,296.98
|
|
|
$
|
231,563.76
|
|
|
Lease
Months 97 through 108
|
|
$
|
19,
354.87
|
|
|
$
|
232,258.44
|
|
|
Lease
Months 109 through 120
|
|
$
|
19,412.93
|
|
|
$
|
232,955.16
|
|
**
Base Rent for months 1-12 shall be abated hereunder.
(b) ADDITIONAL
RENT: (i) all Real Property Taxes (see
Section 4.02
below); (ii) all Utilities (see
Section 4.03
below); (iii) all
Insurance Premiums (see
Section 4.04
below); and (iv) one hundred percent (100%) of all Common Area Costs (see
Section
4.05(e)
below) (collectively, the “Operating Costs”). Tenant shall be obligated to pay the Operating Costs referenced
in this Section 1.09(b) as Additional Rent during the entire Lease Term, including any extensions thereto, without any abatement
whatsoever.
(c) PERCENTAGE/GROSS
REVENUE RENT: None.
ARTICLE
TWO LEASE TERM
Section
2.01
Lease of Premises for Lease Term.
Landlord hereby leases to Tenant and Tenant leases from Landlord the
Premises, as described in
Section 1.04
above. The term of this Lease (the
“Lease Term”
) shall be as
set forth in
Section 1.05(a)
above, shall commence on the date (the
“Lease Commencement Date”
) set forth
in
Section 1.05(b)
above, and shall terminate on the date (the “Lease
Expiration Date”)
set forth in
Section 1.05(c)
above, unless sooner terminated or extended as expressly provided in this Lease. The terms and provisions
of this Lease shall be effective as of the date of this Lease.
Section
2.02
Delay in Commencement.
If delivery of possession of the Premises to Tenant is delayed, and if Landlord
and Tenant mutually agree, each shall, upon such delivery, execute an amendment to
this
Lease setting forth the actual
Lease Commencement Date and Lease Expiration Date, substantially in the form attached as
Exhibit “C”
to this
Lease, which Tenant shall execute and return to Landlord within five (5) days after receipt from Landlord. The failure of Tenant
to take possession of or to occupy the Premises upon delivery by Landlord shall not
serve to
relieve Tenant of any obligations
arising on the Lease Commencement Date, and shall not delay the payment of Rent then due by Tenant.
Section
2.03
Early Access.
Tenant shall have the right of early access to the Premises, subject to (a) full execution
of this Lease,
(b)
Tenant’s receipt of all necessary governmental permits, approvals, licenses, or consents or authorizations
(with copies of same to be delivered to Landlord), and (c) all of the terms and conditions of this Lease (including, but not limited
to, the insurance provisions of
Section 4.04
below), with the exception of the payment of Base Rent and Additional Rent;
provided, however, that during such period of early access, Tenant shall be responsible for payment of the cost of all utilities
attributable to Tenant’s use of the Premises. Such early access shall be for the sole purpose of preparing the Premises
for Tenant’s use, including the installation of equipment and storage of Tenant’s products. During such period, Tenant
shall assume all risk of loss to Tenant’s equipment, products, and other personal property. Notwithstanding the above, if
Tenant occupies the Premises and commences business operations thereon prior to the Lease Commencement Date, Tenant’s use
and occupancy of the Premises shall be subject to all of the provisions of this Lease, including those governing the payment of
Additional Rent. Tenant’s early access to or occupancy of the Premises shall not advance the Lease Expiration Date.
Section
2,04
Holding Over.
Tenant agrees that if the Premises is not surrendered to Landlord on or before the expiration
or earlier termination of the Lease Term, without the express or implied consent of Landlord, such tenancy shall be a tenancy
at sufferance only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Base Rent
shall be payable at a monthly rate equal to one hundred twenty-five percent 125% the Base Rent applicable immediately before the
expiration or earlier termination of the Lease Term. Such tenancy at sufferance shall be subject to every other term, covenant
and agreement contained herein. Nothing in this Lease, including this
Section 2.04,
shall be construed as consent by Landlord
to Tenant retaining possession of the Premises after the expiration or earlier termination of the Lease Term and no acceptance
by Landlord of payments from Tenant after the expiration or earlier termination of the Lease Term shall be deemed to be other
than on account of the amount to be paid by Tenant in accordance with the provisions of this
Section 2.04,
which provisions
shall survive the expiration or earlier termination of the Lease Term. If Tenant fails to surrender the Premises upon the expiration
or earlier termination of the Lease Term, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect,
defend, indemnify and hold harmless Landlord (and Landlord’s members, managers, partners, and shareholders, as applicable,
and the affiliates, employees, agents, and contractors of Landlord and its members, managers, partners, and shareholders, as applicable)
from all losses, liabilities, damages, costs and expenses (including attorneys’ fees) resulting from such failure, including,
without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender,
and any lost profits to Landlord resulting therefrom.
Section
2.05
Option to Extend Lease Term.
(a)
Grant
of
Option.
Landlord hereby grants to Tenant two (2) options (each an “Option”) to extend the Lease Term
for an additional term of five (5) years each (an “Extension”), on the same terms and conditions as set forth in this
Lease with a three percent (3%) annual increase in the Base Rent. The Option shall be exercised only by written notice delivered
to Landlord not more than three hundred sixty (360) days and not less than ninety (90) days before the expiration of the then
current Lease Term. If Tenant fails to deliver Landlord written notice of the exercise of the Option within the prescribed time
period, the Option shall lapse, and there shall be no further right to extend the Lease Term. The Option shall be exercisable
by Tenant on the express conditions that (a) at the time of the exercise, Tenant shall not be in default under any of the provisions
of this Lease. Following Tenant’s timely and valid exercise of an Option, Landlord shall prepare and Tenant shall execute
and deliver to Landlord an amendment to this Lease confirming the term of the Extension and the amount of Base Rent payable by
Tenant during the Extension.
(b)
Intentionally
Omitted.
(c)
Intentionally
Omitted.
(d)
Time
of Essence
.
Time is of the essence with respect to Tenant’s exercise of an Option granted in this
Section 2.05.
(e)
Intentionally
Omitted
.
ARTICLE
THREE BASE RENT
Section
3.01
Time and Manner of Payment.
Base Rent for Lease Month I through Lease Month 12 of the initial Lease Term
shall be abated hereunder. On the first day of Lease Month 13 of the initial Lease Term, Tenant shall pay Landlord monthly Base
Rent in the amount stated in
Section 1.09(a)
above for Lease Month 13. On the first day of the next Lease Month for which
Base Rent is payable and each Lease Month thereafter, Tenant shall pay Landlord monthly Base Rent in the amount stated in
Section
1.09(a)
above, in advance. The Base Rent shall be payable at Landlord’s address or at such other place as Landlord may
designate in writing. The term “Lease
Month”
shall mean each consecutive calendar month during the Lease Term,
including any extensions thereto, with the first Lease Month commencing on the Lease Commencement Date if the Lease Commencement
Date is the first day of a calendar month; otherwise the first Lease Month shall commence on the Lease Commencement Date and shall
end on the last day of that month. If the Lease Commencement Date is a day other than the first day of a calendar month, then
Lease Month I shall commence on the Lease Commencement Date and shall end on the last day of that month.
Section
3.02
Security Deposit; Increases.
(a) No
later than September 1, 2017, Tenant shall deposit with Landlord a cash Security Deposit in the amount set forth in
Section
1,07
above. Landlord may apply all or part of the Security Deposit to any unpaid rent due from Tenant. if Landlord uses any
part of the Security Deposit, Tenant shall restore the Security Deposit to its full amount within ten (10) days after Landlord’s
written request. No interest shall be paid on the Security Deposit. Landlord shall be required to keep the Security Deposit separate
from its other accounts. Landlord shall refund the portion of the Security Deposit to which Tenant is entitled (if any) within
sixty (60) days following the date that Tenant surrenders possession of the Premises to Landlord in accordance with the terms
and conditions of this Lease.
Section
3.03 A
pplication of Payments.
Unless otherwise designated by Landlord in its sole discretion, all payments received
by Landlord from Tenant shall he applied to the oldest payment obligation owed by Tenant to Landlord.
Section
3.04
Termination; Advance Payments.
Upon termination of this Lease under
Article Seven
(Damage or Destruction)
of this Lease, or under Article Fight (Condemnation) of this Lease, or any other termination not resulting from Tenant’s
default, and after Tenant has vacated the Premises in the manner required by this Lease, Landlord shall promptly refund or credit
to Tenant (or Tenant’s successor) the unused portion of the Security Deposit, any advance rent or other advance payments
made by Tenant to Landlord, and any amounts paid for Real Property Taxes (defined below) and insurance which apply to any time
periods after termination of this Lease.
ARTICLE
FOUR OTHER CHARGES PAYABLE BY TENANT
Section
4.01
Additional Rent.
All charges payable by Tenant under this Lease other than Base Rent are called “Additional
Rent.” All costs, expenses, and obligations of any kind relating to the Premises shall be paid by Tenant and Landlord shall
be indemnified by Tenant against all such costs, expenses, and obligations. Unless this Lease provides otherwise, Tenant shall
pay all Additional Rent on the first day of each Lease Month during the Lease Term. For the avoidance of any doubt, Tenant shall
pay Additional Rent during the entire Lease Term, including any extensions thereto, without any abatement whatsoever. The term
“rent” or “Rent” shall mean Base Rent and Additional Rent. Without limitation on other obligations of
Tenant that shall survive the expiration or earlier termination of the Lease Term, the obligation of Tenant to pay any accrued
but unpaid Rent shall survive the expiration or earlier termination of the Lease Term. The failure of Landlord to timely furnish
Tenant the amount of the Rent shall not preclude Landlord from enforcing its rights to collect such Rent.
Section
4.02
Property Taxes.
(a)
Real
Property Taxes.
Tenant shall pay all Real Property Taxes on the Premises (including any fees, taxes or assessments against,
or as a result of, any tenant improvements installed on the Premises by or for the benefit of Tenant) during the Lease Term. Landlord
will bill Tenant monthly in advance for one-twelfth (1/12) of the estimated amount of such Real Property Taxes for the current
tax year and Tenant shall pay Landlord the amount of such Real Property Taxes, as Additional Rent. Landlord will pay such Real
Property Taxes on or before their due date. Any penalty caused by Tenant’s failure to timely make such payments shall also
be Additional Rent owed by Tenant immediately upon demand.
(b)
Definition
of “Real Property Taxes.” “Real Property Taxes”
means: (i) all real property taxes and assessments
of any kind or nature, including without limitation, any lee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty, or tax imposed by any taxing authority against the Property; (ii) any tax on the Landlord’s
right to receive, or the receipt of, Rent or income from the Property or against Landlord’s business of leasing the Property;
(iii) any tax or charge for fire protection, streets, sidewalks, water reclamation, road maintenance, refuse, or other services
provided to the Property by any governmental agency; (iv) any tax imposed upon this transaction or based upon a re-assessment
of the Property due to a change of ownership, as defined by applicable law, or other transfer of all or part of Landlord’s
interest in the Property; and (v) any charge or fee replacing any tax previously included within the definition of Real Property
Tax. “Real Property Tax” does not, however, include Landlord’s federal or state income, franchise, inheritance,
or estate taxes.
(c)
Intentionally
Omitted.
(d)
Personal
Property Taxes.
(i) Tenant
shall pay all taxes charged against trade fixtures, furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall diligently pursue the separate assessment of such personal property, so that it is taxed separately from the Premises.
(ii) If
any of Tenant’s personal property is taxed with the Premises, Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement from Landlord for such personal property taxes.
(e)
Use
and Occupancy Taxes.
Tenant shall also pay before any penalties or fines are assessed to the appropriate governmental authority
any use and occupancy tax in connection with the Premises, in the event Landlord is required by law to collect such tax, Tenant
shall pay such use and occupancy tax to Landlord as Additional Rein within ten (10) days of demand and Landlord shall remit any
amounts so paid to Landlord to the appropriate governmental authority in a timely fashion.
Section
4.03
Utilities.
Tenant shall pay, directly to the appropriate supplier, the cost of all natural gas, heat, light,
power, sewer service, telephone, fiber optic, cable or other communications or data delivery services, water, refuse disposal
and other utilities and services supplied to and/or consumed at the Premises. Tenant acknowledges and agrees that (1) this Lease
is entirely separate and distinct from and independent of any and all agreements that Tenant may at any time enter into with any
third party for the provision of utility services or any other services, and (2) Landlord has no obligation of any kind concerning
the provision of any such services. Landlord shall not be liable for any failure to furnish, stoppage of, or interruption in furnishing
any of the services or utilities described in this
Section 4.03,
when such failure is caused by accident, breakage, repairs,
strikes, lockouts, labor disputes, labor disturbances, governmental regulation, civil disturbances, terrorist acts, acts of war,
moratorium or other governmental action, or any other cause beyond Landlord’s reasonable control, and, in such event, Tenant
shall not be entitled to any damages nor shall any failure or interruption abate or suspend Tenant’s obligation to pay rent
as required under this Lease or constitute or be construed as a constructive or other eviction of Tenant. Rather, in the event
any governmental authority or public utility promulgates or revises any law, ordinance, rule or regulation, or issues mandatory
controls or voluntary controls relating to the use or conservation of energy, water, gas, or electricity, the reduction of automobile
or other emissions, or the provision of any other utility or service, Landlord may take any reasonably appropriate action to comply
with such law, ordinance, rule, regulation, mandatory control or voluntary guideline without affecting Tenant’s obligations
under this Lease. Tenant recognizes that security services, if any, provided by Landlord shall be at Landlord’s sole expense
at the Building and are for the protection of Landlord’s property and under no circumstances shall Landlord be responsible
for, and Tenant waives any rights with respect to, providing security or other protection for Tenant or its employees, invitees
or property in or about the Premises and Tenant shall not be responsible for the cost of any such services.
Section
4.04
Insurance Policies.
(a)
Liability
Insurance.
During the Lease Term, Tenant, at Tenant’s sole cost and expense, shall maintain a policy of commercial general
liability insurance (or its equivalent) insuring Tenant against liability for bodily injury, property damage (including loss of
use of property) and personal injury arising out of the operation, use or occupancy of the Premises. Tenant shall name Landlord
(and any affiliate, lender or property manager of Landlord designated by Landlord) as an additional insured under such policy,
and Tenant shall provide Landlord with an appropriate “additional insured” endorsement to Tenant’s liability
insurance policy not less than ten (10) business days before the early access to or occupancy of the Premises by Tenant or any
other member of the Tenant Group (defined below). The initial amount of such insurance shall be not less than Two Million Dollars
($2,000,000.00) per occurrence_ The amount nod coverage of such insurance shall not limit Tenant’s liability nor relieve
Tenant of any other obligation under this Lease. Tenant may satisfy its obligations under this Section through the use of a combination
of primary and excess or umbrella coverage. Landlord may also obtain commercial general liability insurance at its sole cost and
expense in an amount and with coverage determined by Landlord, insuring Landlord against liability arising out of ownership, operation,
use or occupancy of the Premises. The policy obtained by Landlord shall not be contributory and shall not provide primary insurance.
(b)
Property
and Rental Income Insurance.
During the Lease Term, Landlord shall maintain policies of insurance at Tenant’s sole cost
and expense (as Additional Rent) covering loss of or damage to the Premises and the Building improvements owned by Landlord in
the full amount of their replacement cost, with such policies providing protection against loss or damage due to fire or other
perils covered by the “Causes of Loss—Special Form” policy (or a similar policy containing equivalent coverage).
Landlord, at Tenant’s sole cost and expense (as Additional Rent), shall have the right to obtain flood insurance. Landlord
at its expense may acquire other forms of insurance. Landlord shall not obtain insurance for Tenant’s fixtures or equipment
or building improvements installed by Tenant on the Premises. During the Lease Term, Landlord may also, at its sole cost and expense,
maintain a rental income insurance policy, with loss payable to Landlord, in an amount equal to one year’s Base Rent, plus
one year’s estimated recurring Additional Rent. Tenant shall not do or permit anything to he done which invalidates any
such insurance policies.
(c)
Payment
of Premiums
. Tenant shall pay its premiums for the insurance policies described in
Sections 4.04(a)-(b)
above, and
Landlord shall pay all premiums for non-primary commercial general liability or other insurance which Landlord elects to obtain
as provided in
Section 4.04(a)-(b)
above. Subject to the provisions of
Section 2.03
above, prior to the Lease Commencement
Date, Tenant shall deliver to Landlord (a) either (i) a certificate of insurance (in form reasonably acceptable to Landlord) executed
by an authorized officer or agent of the insurance company, certifying that the insurance that Tenant is required to maintain
under this
Section
4,04 is in full force and effect and containing such other information Landlord reasonably requires,
or (ii) copies of the required policies of insurance or other satisfactory evidence (on which Landlord can reasonably rely) that
the insurance Tenant is required to maintain under this
Section 4.04
is in full force and effect, and (b) any endorsements
to Tenant’s insurance policies required by this
Section 4.04
. At least thirty (30) days prior
to
the expiration
of any insurance coverage Tenant is required to maintain under this
Section 4.04,
Tenant shall deliver to Landlord a certificate
of insurance (in form acceptable to Landlord) or other satisfactory evidence (on which Landlord can reasonably rely) verifying
the timely renewal of such coverage.
(d)
General
Insurance Provisions.
(i) Any
insurance that Tenant is required to maintain under this Lease shall include a provision (by endorsement, if necessary) that requires
the insurance carrier to give Landlord and Landlord’s lender (if requested) not less than thirty (30) days’ written
notice prior to any cancellation (whether by Tenant or the insurer) or modification of such coverage, including the cancellation
(whether by Tenant or the insurer) or modification of any required endorsements.
(ii) If
Tenant fails to deliver to Landlord or Landlord’s lender (if requested) any certificate of insurance or endorsement required
under this Lease within the prescribed time period or it’ any such policy is canceled or modified during the Lease Term
without Landlord’s consent, Landlord may obtain such insurance for Landlord’s sole benefit (but is under no obligation
to do so), in which case Tenant shall reimburse Landlord for the reasonable cost of such insurance within fifteen (15) days after
receipt of a statement that indicates the cost of such insurance. If Tenant fails to carry the required insurance, such failure
shall automatically be deemed in he a covenant by Tenant to self-insure such required coverage.
(iii) Tenant
shall maintain all insurance required under this Lease with companies duly authorized to issue insurance policies in the State
in which the Premises is located and holding a Financial Strength Rating of “A” or better, and a Financial Size Category
of “XII” or larger, based on the most recent published ratings of the A.M. Best Company. Landlord and Tenant acknowledge
the insurance markets are rapidly changing and that insurance in the form and amounts described in this
Section 4.04
may
not be available in the future. If at any time during the Lease Term, Tenant is unable to obtain and maintain the insurance required
under this Lease, Tenant shall nevertheless maintain insurance coverage which is (I) customary and commercially reasonable in
the insurance industry for Tenant’s type of business, as that coverage may change from time to time, and (2) reasonably
acceptable to Landlord. Landlord makes no representation as to the adequacy of such insurance to protect Landlord’s or Tenant’s
interests, if Tenant believes that any such insurance coverage is inadequate, Tenant shall obtain any such additional property
or liability insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Notwithstanding
anything in this Lease to the contrary, Landlord and Tenant each hereby waives any and all rights of recovery against the other,
or against the members, managers, officers, employees, agents or representatives of the other (whether such right of recovery
arises from a claim based on negligence or otherwise), for loss of or damage to its property or the property of others under its
control, if such loss or damage is covered by any insurance policy in force (whether or not described in this Lease) at the time
of such loss or damage. To the extent required under their respective policies of insurance, Landlord and Tenant shall give notice
to the insurance carriers of this mutual waiver of claims and confirm that their respective policies of insurance do not prohibit
this waiver and include a corresponding waiver of subrogation by the insurer.
(v) Tenant
shall not do or permit to be done any act or thing upon the Premises which would (a) jeopardize or be in conflict with the property
insurance policies covering the Premises or fixtures or property in the Premises; (b) increase the rate of property insurance
applicable to the Premises to an amount higher than it otherwise would be for general office and warehouse use of the Premises;
or (c) subject Landlord to any liability or responsibility for injury to any person or persons or to property by reason of any
business or operation being conducted at the Premises.
(vi) Tenant
shall, at its sole cost and expense, keep in full force and effect during the Lease Term the following additional coverage: (1)
workers’ compensation insurance as required by state law; and (2) employer’s liability insurance. Such property insurance
policies of Tenant shall contain an agreed amount endorsement in lieu of a co-insurance clause, and shall be written as primary
policies, not contributing with and not supplemental to the property insurance coverage that Landlord is required to carry pursuant
to
Section 4.04(b)
above. Tenant may satisfy its liability insurance obligations under this subsection through the use
of a combination of primary and excess or umbrella coverage. Tenant shall be solely responsible for payment of the entirety of
any self-insured retention or deductible amount under Tenant’s insurance policies.
(vii) If
Tenant carries any of the liability insurance required hereunder in the form of a policy covering more than one location, any
certificate required hereunder shall make specific reference to the Premises. In addition, any such policy shall contain a “per
location” or “Designated Locations(s) General Aggregate” (or comparable) endorsement assuring that any aggregate
limit under such policy shall apply separately to the Premises and that the insurer (hereunder shall provide written notice to
Landlord if the available portion of such aggregate is reduced to less than the minimum amounts required under
Section 4.04(a)
above by either payment of claims or the establishment of reserves for claims (in which case Tenant shall be obligated to
take immediate steps to increase the amount of its insurance coverage in order to satisfy the minimum requirements set forth in
Section 4.04(a)
above).
(viii) Tenant’s
insurance obligations under this
Section 4.04
are separate and independent obligations of Tenant, and are expressly not
dependent or conditioned on any other obligations of Tenant under this Lease.
Section
4.05
Common Areas; Use, Maintenance and Costs.
(a)
Common
Areas. As
used in this Lease, “Common Areas” shall mean all areas of the Premises outside of the Building, including,
but not limited to, parking areas, driveways, sidewalks, loading areas, access roads, corridors, landscaping and planted areas,
(b)
Use
of Common Areas.
Tenant shall have the right to use the Common Areas for the purposes intended. Notwithstanding any language
to the contrary in this Lease, Tenant’s right to use the Common Areas shall automatically terminate upon termination of
this Lease or upon termination of Tenant’s right to possess the Premises.
(c)
Maintenance
of Common Areas.
Tenant shall maintain the Common Areas in good order, condition and repair, consistent with, in Tenant’s
sole discretion, an industrial/commercial real property development in the Las Vegas, Nevada market. Tenant shall pay one hundred
percent (100%) of all costs incurred for the operation and maintenance of the Common Areas (the “
Common Area Costs
”).
Common Area Costs include, but are not limited to, all costs and expenses for the following: utilities, water and sewage charges;
maintenance of signs; maintenance of any ESFR fire system and pump (including testing, monitoring and servicing); maintenance
of landscaped areas; association dues; all property taxes and assessments levied on or attributable to the Common Areas and all
Common Area improvements; all personal property taxes levied on or attributable to personal property used in connection with the
Common Areas; the cost of improvements made subsequent to the initial development of the Premises to comply with the requirements
of any law, ordinance, code, rule or regulation, including, without limitation, any “green building” laws; fees for
required licenses and permits; repairing, resurfacing, repaving, maintaining, painting, lighting, cleaning, refuse removal, security
and similar items for the Premises; the cost of service contracts and maintenance expenses for heating and air conditioning systems,
except to the extent undertaken by Tenant pursuant to
Section 6.04(a)
below; the costs of operating and maintaining any
on-site or off-site storm water detention facilities benefiting the Premises; the cost of service contracts and maintenance expenses
for the roof of the Premises; exterior painting, sealing and restriping and/or resurfacing and repaving of the parking lot, driveways,
and other paved areas. Common Area Costs shall not include depreciation of real property which forms part of the Common Areas.
(d)
Landscaped
and Paved Areas.
Consistent with
Section 4.05(c)
above, Tenant shall maintain, as a Common Area Cost, the landscaped
and paved areas of the Premises. Such maintenance shall include gardening, tree trimming, replacement or repair of landscaping,
landscape irrigation systems and similar items. Such maintenance shall also include sweeping and cleaning of asphalt, concrete
or other surfaces on the driveway, parking areas, yard areas, loading areas or other paved or covered surfaces
(e) Payment.
Tenant shall pay all Common Area Costs (prorated for any fractional month) as provided below in this
Section 4.05(e).
Section
4.06
Late Charges.
Tenant’s Niue to pay rent promptly may cause Landlord to incur unanticipated costs.
The exact amount of such costs is impractical or extremely difficult to ascertain. Such costs may include, but are not limited
to, processing and accounting charges and late charges which may be imposed on Landlord by any ground lease, mortgage or trust
deed encumbering the Premises. Therefore, if Landlord does not receive any rent payment within five (5) days after it becomes
due, Tenant shall pay Landlord a late charge equal to five percent (5%) of the overdue amount. The parties agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of such late payment. If Tenant shall
be served with a demand for payment of past due rent or any other charge, any payments tendered thereafter to cure any default
of Tenant shall be made only by cashier’s check, wire transfer, or other immediately available funds.
Section
4.07
Interest on Past Due Obligations.
In addition to any late charge imposed pursuant to
Section 4.06
above, any amount owed by Tenant to Landlord which is not paid within five (5) days after it becomes due shall bear interest at
the rate of eight percent (8%) per annum from the due date of such amount (“Interest”); provided, however, that no
interest shall be payable on any late charges imposed on Tenant under this Lease. The payment of interest on such amounts shall
not excuse or cure any default by Tenant under this Lease. If the interest rate specified in this
Section 4.07,
or any
other charge or payment due under this Lease which may be deemed or construed as interest, is higher than the rate permitted by
law, such interest rate is hereby decreased to the maximum legal interest rate permitted by law.
Section
4.08 Payment of Additional Rent.
The Additional Rent provided to be paid hereunder in Section 1.09(b) shall
be paid in advance by Tenant on the first day of each month without further demand or any deduction, offset, or set-off whatsoever.
Such Additional Rent shall be held by Landlord for the payment of the Operating Costs, including all Real Property Taxes for which
Tenant is liable under of this Lease, charges for water and any utilities not paid directly by Tenant under of this Lease, all
insurance premiums for which Tenant is liable under of this Lease, Tenant’s pro-rata share of common area costs under of
this Lease, all maintenance and repair costs for which Tenant is liable under Section 6.04 of this Lease, and all other Operating
Costs payable by Tenant hereunder. Should actual Operating Costs as adjusted to an average monthly cost exceed the amount in Section
1.09(h), the Landlord may increase the Additional Rent in Section 1.09(b) based upon Landlord’s experience and reasonable
anticipation or future costs. Such adjustments shall be effective as of the next Rent payment date after notice to Tenant.
ARTICLE
FIVE USE OF PROPERTY
Section
5.01
Permitted Uses.
Tenant may lawfully use the Premises only for the Permitted Uses set forth in
Section
1.06
above; provided that such Permitted Uses (i) do not create any unusual or atypical wear and tear on the Building or decrease
the value of the Premises; (ii) do not create any risk of Environmental Damages or Hazardous Material contamination on the Premises;
(iii) do not create a nuisance under Applicable Laws; (iv) do not include storage of Hazardous Materials (defined below) (other
than those permitted under
Section 5.03
below) or explosives; and (v) are legally permissible and lawful uses of the Premises.
Section
5.02
Manner of Use.
Tenant shall not cause or permit the Premises to be improved or used in any way which constitutes
a violation of any applicable law, statute, ordinance, or governmental regulation or order, or other governmental requirement
now in force or which may hereafter be enacted or promulgated, including, without limitation, any future applicable “green
building” ordinance, law or regulation or any ordinance, law, or regulation concerning the cultivation, production, and
sale of controlled substances (collectively, “
Applicable Laws
”), or which constitutes a nuisance or waste.
Tenant shall obtain and pay for all permits required for Tenant’s occupancy of the Premises, and for all business licenses,
and shall promptly take all actions necessary to comply with all applicable statutes, ordinances, rules, regulations, orders and
requirements regulating the use by Tenant of the Premises, including without limiting to the Occupational Safety and Health Act.
Tenant, at Tenant’s sole cost and expense, shall be responsible for the installation of any fire hose valves, draft curtains,
smoke venting and any additional fire protection systems (including, without limitation, fire extinguishers) that may be required
by the fire department or any governmental agency based on Tenant’s use. Tenant shall, at its sole cost and expense, promptly
comply with any Applicable Laws which relate to (or are triggered by) (i) Tenant’s use of the Premises, and (ii) any alteration
or any tenant improvements made by Tenant or at the request of Tenant. Should any standard or regulation now or hereafter be imposed
on Tenant by any federal, state or local governmental body charged with the establishment, regulation and enforcement of occupational,
health, environmental or safety standards, then Tenant agrees, at its sole cost and expense, to comply promptly with such standards
or regulations, including, without limitation, any governmental requirement to obtain and maintain permits for the use or operation
of any equipment at the Premises or regulating effluent discharges in the course of Tenant’s operations at the Premises.
The final judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether
Landlord is a party thereto, that Tenant has violated any Applicable Laws, shall he conclusive of that fact as between Landlord
and Tenant. Tenant shall promptly notify Landlord in writing of any water infiltration at the Premises.
Section
5.03
Hazardous Materials.
5.03.1
Definitions.
A.
“Hazardous
Material”
means any substance, whether solid, liquid or gaseous in nature:
(i) the
presence of which requires investigation or remediation under any federal, state or local statute, regulation, ordinance, order,
action, policy or common law; or
(ii) which
is or becomes defined as a “hazardous waste,” “hazardous substance,” pollutant or contaminant under any
federal, state or local statute, regulation, rule or ordinance or amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. section 9601 et seq.) and/or the Resource Conservation and Recovery
Act (42 U.S.C. section 6901 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. section 1801 et seq.), the Federal
Water Pollution Control Act (33 U.S.C. section 1251 et seq.), the Clean Air Act (42 U.S.C. section 7401 et seq.), the Toxic Substances
Control Act, as amended (IS U.S.C. section 2601 et seq.), and the Occupational Safety and Health Act (29 U.S.C. section 651 et
seq.), as these laws have been amended or supplemented; or
(iii) which
is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous or is or becomes
regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States,
the State of Nevada or any political subdivision thereof; or
(iv) the
presence of which on the Premises causes or threatens to cause a nuisance upon the Premises or to adjacent properties or poses
or threatens to pose a hazard to the health or safety of persons on or about the Premises; or
(v) the
presence of which on adjacent properties could constitute a trespass by
(vi) without
limitation which contains gasoline. diesel fuel or other petroleum hydrocarbons; or
(vii) without
limitation which contains polychlorinated biphcnyls (PCBs), asbestos or urea formaldehyde foam insulation; or
(viii) without
limitation which contains radon gas.
B.
“Environmental
Requirements”
means all applicable present and future:
(i) statutes,
regulations, rules, ordinances, codes, licenses, permits, orders, approvals, plans, authorizations, concessions, franchises, and
similar items (including, but not limited to those pertaining to reporting, licensing, permitting, investigation and remediation),
of all Governmental Agencies; and
(ii) all
applicable judicial, administrative, and regulatory decrees, judgments, and orders relating to the protection of human health
or the environment, including, without limitation, all requirements pertaining to emissions, discharges, releases, or threatened
releases of Hazardous Materials or chemical substances into the air, surface water, groundwater or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials or chemical substances,
C.
“Environmental
Damages”
means all claims, judgments, damages, losses, penalties, fines, liabilities (including strict liability), encumbrances,
liens, costs, and expenses (including the expense of investigation and defense of any claim, whether or not such claim is ultimately
defeated, or the amount of any good faith settlement or judgment arising from any such claim) of whatever kind or nature, contingent
or otherwise, matured or un-matured, foreseeable or unforeseeable (including without limitation reasonable attorneys’ fees
and disbursements and consultants’ fees) any of which are incurred at any time as a result of the existence of Hazardous
Material upon, about, or beneath the Premises or the Premises or migrating or threatening to migrate to or from the Premises or
the Premises, or the existence of a violation of Environmental Requirements pertaining to the Premises or the Premises and the
activities thereon, regardless of whether the existence of such Hazardous Material or the violation of Environmental Requirements
arose prior to the present ownership or operation of the Premises. Environmental Damages include, without limitation:
(i) damages
for personal injury, or injury to property or natural resources occurring upon or off of the Premises, including, without limitation,
the cost of demolition and rebuilding of any improvements on real property, interest, and penalties;
(ii) fees,
costs or expenses incurred for the services of contractors, experts, laboratories and all other costs incurred in connection with
the investigation or remediation of such Hazardous Materials or violation of such Environmental Requirements, including, but not
limited to, the preparation of any feasibility studies or reports or the performance of any cleanup, remediation, removal, response,
abatement, containment, closure, restoration or monitoring work required by any Governmental Agency or reasonably necessary to
make full economic use of the Premises and the Premises or any other property in a manner consistent with its current use or otherwise
expended in connection with such conditions, and including, without limitation, any attorneys’ fees, costs and expenses
incurred in enforcing the provisions of this Lease or collecting any sums due hereunder; and
(iii) liability
to any third person or Governmental Agency to indemnify such person or Governmental Agency for costs expended in connection with
the items referenced in subsection (ii) above.
D.
“Governmental
Agency”
means all governmental agencies, departments, commissions, boards, bureaus or instrumentalities of the United
States, states, counties, cities and political subdivisions thereof.
E.
The
“Tenant Croup”
means Tenant, Tenant’s successors, assignees, guarantors, officers, members, managers, directors,
agents, employees, contractors, invitees, permitees or other parties under the supervision or control of Tenant during the Lease
Term with the permission or knowledge of Tenant, other than Landlord or Landlord’s agents or employees.
5.032
prohibitions.
A. Other
than (i) normal quantities of general office and cleaning supplies containing
deminimis
amounts of Hazardous Material,
(ii) those Hazardous Materials that may be contained within vehicles, equipment, and machinery operated at the Premises (e.g.,
fuel in a vehicle’s tank) or contained in original packaging from manufacturer and temporarily held by Tenant while in transit,
so long as such items are handled by Tenant in strict compliance with all Environmental Requirements, and (iii) except as specified
on Exhibit “13” attached hereto, Tenant shall not cause, permit or suffer any Hazardous Material to be brought upon,
treated, kept, stored, disposed of, discharged, released, produced, manufactured, generated, refined or used upon, about or beneath
the Premises by the Tenant Group, or any other person without the prior written consent of Landlord. From time to time during
the Lease Term, Tenant may request Landlord’s approval of Tenant’s use of other Hazardous Materials, which approval
may be withheld in Landlord’s sole discretion. Before the date of Tenant’s early access to or occupancy of the Premises,
Tenant shall provide to Landlord for those Hazardous Materials described on Exhibit “B”: (a) a description of handling,
storage, use and disposal procedures; and (b) all “community right to know” plans or disclosures and/or emergency
response plans which Tenant is required to supply to local Governmental Agencies pursuant to any Environmental Requirements.
B. Tenant
shall not cause, permit or suffer the existence or the commission by the Tenant Group, or by any other person, of a violation
of any Environmental Requirements upon, about or beneath the Premises or the Premises.
C. Tenant
shall neither create or suffer to exist, nor permit the Tenant Group to create or suffer to exist any lien, security interest
or other charge or encumbrance of any kind with respect to the Premises or the Premises, including without limitation, any lien
imposed pursuant to section 107(f) of the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. section 9607(l)) or
any similar state statute.
D. Tenant
shall not install, operate or maintain any above or below grade tank, sump, pit, pond, lagoon or other storage or treatment vessel
or device on the Premises without Landlord’s prior written consent, which may he withheld in Landlord’s sole and absolute
discretion.
5.03.3
Indemnity.
A. Tenant,
its successors, assigns and guarantors, agree to indemnify, defend, reimburse and hold harmless:
(i) Landlord;
and
(ii) any
other person who acquires all or a portion of the Premises in any manner (including purchase at a foreclosure sale) or who becomes
entitled to exercise the rights and remedies of Landlord under this Lease: and
(iii) the
directors, officers, shareholders, employees, partners, members, managers, agents, contractors, subcontractors, experts, licensees,
affiliates, lessees, Mortgagees, trustees, heirs, devisees, successors, assigns and invitees of Landlord and such persons;
from
and against any and all Environmental Damages which exist as a result of the willful activities or negligence of the Tenant Group
or which exist as a result of the breach of any warranty or covenant or the inaccuracy of any representation of Tenant contained
in this Lease, or by Tenant’s remediation of the Premises or the Premises or failure to meet its obligations contained in
this
Section 5.03.
B. The
obligations contained in this
Section 5.03.3
shall include, but not be limited to, the burden and expense of defending
all claims, suits and administrative proceedings, even if such claims, suits or proceedings are groundless, false or fraudulent,
and conducting all negotiations of any description, and paying and discharging, when and as the same become due, any and all judgments,
penalties or other sums due against such indemnified persons. Landlord, at its sole expense, may employ additional counsel of
its choice to associate with counsel representing Tenant.
C. Landlord
shall have the right but not the obligation to join and participate in, and control, if it so elects, any legal proceedings or
actions initiated in connection with Tenant’s activities. Landlord may also negotiate, defend, approve and appeal any action
taken or issued by any applicable governmental authority with regard to contamination of the Premises or the Premises by a Hazardous
Material.
D. The
obligations of Tenant in this
Section 5.03.3
shall survive the expiration or termination of this Lease.
E. The
obligations of Tenant under this
Section 5,03.3
shall not be affected by any investigation by or on behalf of Landlord,
or by any information which Landlord may have or obtain with respect thereto.
5.03.4
Obligation to Remediate.
In addition to the obligation of Tenant to indemnify Landlord pursuant to this Lease, Tenant shall,
upon approval and demand of Landlord, at its sole cost
and
expense and using contractors reasonably approved by Landlord,
promptly take all actions to remediate the Premises and the Premises which are required by any Governmental Agency, or which arc
reasonably necessary to mitigate Environmental Damages or to allow full economic use of the Premises and the Premises, which remediation
is necessitated from the presence upon, about or beneath the Premises and the Premises, at any time during or upon termination
of this Lease (whether discovered during or following the Lease Term), of a Hazardous Material or a violation of Environmental
Requirements existing as a result of the willful activities or negligence of the Tenant Group. Tenant shall take all actions necessary
to restore the Premises and the Premises to the condition existing prior to the introduction of Hazardous Material upon, about
or beneath the Premises and the Premises, notwithstanding any lesser standard of remediation allowable under Applicable Law or
governmental policies.
5.03.5
Right to Inspect.
Landlord shall have the right in its sole and absolute discretion, but not the duty, to enter and conduct
an inspection of the Premises, including invasive tests, at any reasonable time but with reasonable advance written notice to
Tenant to determine whether Tenant is complying with the terms of this Lease, including but not limited to the compliance of the
Premises and the activities thereon with Environmental Requirements and the existence of Environmental Damages as a result of
the condition of the Premises or surrounding properties and activities thereon. Landlord shall have the right, but not the duty,
to retain any independent professional consultant (the
“Consultant”)
to enter the Premises to conduct such
an inspection or to review any report prepared by or for Tenant concerning such compliance. The cost of the Consultant shall he
paid by Landlord unless such investigation discloses a violation of any Environmental Requirement by the Tenant Group or the existence
of a Hazardous Material on the Premises or any other property caused by the willful activities or negligence of the Tenant Group
(other than Hazardous Materials used in compliance with all Environmental Requirements and previously approved by Landlord), in
which case Tenant shall pay the cost of the Consultant. Tenant hereby grants to Landlord, and the agents, employees, consultants
and contractors of Landlord the right, with reasonable advance written notice to Tenant, to enter the Premises to perform such
tests on the Premises as arc reasonably necessary to conduct such reviews and investigations. Landlord shall use commercially
reasonable efforts to minimize interference with the business of Tenant.
5.03.6
Notification.
If Tenant shall become aware of or receive notice or other communication concerning any actual, alleged,
suspected or threatened violation of Environmental Requirements, or liability of Tenant for Environmental Damages in connection
with the Premises or past or present activities of any person thereon, including but not limited to notice or other communication
concerning any actual or threatened investigation, inquiry, lawsuit, claim, citation, directive, summons, proceeding, complaint,
notice, order, writ, or injunction, relating to same, then Tenant shall deliver to Landlord within ten (10) days of the receipt
of such notice or communication by Tenant, a written description of said violation, liability, or actual or threatened event or
condition, together with copies of any documents evidencing same. Receipt of such notice shall not be deemed to create any obligation
on the part of Landlord to defend or otherwise respond to any such notification.
If
requested by Landlord, Tenant shall disclose to Landlord the names and amounts of all Hazardous Materials other than general office
and cleaning supplies referred to in 5.03.2 of this Lease, which were used, generated, treated, handled, stored or disposed of
on the Premises or which Tenant intends to use, generate, treat, handle, store or dispose of on the Premises. The foregoing in
no way shall limit the necessity for Tenant obtaining Landlord’s consent pursuant to 5.03.2 of this Lease.
5.03.7
Reserved.
5.03.8
Assignment and Subletting.
In the event this Lease provides that Tenant may assign this Lease or sublet the Premises subject
to Landlord’s consent and/or certain other conditions, and if the proposed assignee’s or subtenant’s activities
in or about the Premises involve the use, handling, storage or disposal of any Hazardous Materials other than those used by Tenant
and in quantities and processes similar to Tenant’s uses in compliance with this Lease, (i) it shall be reasonable for Landlord
to withhold its consent to such assignment or sublease in light of the risk of contamination posed by such activities and/or (ii)
Landlord may, in its sole and absolute discretion, impose an additional condition to such assignment or sublease which requires
Tenant to reasonably establish that such assignee’s or subtenant’s activities pose no materially greater risk of contamination
to the Premises than do Tenant’s permitted activities in view of: (a) the quantities, toxicity and other properties of the
Hazardous Materials to be used by such assignee or subtenant; (b) the precautions against a release of Hazardous Materials such
assignee or subtenant agrees to implement; (c) such assignee’s or subtenant’s financial condition as it relates to
its ability to fund a major clean-up; and (d) such assignee’s or subtenant’s policy and historical record respecting
its willingness to respond to the clean-up of a release of Hazardous Materials.
5.03.9
Survival of Hazardous Materials Obligation.
Tenant’s bread of any of its covenants or obligations under this
Section
5.03
shall constitute a material default under this Lease. The obligations of Tenant under this
Section 5.03
shall
survive the expiration or earlier termination of this Lease without any limitation, and shall constitute obligations that are
independent and severable from Tenant’s covenants and obligations to pay rent under this Lease.
Section
5.04
Auctions and Signs.
Tenant shall not conduct or permit any auctions or sheriff’s sales at the Premises.
Tenant, at its sole cost and expense, may, with the prior written consent of Landlord, which consent shall not be unreasonably
withheld, install any identification signs (“Signs”) at the Premises; provided, however, that (i) the Signs shall
comply with all applicable governmental rules and regulations and the covenants, conditions and restrictions governing the Premises;
and (ii) Tenant shall be responsible for all costs incurred in connection with the design, construction, installation, repair
and maintenance of the Signs. Upon the expiration or earlier termination of this Lease, Tenant shall cause the Signs to be removed
and shall repair any damage caused by such removal (including, but not limited to, patching and painting), all at Tenant’s
sole cost and expense.
Section
5.05
Indemnity.
To the extent permitted by Applicable Law, Tenant shall indemnify, defend, protect and hold
harmless Landlord (and Landlord’s members, managers, partners, and shareholders, as applicable, and the affiliates, employees,
agents, and contractors of Landlord and its members, managers, partners, and shareholders, as applicable) and Landlord’s
property manager from any and all costs, claims, loss, damage, expense and liability (including without limitation court costs,
litigation expenses, and reasonable attorneys’ fees) incurred in connection with or arising from: (a) Tenant’s use
of the Premises and the Common Areas, including, but not limited to, those arising from any accident, incident, injury or damage,
however and by whomsoever caused (except to the extent of any claim arising out of Landlord’s gross negligence or willful
misconduct), to any person or property occurring in or about the Premises; (h) the conduct of Tenant’s business or anything
else done or permitted by Tenant to be done in or about the Premises; (c) any breach or default in the performance of Tenant’s
obligations under this Lease; (d) any misrepresentation or breach of warranty by Tenant under this Lease; or (e) other acts or
omissions of Tenant. As used in this Section, the term “Tenant” shall include Tenant’s employees, agents, contractors
and invitees, if applicable. The provisions of this
Section 5.05
shall survive the expiration or earlier termination of
this Lease with respect to any claims or liability occurring prior to such expiration or earlier termination, and shall constitute
obligations that are independent and severable from Tenant’s covenants and obligations to pay rent under this Lease.
Section
5.06
Landlord’s Access.
Landlord reserves the right at all reasonable times and upon reasonable notice
to Tenant to enter the Premises to (a) inspect it: (b) show the Premises to prospective purchasers, mortgagees or tenants, or
to the ground or underlying lessors; (c) post notices of non-responsibility; (d) alter, improve or repair the Premises; or (e)
place “For Sale” and “For Lease” signs on the Premises during the last one hundred eighty (180) days of
the Lease Term. Notwithstanding anything to the contrary contained in this
Section 3.06,
Landlord may enter the Premises
at any time to (A) perform services required of Landlord; (B) take possession due to any breach of this Lease, in the manner provided
in this Lease, and consistent with Applicable Law; and (C) perform any covenants of Tenant which Tenant fails to perform. Any
such entries shall be without the abatement of Rent and shall include the right to lake such reasonable steps as required to accomplish
the stated purposes. For each of the above purposes, Landlord may request and Tenant shall provide a key with which to unlock
all the doors in the Premises. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to
open the doors in and to the Premises. Any entry into the Premises in the manner described above shall not be deemed to be a forcible
or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the
Premises. In addition to Landlord’s access described herein, Tenant agrees that Landlord may enter upon the Premises no
less frequently than monthly during the buildout phase and thereafter no less than every 90 days during operation to evaluate
building, so long as such entry does not violate any laws applicable to Tenant’s operations conducted on the Premises.
Section
5.07
Vehicle Parking.
Tenant shall be entitled to use all spaces in the vehicle parking area located adjacent
to the Premises, as described in Section 1.04, and as shown on
Exhibit “A”
attached hereto, without paying
any additional Rent, other than the usual charges pertaining to the operation and maintenance of the Common Areas.
Section
5.08
Quiet Possession.
If Tenant pays the rent and observes and performs all other terms, covenants and conditions
on Tenant’s part to be observed and performed under this Lease, Landlord agrees to defend Tenant’s right to quiet
enjoyment of the Premises for the Lease Term against any party claiming by, through or under Landlord, subject to the provisions
of this Lease. Landlord hereby represents and warrants to Tenant and Tenant’s lenders that Landlord owns lee simple title
to the Premises and has the legal right, power and authority to enter into this Lease and this Lease upon execution shall be binding
upon Landlord in accordance with its terms.
ARTICLE
SIX CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section
6.01
Existing Conditions.
Tenant accepts the Premises in its “as-is” condition as of the earlier
of Tenant’s occupancy of the Premises or the Lease Commencement Date, subject to all recorded matters, laws, ordinances,
and governmental regulations and orders. Except as expressly provided in this Lease, Tenant acknowledges that neither Landlord
nor any agent of Landlord has made any representations or warranties, express or implied, whatsoever with respect to the condition
of the Premises, the Building or any portion of the Premises, or any buildings or other improvements on or comprising a part of
either of same, nor with respect to the fitness or suitability thereof for any particular use or purpose, and Tenant hereby waives
any and all such warranties, express or implied, including specifically but without limitation any warranty or representation
of suitability. Tenant represents and warrants that Tenant has made its own inspection of and inquiry regarding the condition
of the Premises (or has had the opportunity to do so) and is not relying on any representations of Landlord with respect thereto.
Section
6.02
Exemption of Landlord from Liability.
To the extent permitted by Applicable Law, Landlord shall not be
liable for (and Tenant assumes the risk of) any damage or injury to the person business (or any loss of income therefrom), goods,
wares, merchandise or other property of Tenant, Tenant’s employees, invitees, customers or any other person in or about
the Premises, whether such damage or injury is caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures or any other cause; (e) conditions arising in or about the Premises or upon other portions of the Premises, or from other
sources or places; or (d) criminal acts or entry by unauthorized persons into the Premises or the Building. Landlord shall not
be liable for any such damage or injury even though the cause of or the means of repairing such damage or injury arc not accessible
to Tenant. The provisions of this Section 6.02 shall not, however, exempt Landlord from liability to the extent of Landlord’s
gross negligence or willful misconduct, and arc subject to
Section 4.04(d)(iv)
above.
Section
6.03
Landlord’s Obligations.
(a) Except
as provided in
Article Seven
(Damage or Destruction) and
Article Nine
(Condemnation), Landlord shall keep the following
in good order, condition and repair (subject to ordinary wear and tear), including replacement, as needed: structural portions
of the foundations, exterior walls and roof (including the roof membrane) of the Premises (including painting the exterior surface
of the exterior walls of the Premises as often as is necessary, in Landlord’s reasonable judgment. Landlord shall not be
obligated to maintain or repair (or replace) the floor, windows, doors, plate glass or the interior surfaces of exterior walls.
Landlord shall make repairs required under this Section 6.03 within a reasonable time after receipt of written notice from Tenant
of the need for such repairs.
(b) Except
for the structural portions of (i) the foundations, (ii) the exterior walls, and (iii) the roof of the Premises, which shall remain
Landlord’s responsibility, Tenant shall pay or reimburse Landlord for all costs Landlord incurs under
Section 6.03(a)
above as Common Area Costs, as provided in
Section 4.05
of this Lease.
Section
6.04
Tenant’s Obligations.
(a) Except
as provided in
Section 4.05(c)
above with respect to Landlord’s obligations for the performance of certain work at
the Premises that is the subject of
Section 6.03
(Landlord’s Obligations) above,
Article Seven
(Damage or
Destruction) below, and
Article Eight
(Condemnation) below, Tenant, at Tenant’s sole cost and expense, shall keep
all portions of the Premises (including structural, nonstructural, interior, exterior, systems and equipment including HVAC) in
good order, condition and repair. If any portion of the Premises or any system or equipment in the Premises that Tenant is obligated
to repair cannot be fully repaired or restored, Tenant shall, upon providing Landlord with reasonable prior written notice of
the scope and cost of replacement, and subject to Landlord’s approval of the same, promptly replace such portion of the
Premises or system or equipment in the Premises. The cost of such replacement shall be amortized over the useful life as reasonably
determined by Landlord, and Tenant shall only be liable for that portion of the cost which is applicable to the remaining Lease
Term (as it may be extended) (the
“Useful Life Allocation”
), and if the full replacement cost is initially
borne by Tenant, Landlord shall reimburse Tenant or provide Tenant with a credit against future Additional Rent obligations in
an amount equal to Landlord’s share of such total cost. Tenant shall maintain a reasonable preventive maintenance service
contract providing for the regular inspection and maintenance of the Premises’ heating and air conditioning systems (the
“HVAC Systems”
) by a licensed heating and air conditioning contractor, unless Landlord is obligated to maintain all
or a portion of such equipment pursuant to
Section 6.03(a)
above, or unless Landlord makes the election described in the
next succeeding sentence. It is the intention of Landlord and Tenant that, at all times during the Lease Term, Tenant shall maintain
the Premises in an attractive, first-class and fully operative condition. Without limiting the generality of the provisions contained
above in this
Section 6.04(a),
Tenant agrees to pay Landlord the cost to repair any damage caused by the transportation
and storage of its products in, on, or about the Premises, including, but not limited to any damage to concrete floor slab, adjoining
concrete ramps, adjoining concrete truck apron, and adjoining concrete or asphalt parking and access areas due to the use of forklifts
or other equipment or vehicles hauling Tenant’s products or otherwise, ordinary wear and tear from intended use excepted.
Tenant’s payment obligation described in the immediately preceding sentence shall include the cost of replacement of any
damaged areas of the Premises or the Premises, if repair is impracticable, so as to restore such areas to the condition existing
prior to such damage and in such event Tenant shall not be entitled to the benefit of the Useful Life Allocation.
(b) Tenant
shall fulfill all of Tenant’s obligations under this
Section 6.04
at Tenant’s sole cost and expense, except
as otherwise expressly provided in this
Section 6.04.
If Tenant fails to maintain, repair or replace the Premises as required
by this
Section 6.04,
Landlord may (but without any obligation to do so), upon ten (10) days’ prior notice to Tenant
(except that no notice shall be required in the case of an emergency), enter the Premises and perform such maintenance or repair
(including replacement, as needed) on behalf of Tenant. In such ease, Tenant shall reimburse Landlord on demand for all costs
incurred in performing such maintenance, repair or replacement.
Section
6.05
Alterations, Additions, and Improvements.
(a) Tenant
shall not make any alterations, additions, or improvements to the Premises (
“Tenant’s Alterations”
) without
Landlord’s prior written consent which consent shall not be unreasonably withheld, except that no consent shall be required
for non-structural interior alterations that (i) do not exceed Fifty Thousand Dollars ($50,000.00) in cost; (ii) arc not visible
from the outside of the Building; and (iii) do not alter or penetrate the floor slab (except as allowed pursuant to
Section
6.09
below) or the roof membrane. All Tenant’s Alterations shall be at Tenant’s sole cost and expense and shall
be performed in a good and workmanlike manner, in conformity with all Applicable Laws. Upon completion of any such work, Tenant
shall provide Landlord with “as built” plans. Notwithstanding anything to the contrary in this Section, Tenant must
obtain Landlord’s prior written consent for any Tenant’s Alterations that will (or may) be visible from the outside
of the Building. Landlord shall have the right, in its sole discretion, to determine the location of any such visible Tenant’s
Alterations and require the screening of such items at Tenant’s sole cost and expense.
(b) Tenant
shall pay when due all claims for labor and material furnished to the Premises or alleged to have been furnished to or for Tenant
at or for use of the Premises. Tenant shall give Landlord at least twenty (20) days’ prior written notice of the commencement
of any work on the Premises, regardless of whether Landlord’s consent to such work is required. Landlord may elect to record
and post notices of non-responsibility in, on or about the Premises, to the extent permitted under Applicable Law.
(c) To
the extent Landlord’s prior consent is required by this
Section 6.05,
Landlord may condition its consent to any proposed
Tenant’s Alterations on such requirements as Landlord, in its sole discretion, deems necessary or desirable, including without
limitation: (i) Tenant’s submission to Landlord, for Landlord’s prior written approval, of all plans and specifications
relating to Tenant’s Alterations; (ii) Tenant’s written notice of whether Tenant’s Alterations include the use
or handling of any Hazardous Materials; (iii) Tenant’s obtaining, for Landlord’s benefit and protection, of such insurance
as Landlord may reasonably require (in addition to that required under
Section 4.04
of this Lease);and (iv) Tenant’s
obtaining all applicable permits from the governmental authorities and the furnishing of copies of such permits to Landlord before
the commencement of work on the subject Tenant’s Alterations.
(d) Tenant
shall have no power or authority to do any act or make any contract which may create or be the basis for any lien upon the interest
of Landlord in the Premises or the Premises, or any portion thereof. Within ten (10) days following the imposition of any mechanics
or other lien or stop notice filed with respect to the Premises or the Premises, or any portion thereof, based upon any act of
Tenant or of anyone claiming by, through or under Tenant, or based upon work performed or materials supplied allegedly for Tenant,
(an “Imposition”), Tenant shall either (a) cause such Imposition to be released of record by payment, or (b) in case
of a disputed Imposition and dispensation to a final judgment, cause the posting of a proper bond (pursuant to Applicable Law
under which a court issues an order that discharges the lien) or provide other security satisfactory to Landlord. Provided that
the Imposition is timely released or bonded over, Tenant shall have the right to contest the validity of the obligation underlying
the Imposition, provided that Tenant shall diligently contest such Imposition and indemnify, defend, and hold Landlord harmless
from any and all loss, cost, damage, liability and expense (including attorneys’ fees) arising from or related to it. If
Tenant fails to take either action within such ten (10)-day period, Landlord, at its election, may pay and satisfy the Imposition,
in which case the sum so paid by Landlord, with interest from the date of payment at the rate set forth in
Section 4.07
of this Lease, shall be deemed Additional Rent due and payable by Tenant within ten (10) days after Tenant’s receipt of
Landlord’s payment demand. Nothing in this Lease shall be construed as consent on the part of Landlord to subject the interest
and estate of Landlord to liability under any applicable lien law for any reason or purpose whatsoever, it being expressly understood
that Landlord’s interest and estate shall not be subject to such liability and that no person shall have any right to assert
any such lien.
(c) Notwithstanding
any language to the
contrary
in this
Section 6.05,
if the proposed Tenant’s Alterations involve or affect
in any way one or more of the structural components of the Building, or relate in any way to life safety matters, including, but
not limited to, the Building’s fire suppression system (collectively, the “
Structural and Safety Alterations
”),
Landlord’s prior written consent will be required, regardless of the cost of the proposed Tenant’s Alterations.
(f) Tenant
acknowledges and agrees that any Tenant’s Alterations are wholly optional with Tenant and arc not being required by Landlord,
either as a condition to the effectiveness of this Lease or otherwise.
Section
6.06
Condition upon Termination.
Upon the termination of this Lease, Tenant shall surrender the Premises to
Landlord, broom clean and in the same condition as received (including, without limitation, the removal of all floor striping
and the resealing of the floor, but only to the extent such resealing is necessitated by the removal of such floor striping),
ordinary wear and tear excepted; provided, however, that (a) “ordinary wear and tear” shall not include any damage
or deterioration that would or could have been prevented by good maintenance practice or by Tenant performing all of its obligations
under this Lease, and (b) Tenant shall not be obligated to repair any damage which Landlord is required to repair under
Section
6.03
above or
Article Seven
(Damage or Destruction) below. All Tenant’s Alterations that Landlord has not required
Tenant to remove shall become Landlord’s property and shall be surrendered to Landlord upon the expiration or earlier termination
of this Lease, except that Tenant may remove any of Tenant’s machinery, equipment or other personal property that can be
removed without material damage to the Premises. Tenant shall repair, at Tenant’s expense, any damage to the Premises caused
by the removal of any such machinery, equipment or other personal property. In no event, however, shall Tenant remove any of
the following materials or equipment (which shall be deemed Landlord’s property) without Landlord’s prior written
consent: any power wiring and power panels; drapes, blinds and other window coverings; carpets and other floor coverings; heaters,
air conditioners and any other heating and air conditioning equipment; fencing and security gates; load levelers, dock lights,
dock locks and dock seals; and other similar building operating equipment and decorations. Tenant’s obligations under this
Section 6.06
shall also include its obligations under
Section 5.04
with respect to any Signs. If Tenant fails, by
the expiration or earlier termination of the Lease Term, to restore the Premises to the condition required under this
Section
6.06,
then Tenant shall pay Landlord on demand an amount equal to the cost of such restoration work
Section
6.07
Roof Access.
Anything in this Lease to the contrary notwithstanding, Tenant shall not and shall not permit
any of its employees, agents, contractors or invitees to enter on or in any way move about on the roof of the Building, for any
purposes whatsoever, without the prior written consent of, coordination with, and supervision of Landlord or its selected agents
or contractors.
ARTICLE
SEVEN DAMAGE OR DESTRUCTION
Section
7.01
Partial Damage to Property.
(a) Tenant
shall notify Landlord in writing immediately upon the occurrence of any damage to the Premises. If the Premises is only partially
damaged (i.e., less than twenty-five percent (25%) of the Premises is untenantable as a result of such damage or less than twenty-five
percent (25%) of Tenant’s operations are materially impaired) and if the proceeds received by Landlord from the insurance
policies described in Subsection are sufficient to pay for the necessary repairs, this Lease shall remain in effect and Landlord
shall repair the damage as soon as reasonably possible. Landlord may elect, but is not required, to repair any damage to Tenant’s
fixtures, equipment, or improvements.
(b) If
the insurance proceeds received by Landlord are not sufficient to pay the entire cost of repair, or if the cause of the damage
is not covered by the insurance policies which Landlord maintains under Subsection, Landlord may elect either to (i) repair the
damage as soon as reasonably possible, in which case this Lease shall remain in full force and effect, or (ii) terminate this
Lease as of the date the damage occurred. Landlord shall notify Tenant within thirty (30) days after receipt of’ notice
of the occurrence of the damage whether Landlord elects to repair the damage or terminate the Lease. If
Landlord
elects
to repair the damage, Tenant shall pay Landlord the “deductible amount” (if any) under Landlord’s insurance
policies if the damage was due to an act or omission of Tenant, or Tenant’s employees, agents, contractors, or invitees.
If Landlord elects to terminate this Lease, Tenant may elect to continue this Lease in full force and effect, in which case Tenant
shall repair any damage to the Property and any building in which the Premises is located. Tenant shall pay the cost of such repairs,
and Landlord shall deliver to Tenant any insurance proceeds received by Landlord for the damage repaired by Tenant, if any. Tenant
shall give Landlord written notice of such election within tell (10) days after receiving Landlord’s termination notice.
(c) If
the damage to the Premises occurs during the last six (6) months of the Lease Term and such damage will require more than
thirty (30) days to repair, either Landlord or Tenant may elect to terminate this Lease as of the date the damage occurred,
regardless of the sufficiency of any insurance proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after Tenant’s notice to Landlord of the
occurrence of the damage.
Section
7.02
Substantial or Total Destruction.
If the Premises is substantially or totally destroyed by any cause whatsoever
(i.e., the damage to the Premises is greater than partial damage as described in and regardless of whether Landlord receives any
insurance proceeds, this Lease shall terminate as of the date the destruction occurred. Notwithstanding the preceding sentence,
if the Property can be rebuilt within six (6) months after the date of destruction, Landlord may elect to rebuild the Property
at Landlord’s own expense, in which case this Lease shall remain in full force and effect. Landlord shall notify Tenant
of such election within thirty (30) days after Tenant’s notice of the occurrence of total or substantial destruction. If
Landlord so elects. Landlord shall rebuild the Premises at Landlord’s sole expense, except that if the destruction was caused
by an act or omission of Tenant, Tenant shall pay Landlord the difference between the actual cost of rebuilding and any insurance
proceeds received by Landlord.
Section
7.03
Temporary Reduction of Rent.
If the Premises is destroyed or damaged and Landlord or Tenant repairs or
restores the Premises pursuant to the provisions of this
Article Seven,
any Base Rent and recurring Additional Rent payable
during the period of such damage, repair and/or restoration shall be equitably reduced according to the degree, if any, to which
Tenant’s use of the Premises is impaired. However, the reduction shall not exceed the sum of one year’s payment of
Base Rent, insurance premiums, and Real Property Taxes. Except for such possible reduction in Base Rent, insurance premiums, and
Real Property Taxes, Tenant shall not be entitled
to any
compensation, reduction, or reimbursement from Landlord as a result
of any damage, destruction, repair, or restoration of or to the Premises.
ARTICLE
EIGHT CONDEMNATION
If
all or any portion of the Premises is taken under the power of eminent domain or sold under the threat of that power (all of which
are called
“Condemnation”),
Landlord shall promptly notify Tenant thereof in writing and this Lease shall terminate
as to the part taken or sold on the date the condemning authority takes title or possession, whichever occurs first. If more than
twenty percent
(20%) of the
floor area of the Premises or such other material portion of either the Premises or Common
Areas is taken, Landlord or Tenant may terminate this Lease as of the date the condemning authority takes title or possession,
by delivering written notice to the other within ten (10) days after receipt of written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority takes title or possession). If neither Landlord nor Tenant
terminates this Lease, this Lease shall remain in effect as to the portion 01 the Premises not taken, except that the Base Rent
and Additional Rent shall be equitably reduced in proportion to the reduction in the floor area of the Premises. Tenant shall
have the right to file any and all legal and equitable claims available to Tenant for any taking
of
Tenant’s rights,
lease interest, loss of business, damages, personal property and fixtures belonging to Tenant and/or removable by Tenant upon
expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, and ally other claims available in
law or equity. If this Lease is not terminated, Landlord shall repair any damage to the Premises caused by the Condemnation, except
that Landlord shall not be obligated to repair any damage for which Tenant has been reimbursed by the condemning authority. If
the severance damages received by Landlord are not sufficient to pay for such repair, Landlord shall have the right to either
terminate this Lease or make such repair at Landlord’s expense. Any Condemnation award or payment shall be payable to Landlord.
ARTICLE
NINE ASSIGNMENT AND SUBLETTING
Section
9.01 Transfers. Except as otherwise provided in
Section 9.07
below, Tenant shall not, without the prior written
consent of Landlord which consent shall not he unreasonably withheld, assign, mortgage, pledge, encumber or otherwise transfer
this Lease or any interest hereunder, permit any assignment or other such foregoing transfer of this Lease or any interest hereunder
by operation of law, or sublet the Premises or any part thereof (all of the foregoing arc hereinafter sometimes referred to collectively
as “
Transfers
” and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred
to as a ‘
Transferee
”). To request Landlord’s consent to any Transfer requiring such consent under the
provisions of this
Article Nine
Tenant shall notify Landlord in writing, which notice (the “
Transfer Notice
”)
shall include (i) the proposed effective date of the Transfer, which shall not be less than forty-five (45) days after the date
of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the “
Subject
Space
”), (iii) all of the material terms of the proposed Transfer and the consideration therefor, in connection with
such Transfer, the name and address of the proposed Transferee, and a copy of all existing and/or proposed documentation pertaining
to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements
incidental or related to such Transfer, and (iv) current financial statements of the proposed Transferee certified by an officer,
partner or owner thereof, and any other relevant information reasonably required by Landlord
Section
9.02
Landlord’s Consent.
Landlord shall not unreasonably withhold its consent to any proposed Transfer
of the Subject Space to the Transferee on the terms specified in the Transfer Notice. The parties hereby agree that it shall be
reasonable under this Lease and under any Applicable Law for Landlord to withhold consent to any proposed Transfer where one or
more of the following apply, without limitation as to other reasonable grounds for withholding consent:
9.02.1
The Transferee’s business or use of the Subject Space is not permitted under this Lease;
9.02.2
The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities involved
under this Lease on the dale consent is requested;
9.02.3
The proposed Transfer would cause Landlord to be in violation of another lease or agreement to which Landlord is a party;
9.02.4
A default of Tenant under this Lease has occurred and is then uncured.
If
Landlord consents to any Transfer pursuant to the terms of this
Section 9.02
(and does not exercise any recapture rights
Landlord may have under
Section 9.04
of this Lease), Tenant may within one hundred eighty (180) days after Landlord’s
consent, but not later than the expiration of such 180-day period, enter into such Transfer of the Premises or portion thereof,
upon substantially the same terms and conditions as arc set forth in the Transfer Notice furnished by Tenant to Landlord pursuant
to
Section 9.01
of this Lease.
Section
9.03
Effect of Transfer.
If Landlord consents to a Transfer, (i) the terms and conditions of this Lease shall
in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by
either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of
all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, (iv) no Transfer relating to this Lease
or agreement entered into with respect thereto, whether with or without Landlord’s consent, shall relieve Tenant or any
guarantor of Tenant’s obligations under this Lease from liability under this Lease. Landlord or its authorized representatives
shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall
have the right to make copies thereof
Section
9.04
Tenant Affiliate.
Notwithstanding anything to the contrary contained in
Section 9.01
of this Lease,
a Transfer of all or a portion of the Premises to an affiliate of Tenant (an entity which is controlled by, controls, or is under
common control with, Tenant) (a
“Tenant Affiliate”),
shall not be deemed a Transfer under
Article Nine
for which (a) consent is required, provided that: (i) Tenant immediately notifies Landlord of any such Transfer; (ii) promptly
supplies Landlord with any documents or relevant information reasonably requested by Landlord regarding such Transfer; (iii) if
such Transfer is an assignment, Tenant Affiliate assumes in writing all of Tenant’s obligations under this Lease; and (iv)
such Transfer is not a subterfuge by Tenant to avoid its obligations under this Lease or the Transfer restrictions set forth in
this
Article Nine.
Section
9.05
No Merger.
No merger shall result from Tenant’s sublease of the Premises under this
Article Nine,
Tenant’s surrender of this Lease or the termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as sublandlord under any or all subtenancies.
ARTICLE
TEN DEFAULTS; REMEDIES
Section
10.01
Covenants and Conditions.
Tenant’s performance of each of Tenant’s obligations under this
Lease is a condition of the Lease. Tenant’s right to continue in possession of the Premises is conditioned upon such performance.
Time is of the essence in the performance of all covenants and conditions.
Section
10.02
Defaults.
Tenant shall be in default under this Lease (an “Event of Default”):
(a) if
Tenant abandons the Premises or if Tenant’s vacation of the Premises results in the cancellation of any insurance described
in Section 4.04 above;
(b) If
Tenant fails to pay rent or any other charge when clue, and such failure continues for more than ten (10) days after written notice
from Landlord;
(c) If
Tenant fails to perform any of Tenant’s material non-monetary obligations under this Lease for a period of thirty (30) days
after written notice from Landlord; provided that if more than thirty (30) days are required to complete such performance, Tenant
shall not be in default if Tenant commences such performance within the thirty (30) day period and thereafter diligently pursues
its completion. However, Landlord shall not be required to give such notice if Tenant’s failure to perform constitutes a
non-curable breach of this Lease. The notice required by this Subsection I is intended to satisfy any and all notice requirements
imposed by law on Landlord and is not in addition to any such requirement.
(d) If
Tenant makes a general assignment or general arrangement for the benefit of creditors; it’ a bankruptcy petition is filed
by or against Tenant and is not dismissed within thirty (30) days; if a trustee or receiver is appointed to take possession of
substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease and possession
is not restored to Tenant within thirty (30) days; or if substantially all of Tenant’s assets located at the Premises or
of Tenant’s interest in this Lease is subjected to attachment, execution or other judicial seizure which is not discharged
within thirty (30) days.
(c) If
Tenant’s use becomes unlawful or unpermitted by applicable governmental authority.
Section
10.03 Remedies. Upon the occurrence of any Event of Default, Landlord shall provide Tenant a ten 10-day written notice
to cure. Such notice shall contain the description of the Event of Default, and provide for a ten 1 0-day right to cure. If the
ten 10-day right to cure expires, and Tenant has not remedied the Event of Default, Landlord may, at its option pursue any one
or mote of the following remedies, and any and all other rights or remedies accruing to Landlord by law or otherwise, without
any notice or demand to the extent permitted by Applicable Law:
(a) In
the event of Tenant’s default, in addition to and without limiting Landlord in the exercise of any other rights or remedies
provided for herein or at law or in equity, Landlord, at its sole option and with or without notice or demand, shalt have the
following rights:
(i) The
right to declare the Lease Term ended and to reenter the Premises and take possession thereof, and to terminate alt of the rights
of Tenant in and to the Premises;
(ii) The
right, without declaring the Lease Term ended, to reenter the Property and to occupy the same, or any portion thereof, for and
on account of Tenant as hereinafter provided, and Tenant shall be liable for and pay to Landlord on demand all such expenses as
Landlord may have paid, assumed, or incurred in recovering possession of the Premises, including costs, expenses, attorneys’
fees. and expenditures placing the same in good order and condition, and all other expenses, commissions and charges paid, assumed,
or incurred by Landlord in or in connection with reletting the Premises. Any such reletting as provided for herein. Any reletting
by Landlord may be for the remainder of the Lease Term or for a longer or shorter period. Such reletting shall be for such rent
and on such other terms and conditions as Landlord, in its sole reasonable discretion, deems appropriate. Landlord may execute
any lease made pursuant to the terms hereof in Landlord’s own name, or assume Tenant’s interest in and to any existing
subleases to any subtenant of the Property, as Landlord may see fit, and Tenant shall have no right or authority whatsoever to
collect any rent from such tenants, subtenants, licensees, or concessionaires on the Premises. In any ease, and whether or nut
the Premises or any part thereof be relet, Tenant, until the end of what would have been the Lease Term in the absence of such
default and whether or not the Premises or any part thereof shall have been relet, shall be liable to Landlord and shall pay to
Landlord monthly an amount equal to the amount due as rent hereunder, less the net proceeds for said month, if any, of any reletting
effected for the account of Tenant pursuant to the provisions of this Subsection 10.03(a) after deducting from said proceeds all
of Landlord’s expenses in connection with such retelling, including, without limitation, alll repossession costs, brokerage
commissions, legal expenses, attorneys’ fees, expenses of employees, alteration costs, and expenses of preparation for such
reletting (all said costs are cumulative and shall be applied against proceeds of reletting until paid in full). Landlord reserves
the right to bring such actions for the recovery of any deficits remaining unpaid by Tenant to Landlord hereunder as Landlord
may deem advisable from time to time without being obligated to await the end of the term hereof for a final determination of
Tenant’s account and the commencement or maintenance of one or more actions by Landlord in this connection shall not bar
Landlord from bringing any subsequent actions for further accruals pursuant to the provisions of this. In no event shall Tenant
be entitled to any excess rental received by Landlord over and above that which Tenant is obligated to pay hereunder; or
(iii) The
right, even though it may have relet all or any portion of the Premises in accordance with the provisions of Subsection I 0.03.
below, to thereafter at any time elect to terminate this Lease for such previous default on the part of Tenant, and to terminate
all of the rights of Tenant in and to the Premises.
(b) Pursuant
to the rights of re-entry provided above, Landlord may remove all persons from the Premises and may, remove all property therefrom,
and may, enforce any rights Landlord may have against said property or store the same in any public or private warehouse or elsewhere
at the cost and for the account of Tenant or the owner or owners thereof, Tenant agrees to hold Landlord free and harmless from
any liability whatsoever for the removal and/or storage of any such property, whether of Tenant or any third party whomsoever,
Anything contained herein to the contrary notwithstanding, Landlord shall not be deemed to have terminated this Lease or the liability
of Tenant to pay any rent or other sum of money thereafter to accrue hereunder, or Tenant’s liability for damages under
any of the provisions hereof, by any such reentry, or by any action in unlawful detainer or otherwise to obtain possession of
the Properly, unless Landlord shall have specifically, with reference to this, notified Tenant in writing that it has so elected
to terminate this Lease. Tenant covenants and agrees that the service by Landlord of any notice pursuant to the unlawful detainer
statutes of the State
of
Nevada
and
the surrender of possession pursuant to such notice shall not (unless Landlord
elects to the contrary at the
time of, or
at any time subsequent to, the service of such notice to Tenant) be deemed to
be a termination of this Lease, or the termination of any liability of Tenant hereunder to Landlord.
(c) In
any action brought by Landlord to enforce any of its rights under or arising from this Lease, Landlord shall be entitled to receive
its costs and legal expenses, including reasonable attorneys’ fees, whether such action is prosecuted to judgment or not.
If Landlord shall engage the services of an attorney for the purpose of collecting any rental due from Tenant, Tenant shall pay
the reasonable fees of such attorney for his or her services regardless of the fact that no legal proceeding or action may have
been filed or commenced.
The parties hereto shall and they hereby do waive trial by lure in any action, proceeding, or counterclaim
brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with
the Lease, the relationship of Landlord and Tenant, Tenant’s use of occupancy of the Premises, and/or any claim of injury
or damage.
(d) The
waiver by Landlord of any default or breach of any of the terms, covenants, or conditions hereof on the part of Tenant to be kept
and performed shall not be a waiver of any preceding or subsequent breach of the same or any other term, covenant, or condition
contained herein. The subsequent acceptance of Rent or any other payment hereunder by Tenant to Landlord shall not be construed
to be a waiver of any preceding breach by Tenant of any term, covenant, or condition of this Lease other than the failure of Tenant
to pay the particular rent or other payment or portion thereof so accepted, regardless of Landlord’s knowledge of such preceding
breach at the time of acceptance of such rental or other payment. No payment by Tenant or receipt by Landlord of a lesser amount
than the Rent herein provided shall be deemed to be other than on account of the earliest Rent due and payable hereunder, nor
shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and
a satisfaction, and Landlord may accept any such check or payment without prejudice to Landlord’s rights to recover the
balance of such Rent or pursue any other remedy in or under this Lease. The consent by Landlord to any matter or event requiring
Landlord’s consent shall not constitute a waiver of the necessity for such consent to any subsequent matter or event.
(e) Nothing
contained herein shall constitute a waiver of Landlord’s right to recover damages by reason of Landlord’s efforts
to mitigate the damage to it caused by Tenant’s default; nor shall anything in this adversely affect Landlord’s right,
as in this Lease elsewhere provided, to indemnification against liability for injury or damage to persons or property occurring
prior to a termination of this Lease.
(f) In
the event of termination of this Lease pursuant to this, Landlord may recover from Tenant:
(i) the
worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus
(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 Tenant proves could have been reasonably avoided; plus As used in Subsections
10.03(00 and (ii) above, the “worth at the time of award” is computed by allowing interest at the rate of twelve percent
(12%) per annum.
Section
10.04
Repayment of “Free” Rent.
If this Lease provides for a postponement of any monthly rental
payments, a period or periods of “free” rent, or other rent concession, such postponed rent or “free”
rent is called the “Abated Rent.” Tenant shall be credited with having paid all of
the
Abated Rent on the expiration
of the Lease Term only if Tenant has reasonably performed all of Tenant’s obligations hereunder, including the payment of
all rent (other than the Abated Rent) and all other monetary obligations and the surrender of the Premises in the physical condition
required by this Lease. Tenant acknowledges that its right to receive credit for the Abated Rent is absolutely conditioned upon
Tenant’s performance of its obligations under this Lease. If Tenant defaults and does not cure within any applicable grace
period, the Abated Rent shall immediately become due and payable in full and this Lease shall be enforced as if there were no
such rent abatement or other rent concession.
ARTICLE
ELEVEN PROTECTION OF LENDERS
Section
11.01
Subordination.
This Lease is subject and subordinate to all present and future ground or underlying leases
of the Premises or the Premises and to the lien of any mortgages or deeds of trust, now or hereafter in force against the Premises
or the Premises, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to ail advances
made or hereafter to be made upon the security of such mortgages or deeds of trust, unless the holders of such mortgages or deeds
of trust, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto.
This clause shall be self-operative and no further instrument of subordination shall be required to make the interest of any lessor
under any ground or underlying lease or holder of any mortgage or deed of trust superior to the interest of Tenant hereunder.
Tenant covenants and agrees in the event any proceedings arc brought for the foreclosure of any such mortgage or trust deed, or
if any ground or underlying lease is terminated, to attorn, without any deductions or sct-offs whatsoever, to the purchaser upon
any such foreclosure sale, or to the lessor of such ground or underlying lease, as the case may be, if so requested by such purchaser
or lessor, and to recognize such purchaser or lessor as the landlord under this Lease, provided such lienholder or purchaser or
ground lessor shall agree to accept this Lease and not disturb Tenant’s occupancy
under
the terms and conditions
of this Lease, so long as Tenant timely pays the rent and observes and performs all of the terms, covenants and conditions of
this Lease to be observed and performed by Tenant. Landlord’s interest herein may be assigned as security at any time to
any lienholdcr. Tenant shall, within ten (10) days of request by Landlord, execute such further commercially reasonable instruments
or assurances in the form as is then required by Landlord’s lender to evidence or confirm the subordination or superiority
of this Lease to any such mortgages, trust deeds, ground leases or underlying leases.
Section
11.02
Estoppel Certificates.
(a) Upon
Landlord’s written request, Tenant shall execute, acknowledge and deliver to Landlord a written statement, in the form as
is then reasonably required by Landlord’s lender, certifying: (i) that none of the terms or provisions of this Lease have
been changed (or if they have been changed, stating how they have been changed); (ii) that this Lease has not been cancelled or
terminated; (iii) the last date of payment of the Base Rent and other charges and the time period covered by such payment; (iv)
that Landlord is not in default under this Lease (or, if Landlord is claimed to be in default, stating why); and (v) such other
representations or information with respect to Tenant or this Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Premises may require. Tenant shall deliver such statement to Landlord within fifteen (15) days
after Landlord’s request. Landlord may give any such statement by Tenant to any prospective purchaser or encumbrancer of
the Premises. Such purchaser or encumbrancer may rely conclusively upon such statement as true and correct.
(b) If
Tenant does not deliver such statement to Landlord within such fifteen (15) -day period, Landlord, and any prospective purchaser
or encumbrancer, may conclusively presume and rely upon the following facts: (i) that the terms and provisions of this Lease have
not been changed except as otherwise represented by Landlord; and (ii) that this Lease has not been canceled or terminated except
as otherwise represented by Landlord.
Section
11.03 Tenant’s Financial Condition. Within thirty (30) days after written request from Landlord, Tenant shall
deliver to Landlord such financial statements, as Landlord reasonably requires, to verify the net worth of Tenant or any assignee,
subtenant, or guarantor of Tenant. In addition, Tenant shall deliver to any lender designated by Landlord any financial statements
reasonably required by such lender to facilitate the financing or refinancing of the Premises. Tenant represents and warrants
to Landlord that each such financial statement is a true and accurate statement as of the date of such statement. All financial
statements required hereunder to be delivered by Tenant shall be confidential and shall be used solely in connection with financing
secured by this Lease, or a sale of the Building or Premises. All financial statements and other sensitive financial information
delivered to by Landlord to Tenant pursuant to this Lease shall not be disclosed by Landlord except to Landlord’s lenders,
consultants, or other advisors who have a reasonable need to know and who are advised as to the confidential nature of such information
and agree to treat the same as confidential. As to prospective purchasers of the Building or Premises, Tenant may require such
third parties to execute a further Confidentiality and Non-Disclosure Agreement prior to providing such financial statements.
ARTICLE
TWELVE LEGAL COSTS
Section
12.01 Legal Proceedings. If Tenant or Landlord shall be in breach or default under this Lease, such party (the “Defaulting
Party”) shall reimburse the other party (the “Non-defaulting Party”) upon demand for any costs or expenses that
the Non-defaulting Party incurs in connection with any breach or default of the Defaulting Party under this Lease, whether or
not suit is commenced or judgment entered. Furthermore, any action for breach of or to enforce the provisions of this
Lease is commenced, the court in such action shall award to the party in whose favor a judgment is entered, a reasonable sum as
attonteys’ fees and costs. The losing party in such action shall pay such attorneys’ fees and costs. Tenant shall
also indemnify Landlord against and hold harmless Landlord (and Landlord’s members, managers, partners, and shareholders,
as applicable, and the affiliates, employees, agents, contractors of Landlord, and its members, managers, partners, and shareholders,
as applicable) from all costs, expenses, demands and liability Landlord may incur if Landlord becomes or is made a party to any
claim or action (a) instituted by Tenant against any third party, or by any third party against Tenant, or by or against any person
holding any interest under or using the Premises by license of or agreement with Tenant (a
“Tenant Licensee”);
(b) for foreclosure of any lien for labor or material furnished to or for Tenant or such Tenant Licensee; (c) otherwise arising
out of or resulting from any act or transaction of Tenant or such Tenant Licensee; or (d) necessary to protect Landlord’s
interest under this Lease in a bankruptcy proceeding, or other proceeding under Title 1 I of the United States Code, as amended.
Tenant shall defend Landlord against any such claim or
a
ction at Tenant’s expense with counsel reasonably acceptable
to Landlord
Section
12.02
Landlord’s Consent.
Tenant shall pay Landlord’s reasonable attorneys’ fees incurred
in connection with (a) Tenant’s request for Landlord’s consent under
Article Nine
(Assignment and Subletting)
of this Lease, or in connection with any other act which Tenant proposes to do and which requires Landlord’s consent, or
(h) any other Landlord action requested by Tenant.
ARTICLE
THIRTEEN BROKERS
Landlord
and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with
the negotiation of this Lease, and that they know of no other real estate broker or agent who is entitled to a commission in connection
with this Lease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any
and ail claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including without limitation reasonable
attorneys’ fees) with respect to any teasing commission or equivalent compensation alleged to be owing on account of the
indemnifying party’s dealings with any real estate broker or agent.
ARTICLE
FOURTEEN RESERVED
ARTICLE
FIFTEEN COMMUNICATIONS SERVICES
Section
15.01 Intentionally deleted.
ARTICLE
SIXTEEN MISCELLANEOUS PROVISIONS
Section
16.01 Non-Discrimination. Tenant and Landlord promise, and it is a condition to the continuance of this Lease, that
there will be no discrimination against, or segregation of, any person or group of persons on the basis of race, color, religion,
creed, age, sex, disability, national origin, ancestry, ethnicity, sexual orientation, marital status, citizenship status, or
veteran status in the leasing, subleasing, transferring, occupancy, tenure or use of the Premises or any portion thereof.
Section
16.02
Landlord’s Liability; Certain Duties.
(a) As
used in this Lease, the term “Landlord” means the owner or owners of the fee title to the Premises or the leasehold
estate under a ground lease of the Premises. Each Landlord is obligated to perform the obligations of Landlord under this Lease.
Each Landlord shall deliver to its transferee all funds that Tenant previously paid if such funds have not yet been applied under
the terms of this Lease.
(b) Tenant
shall give written notice of any failure by Landlord to perform any of its obligations under this Lease to Landlord and to any
ground lessor, mortgagee or beneficiary under any deed of trust encumbering the Premises whose name and address have been furnished
to Tenant in writing. Landlord shall not be in default under this Lease unless Landlord (or such ground lessor, mortgagee or beneficiary)
fails to cure such nonperformance within thirty (30) days after receipt of Tenant’s notice. However, if such non-performance
reasonably requires more than thirty (30) days to cure, Landlord shall not he in default if such cure is commenced within such
thirty (30) -day period and thereafter diligently pursued to completion.
(c) Notwithstanding
any term or provision herein to the contrary, the liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord’s interest in the Premises, and neither the Landlord nor its members, managers, officers,
or other principals shall have any personal liability under this Lease.
Section
16.03 Severability.
A determination by a court of competent jurisdiction that any provision of this Lease or any
part thereof is illegal or unenforceable shall not cancel or invalidate the remainder of such provision or this Lease, which shall
remain in full force and effect, and it is the intention of the parties that there shall be substituted for such provision as
is illegal or unenforceable a provision as similar to such provision as may be possible and yet be legal and enforceable.
Section
16.04
Interpretation.
The captions of the Articles or Sections of this Lease are to assist the parties in reading
this Lease and are not a part of the terms or provisions of this Lease. Unless the context clearly requires otherwise, (i) the
plural and singular numbers will each be deemed to include the other; (ii) the masculine, feminine, and neuter genders will each
be deemed to include the others; (iii) “shall,” “will,” “must,” “agrees,” and
“covenants” are each mandatory; (iv) “may” is permissive; (v) “or” is not exclusive; and (vi)
“includes” and “including” are not limiting. In the event of a dispute between Landlord and Tenant over
the interpretation of this Lease, both parties shall be deemed to have been the drafter of this Lease, and any Applicable Law
that states that contracts arc to be construed against the drafter shall not apply. In any provision relating to the conduct,
acts or omissions of Tenant, the term “Tenant” shall include Tenant’s agents, employees, contractors, invitees,
successors or others using the Premises with Tenant’s express or implied permission.
Section
16.05
incorporation of Prior Agreements;
Modifications. This Lease is the only agreement between the parties
pertaining to the lease of the Premises and no other agreements are effective. All amendments to this Lease shall be in writing
and signed by all parties. Any other attempted amendment shall be void. All attached exhibits are hereby expressly incorporated
into this Lease by this reference.
Section
16.06
Notices.
All notices, demands, statements or communications (collectively, “Notices”) given
or required to be given by either party to the other hereunder shall be in writing, shall be sent by United States certified or
registered mail, postage prepaid, return receipt requested, nationally-recognized commercial overnight courier, or delivered personally
(i) to Tenant at the appropriate address set forth in
Section
1.03 above, except that upon Tenant’s taking possession
of the Premises, the Premises shall be Tenant’s address for notice purposes, or (ii) to Landlord at the addresses set forth
in
Section 1.02
above. Landlord and Tenant shall have the right to change its respective Notice address upon giving Notice
to the other party. Any Notice will be deemed given two (2) business days after the date it is mailed as provided in this
Section
16.06,
or upon the date delivery is made, if delivered by an approved courier (as provided above) or personally delivered.
Consistent with the provisions of Section 16.02(b) above, if Tenant is notified of the identity and address of Landlord’s
secured lender or ground or underlying lessor, Tenant shall give to such lender or ground or underlying lessor written notice
of any default by Landlord under the terms of this Lease by registered or certified mail or by use of a nationally-recognized
commercial overnight courier, and such lender or ground or underlying lessor shall be given the same opportunity to cure such
default as is provided Landlord under this Lease (unless such cure period is extended pursuant to the terms of any agreement to
which Tenant is a party or to which Tenant consents) prior to Tenant’s exercising any remedy available to Tenant. Notices
required hereunder may be given by either an agent or attorney acting on behalf of Landlord or Tenant.
Section
16.07 Waivers.
The failure of Landlord to insist upon the strict performance, in any of one or more instances,
of any term, covenant or condition of this Lease shall not be deemed to be a waiver by Landlord of such term, covenant or condition.
No waiver by Landlord of any breach by Tenant of any term, provision and covenant contained herein shall be deemed or construed
to constitute a waiver of any other or subsequent breach by Tenant of any term, provision or covenant contained herein. Landlord’s
acceptance of the payment of rent (or portions thereof) or any other payments hereunder after the occurrence of and during the
continuance of a default (or with knowledge of a breach of any term or provision of this Lease which with the giving of notice
and the passage of time, or both, would constitute a default) shall not be construed as a waiver of such default or any other
rights or remedies of Landlord, including any right of Landlord to recover the Premises. Moreover, Tenant acknowledges and agrees
that Landlord’s acceptance of a partial rent payment shall not, under any circumstances (whether or not such partial payment
is accompanied by a special endorsement or other statement), constitute an accord and satisfaction. Landlord will accept the check
(or other payment means) for payment without prejudice to Landlord’s right to recover the balance of such rent or to pursue
any other remedy available to Landlord. Forbearance by Landlord to enforce one or more of the remedies herein provided upon the
occurrence of a default shall not be deemed or construed to constitute a waiver of such default.
Section
16.08 No
Recordation.
Tenant shall not record this Lease or any assignment or security document pertaining to
this Lease. Either Landlord or Tenant may require that a “Short Form” or memorandum of this Lease executed by both
parties be recorded, The party requiring such recording shall pay all recording fees.
Section
16.09
Binding Effect; Choice of Law.
This Lease binds any party who legally acquires any rights or interest
in this Lease from Landlord or Tenant. However, Landlord shall have no obligation to Tenant’s successor unless the rights
or interests of Tenant’s successor arc acquired in accordance with the terms of this Lease. The laws of the State in which
the Premises is located shall govern this Lease, without regard to such State’s conflicts of law principles. Tenant hereby
knowingly, intentionally, and irrevocably agrees that Landlord may bring any action or claim to enforce or interpret the provisions
of this Lease in the State and County where the Premises is located, and that Tenant irrevocably consents to personal jurisdiction
in such State for the purposes of any such action or claim. Tenant further agrees that any action or claim brought by Tenant to
enforce or interpret the provisions of this Lease, or otherwise arising out of or related to this Lease or to Tenant’s use
and occupancy of the Premises, regardless of the theory of relief or recovery and regardless of whether third parties are involved
in the action, may only be brought in the State and County where the Premises is located.
Section
16.10
Corporate Authority; Partnership Authority; LLC Authority.
If Tenant is a corporation, each person signing
this Lease on behalf of Tenant represents and warrants that he has full authority to do so and that. this Lease binds the corporation.
Within thirty (30) days after this Lease is signed, Tenant shall deliver to Landlord a certified copy of a resolution of Tenant’s
Board of Directors authorizing the execution of this Lease or other evidence of such authority reasonably acceptable to Landlord.
if Tenant is a partnership, each person or entity signing this Lease for Tenant represents and warrants that lie or it is a general
partner of the partnership, that he or it has full authority to sign for the partnership and that this Lease binds the partnership
and all general partners of the partnership. Tenant shall give written notice to Landlord of any general partner’s withdrawal
or addition. Within thirty (30) days after this Lease is signed, Tenant shall deliver to Landlord a copy of Tenant’s recorded
statement of partnership or certificate of limited partnership. If Tenant is a limited liability company (LLC), each person or
entity signing this Lease for Tenant represents and warrants that he or it is a manager or member of the LLC, that he or it has
full authority to sign for the LLC and that this Lease binds the LLC and that Tenant’s managers and members have duly authorized
the executed of this Lease.
Section
16.11
Force Majeure.
A “Force Majeure” event shall occur if Landlord or Tenant cannot perform any
of its obligations due to events beyond such party’s control (except with respect to the obligations imposed with regard
to Base Rent, Additional Rent and other charges to be paid by Tenant pursuant to this Lease), and in such eases the time provided
for performing such obligations shall be extended by a period of time equal to the duration of such events. Events beyond Landlord’s
or Tenant’s control include, but are not limited to, acts of God, war, civil commotion, terrorist acts, labor disputes,
strikes, fire, flood or other casualty, shortages of labor or material, government regulation or restriction, waiting periods
for obtaining governmental permits or approvals or inspections, or weather conditions. No express reference in this Lease to a
Force Majeure event shall create any inference that the terms of this
Section 16.12
do not apply with equal force in the
absence of such an express reference.
Section
16.12
Counterparts.
This Lease may be executed in counterparts and, when all counterpart documents are executed,
the counterparts shall constitute a single binding instrument. Receipt of facsimile signatures (regardless of the means of transmission),
whether by PDF or other format) shall he as binding on the parties as an original signature.
Section
16.13
Relationship of Parties.
Nothing contained in this Lease shall he deemed or construed by the parties hereto
or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between
Landlord and Tenant, it being expressly understood and agreed that neither the method of computation of Rent nor any act of the
parties hereto shall be deemed to create any relationship between Landlord and Tenant other than the relationship of landlord
and tenant.
Section
16.14
No Warranty.
In executing and delivering this Lease, Tenant has not relied on any representation, including,
but not limited to, any representation whatsoever as to the amount of any item comprising Additional Rent or the amount of the
Additional Rent in the aggregate, or any warranty or any statement of Landlord which is not set forth herein or in one or more
of the exhibits attached hereto.
Section
16.15
Confidentiality.
Tenant agrees that the terms of this Lease arc confidential and constitute proprietary
information of Landlord, and that disclosure of time terms hereof could adversely affect Landlord. Tenant shall keep its partners,
members, managers, officers, directors, employees, agents, real estate brokers and sales persons and attorneys, as applicable,
from disclosing the terns of this Lease to any other person without Landlord’s prior written consent, which consent shall
not be unreasonably withheld, except to any accountants or professionals of Tenant in connection with the preparation of Tenant’s
financial statements or tax returns, to agents or consultants of Tenant in connection with Tenant’s performance of its business
or obligations hereunder, to an assignee of this Lease or subtenant of the Premises, to the prospective investors of Tenant’s
business and their agents, or to a person to whom disclosure is required in connection with any action brought to enforce this
Lease, or by law; provided, however, that Tenant
shall inform
such persons of the confidentiality of the terms of this
Lease and shall obtain their agreement to abide by the confidentiality provisions of this Section prior to such disclosure
Section
16.16
Revenue and Expense Accounting.
Landlord and Tenant agree that for purposes of Section 467 of the Internal
Revenue Code rental income will accrue to Landlord and rental expenses will accrue to Tenant in the amounts and as of the dates
rent is payable under this Lease.
Section
16.17
Tenant’s Representations and Warranties.
Tenant warrants and represents to Landlord as follows,
each of which is material and being relied upon by Landlord:
(a) Tenant
and all persons and entities (1) owning (directly or indirectly) an ownership interest in Tenant, (ii) whom or which are an assignee
of Tenant’s interest in this Lease; or (iii) whom or which are a guarantor of Tenant’s obligations under this Lease:
(x) are not, and shall not become, a person or entity with whom Landlord is restricted from doing business under regulations of
the Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury (including, but not limited to, those
named on OFAC’s Specially Designated Nationals and Blocked Persons list) or under any statute, executive order (including,
but not limited to, the September 24, 2001 Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism); (y) arc not, and shall not become, a person or entity with whom Landlord is restricted
from doing business under the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 or the regulations
or orders thereunder; and (z) are not knowingly engaged in, and shall not knowingly engage in, any dealings or transaction or
be otherwise associated with such persons or entities described in clauses (x) or (y), above.
(b) If
Tenant is an entity, Tenant is duly organized, validly existing and in good standing under the laws of the State of its organization,
and is qualified to do business in the State in which the Premises is located, and the persons executing this Lease on behalf
of Tenant have the full right and authority to bind Tenant without the consent or approval of any other person or entity. Tenant
has full power, capacity, authority and legal right to execute and deliver this Lease and to perform all of its obligations hereunder.
This Lease is a legal, valid and binding obligation of Tenant, enforceable in accordance with its terms.
(c) Tenant
has not (1) made a general assignment for the benefit of creditors, (2) filed any voluntary petition in bankruptcy or suffered
the filing of an involuntary petition by any creditors, (3) suffered the appointment of a receiver to take possession of all or
substantially all of its assets, (4) suffered the attachment or other judicial seizure of all or substantially all of its assets,
(5) admitted in writing its inability to pay its debts as they come due, or (6) made an offer of settlement, extension or composition
to its creditors generally.
Tenant
confirms that all of the above representations and warranties are true as of the date of this Lease, and acknowledges and agrees
that they (and any other representations and warranties of Tenant contained in this Lease) shall survive the expiration or
earlier termination of this Lease. Further, all of Tenant’s covenants and obligations set forth in this Lease that require
or contemplate Tenant’s performance subsequent to the termination of this Lease shall survive the termination of this Lease.
Section
16.18
Heirs and Successors.
The covenants and agreements of this Lease shall be binding upon the heirs, legal
representatives, successors and permitted assigns of the parties hereto.
Section
16.19
Tenant’s Cooperation.
Tenant acknowledges that the Building may in the future be retrofitted to
be certified/rated pursuant to the U.S. EPA’s Energy Star® Portfolio Manager, the Green Building Initiative’s
Green GlobesTM building rating system, or the U.S. Green Building Council’s Leadership in Energy and Environmental Design
(LEED®) building rating system, or operated to meet another standard for high performance buildings adopted by Landlord (collectively,
the “
Green Building Standard
”). As and when requested by Landlord during the Lease Term, Tenant shall provide
Landlord (in the format requested by Landlord and reasonably necessary or desirable to comply with the requirements of the applicable
Green Building Standard or any commissioning or re-commissioning of the Building’s systems) with data concerning Tenant’s
energy consumption, water consumption, and the operation of the Building’s systems. Such data may include, without limitation,
the operating hours, the number of on-site personnel, the types of equipment used at the Building (including computer equipment,
if applicable), and energy use and cost. Landlord shall have no liability to Tenant if, once obtained, any such Green Building
Standard rating or certification lapses and is not reinstated by Landlord.
Section
16.20
Option to Purchase.
Tenant shall have a right, commencing on the first day of Lease Month 25 and expiring
on the last day of Lease Month 60, to purchase the Option Property (defined below) upon delivery of no less than thirty (30) days’
prior written notice to Landlord of Tenant’s election to exercise such option (the “
Purchase Option
”).
As used herein, the “
Option Property
” shall mean the Building containing the Premises and the applicable Premises.
The Purchase Option shall permit Tenant to acquire the Option Property at a purchase price equal to Two Million Six Hundred Seven
Thousand Eight Hundred Eighty and No/100 Dollars ($2,607,880.00), and on such other commercially reasonable terms and conditions
as the parties may mutually agree upon in writing. Tenant and Landlord agree to reasonably cooperate and negotiate in good faith
to enter into a definitive purchase and sale agreement or real estate purchase contract to memorialize the same. In the event
that Tenant and Landlord are unable to agree upon the material terms and/or conditions of Tenant’s consummation of the purchase
of the Option Property pursuant to the Purchase Option within ninety (90) days following Tenant’s written notice of exercise
of the Purchase Option, the Tenant and Landlord shall submit the dispute to binding arbitration administered by the American Arbitration
Association under its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof Tenant and Landlord shall each pay fifty percent (50%) of all fees and costs charged by the
arbitrator and shall otherwise pay for their own attorneys’ fees, costs, and expenses concerning such arbitration matter.
This Purchase Option shall terminate upon any Transfer of this Lease regardless or the month of such Transfer.
ARTICLE
SEVENTEEN SUBMISSION FOR REVIEW
THE
SUBMISSION OF THIS LEASE BY LANDLORD, ITS AGENT OR REPRESENTATIVE FOR EXAMINATION OR EXECUTION BY TENANT DOES NOT CONSTITUTE AN
OPTION OR OFFER TO LEASE THE PREMISES UPON THE TERMS AND CONDITIONS CONTAINED HEREIN OR A RESERVATION OF THE PREMISES IN FAVOR
OF TENANT, IT BEING INTENDED HEREBY THAT THIS LEASE SHALL ONLY BECOME EFFECTIVE UPON THE EXECUTION HEREOF BY LANDLORD AND DELIVERY
OF A FULLY EXECUTED LEASE TO TENANT, WHETHER SUCH EXECUTION AND DELIVERY IS ACCOMPLISHED BY PHYSICAL DELIVERY OR DELIVERY BY ELECTRONIC
TRANSMISSION OR OTHER ELECTRONIC MEANS. NEITHER PARTY SHALL HAVE ANY OBLIGATION TO CONTINUE DISCUSSIONS OR NEGOTIATIONS OF THIS
LEASE.
(Left
intentionally blank — signature page to follow)
Landlord
and Tenant have signed this Lease at the place and on the dates specified adjacent to their signatures below.
EXHIBIT
A
DEPICTION
OR DESCRIPTION OF THE PREMISES
(Attach
Site Plan Showing approx. 17,298s.f. Building and Premises)
EXHIBIT
B
RESERVED
EXHIBIT
C
CONFIRMATION
OF INITIAL LEASE TERM AND AMENDMENT TO LEASE
THIS
CONFIRMATION OF INITIAL LEASE TERM AND AMENDMENT TO LEASE (“Confirmation”) is made as of the ______ day
of _________ 2017 by and between_________________ , a (“Landlord”), and ________________ , a
____________________ _(“Tenant”).
Landlord and Tenant agree as follows:
1. Landlord
and Tenant have entered into a Standard Industrial Real Estate Lease, dated 20 (the “Lease”), in which
Landlord leased to Tenant and Tenant leased from Landlord certain described premises located at ____________________ (the “Property”).
2. Consistent
with Sections 2.01 and 2.02 of the Lease, Landlord and Tenant hereby confirm the Lease Commencement Date and the Expiration Date
of the initial Lease Term (as defined in the Lease), and amend Section 1.05 of the Lease to conform to such dates. The pertinent
dates arc as follows:
a.
___________, 20 ____ is the Lease Commencement Date; and
b.
___________,
20 ____ is the Lease Expiration Date.
3. Tenant
confirms that:
a. It
has accepted possession of the Premises as provided in the Lease;
b. The
Lease has not been modified, altered, or amended, except as provided in this Confirmation and as follows: ____________________ ;
and
c. The
Lease is in full force and effeet.
4. The
provisions of this Confirmation shall inure to the benefit, or bind, as the case may require, Landlord, Tenant, and their respective
permitted successors and assigns.
DATED
as of the date first written above.