UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C.  20549

 

FORM 10-K

 

☒   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For Fiscal Year Ended December 31, 2019

 

Commission File Number 333-176154

 

Generation Hemp, Inc.

(Exact name of registrant as specified in its charter)

 

COLORADO   26-3119496
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer
Identification No.)
     
5128 Horseshoe Trail, Dallas, Texas   75209
(Address of principal executive offices)   (Zip code)

 

(469) 209-6154

(Registrant’s telephone number, including area code)

 

Securities Registered under Section 12(b) of the Exchange Act:

None

 

Securities Registered under Section 12(g) of the Exchange Act:

Common Stock, no par value

 

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 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 ☐   No þ

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 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.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐   No 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.

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer ☐    Smaller reporting company þ
    Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

As of June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of common stock held by non-affiliates of the registrant was  $435,076. 

 

At December 15, 2020, the registrant had 17,380,317 shares of common stock outstanding.

 

 

 

 
 

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This Annual Report on Form 10-K, the other reports, statements, and information that the Company has previously filed with or furnished to, or that we may subsequently file with or furnish to, the SEC and public announcements that we have previously made or may subsequently make include, may include, or may incorporate by reference certain statements that may be deemed to be “forward- looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, and that are intended to enjoy the protection of the safe harbor for forward-looking statements provided by that Act. To the extent that any statements made in this report contain information that is not historical, these statements are essentially forward-looking. Forward-looking statements can be identified by the use of words such as “anticipate”, “estimate”, “plan”, “project”, “continuing”, “ongoing”, “expect”, “believe”, “intend”, “may”, “will”, “should”, “could”, or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions.. Forward looking statements contained in this Annual Report on Form 10-K include, but are not limited to statements about:

 

● the marketability of our products;

 

● industry and market conditions;

 

● compliance with laws and regulations that impact our business, and changes to such laws and regulations;

 

● legal and regulatory risks associated with OTC Markets;

 

● our future capital requirements and our ability to raise additional capital to finance our activities;

 

● the future trading of our common stock;

 

● our ability to operate as a public company;

 

● our ability to protect our proprietary information;

 

● general economic and business conditions; the volatility of our operating results and financial condition;

 

● our ability to attract or retain qualified senior management personnel and research and development staff;

 

● the risk that our results could be adversely affected by natural disaster, public health crises (including, without limitation, the recent Coronavirus Disease 2019, or COVID-19, outbreak), political crises, negative global climate patterns, or other catastrophic events;

 

● the preceding and other factors discussed in Part I, Item 1A, “Risk Factors”; and

 

● the factors set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

● We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K.

 

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

 

The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances or to reflect new information or the occurrence of unanticipated events, except as required by law.

 

i
 

 

WHERE YOU CAN FIND MORE INFORMATION

 

We file annual, quarterly and current reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the Securities and Exchange Commission (the “SEC”). You may read and copy any document we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549, U.S.A. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public from the SEC’s internet site at http://www.sec.gov.

 

On our Internet website, http://www.genhempinc.com, we post the following recent filings as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.

 

When we use the terms “Generation Hemp,” “Company,” “GenHemp,” “we,” “our,” and “us” we mean Generation Hemp, Inc., a Colorado corporation, and its consolidated subsidiaries, taken as a whole, as well as any predecessor entities, unless the context otherwise indicates.

 

ii
 

 

GENERATION HEMP, INC.

 

FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2019

 

TABLE OF CONTENTS

 

  Page
   
PART I  
   
Item 1. Description of Business 1
Item 1A. Risk Factors 6
Item 1B. Unresolved Staff Comments 17
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Mine Safety Disclosures 17
   
PART II  
   
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 17
Item 6. Selected Financial Data 19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 23
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes In And Disagreements with Accountants on Accounting and Financial Disclosure 25
Item 9A. Controls and Procedures 25
Item 9B. Other Information 26
   
PART III  
   
Item 10. Directors, Executive Officers and Corporate Governance 26
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters 28
Item 13. Certain Relationships and Related Transactions and Director Independence 29
Item 14. Principal Accountant Fees and Services 30
Item 15. Exhibits and Financial Statement Schedules 31
Signatures 33

 

iii
 

 

Part I.

 

ITEM 1. BUSINESS

 

Generation Hemp, formerly known as Home Treasure Finders, Inc. (“HTF”), was initially incorporated on July 28, 2008 in the State of Colorado. On March 3, 2014, the Company formed a wholly-owned subsidiary, HMTF Cannabis Holdings, Inc. to purchase properties that qualify for legal cultivation of cannabis. The Company generates income from its real estate holdings.

 

On November 27, 2019, HTF completed the purchase of approximately 68% of the common stock of Energy Hunter Resources, Inc. (“EHR”) through the issuance of 6,328,948 shares of the Company’s Series A Convertible Preferred Stock (“Series A Preferred”). Each share of the Series A Preferred; (a) converts into 12 shares of common stock of the Company, (b) possesses full voting rights, on an as-converted basis, with the common stock of the Company, and (c) has no dividend rate. The acquisition, together with the other transactions contemplated by the Stock Purchase Agreement, dated August 15, 2019 are referred to herein as the “Transaction”. In connection with the closing of the Transaction, HTF changed its name to Generation Hemp, Inc.

 

The Transaction was accounted for as a reverse merger, whereby EHR is considered to be the accounting acquirer and became a majority-owned subsidiary of the Company. Accordingly, the Company’s historical financial statements prior to the reverse merger were and will be replaced with the historical financial statements of EHR prior to the reverse merger and in this and all future filings with the U.S. Securities and Exchange Commission (the “SEC”).

 

Upon completion of the Transaction, Corey Wiegand, who had been the President and sole Director of Home Treasure Finders, Inc. since its founding, resigned from these positions and Gary C. Evans, previous Chairman and Chief Executive Officer of Energy Hunter Resources, Inc., took the helm of the combined entity as Chairman of the Board of Directors and Chief Executive Officer.

 

In an exchange transaction also effective November 27, 2019, the Company acquired an additional 26% of the common stock of EHR through the issuance of common stock and warrants.

 

The Company owns approximately 94% of the issued and outstanding common stock of EHR. Thus, EHR is a majority-owned subsidiary of the Company. EHR is an oil and gas exploration and production company whose core properties were located in (a) Cochran County, Texas within the Slaughter-Levelland Field of the San Andres formation in the Northwest Shelf of West Texas and (b) certain areas of the Eagle Ford Shale Trend in Karnes County, Texas. EHR held an 8.0% interest in certain oil and gas and/ or oil, gas and mineral leases, lands interests, and other properties located in Cochran County and a 28.125% interest in certain oil and gas and/or oil, gas and mineral leases, lands interests, and other properties located in Karnes County. EHR’s oil & gas activities are currently held for sale and are presented in these consolidated financial statements as discontinued operations for each of the periods presented.

 

Our management team has been and continues to actively review acquisition candidates of growing hemp companies that operate within a number of vertical businesses attractive to us and within the hemp supply chain. We presently generate revenue from rental of our “Cannabis Zoned” (Hemp) warehouse property located in Denver, Colorado leased to a hemp seed company.

 

To fund our business activities, we have historically completed a number of private placements of equity capital and continue to seek additional private placements of our stock to attract additional new capital. Additionally, we from time-to-time incur indebtedness to fund our operations. At December 31,2019, our shares were quoted on the OTC Pinks under the symbol “GENH.”

 

The address of our primary web site is www.genhempinc.com

 

1
 

 

Pending Acquisition of Halcyon Thruput, LLC

 

On March 7, 2020, we entered into a definitive agreement on our first acquisition with Halcyon Thruput, LLC (“Halcyon”) to acquire 100% of their assets for total consideration of $5.1 million. The consideration includes $2.5 million of restricted common stock (valued at $0.50 per share) of Generation Hemp, Inc., restricted from trading for one year, and $2.6 million in cash. Halcyon is a leading emerging company active in the hemp sector that provides post-harvest and midstream services to growers by drying and processing harvested hemp directly from the field and wet-baled at their 48,000 square foot facility located in Hopkinsville, Kentucky. The drying services technology greatly increases efficiency and capacity during harvest for farmers who need to quickly move harvested hemp while preserving the cannabinoid potency by providing scalable infrastructure essential to receive and process hemp with high moisture content (“wet”) quickly. Additionally, Halcyon offers safe storage services for processed hemp, which enables farmers to maximize strategic market timing. Their midstream business is fee income oriented, based upon a price per pound of material handled, and therefore is more protected from significant commodity price variations. The facility is able to process approximately 10,000 wet pounds per hour and in development are plans to scale up to 20,000 wet pounds per hour in order to meet market demands as licensed and harvested hemp acreage continues to dramatically increase across Kentucky and Tennessee. The transaction is expected to close prior to year end 2020. The Company has received commitments from certain investors for the revised cash portion of the total consideration.

 

Principal Services and their Markets

 

Generation Hemp. is positioning to be a pure-play, fully integrated hemp company through its acquisitions of existing established companies operating in the rapidly growing hemp sector with success as profitable first movers. The Company has entered into definitive agreements with Halcyon to acquire 100% of their assets. Halcyon is a fully licensed leading emerging company active in the hemp sector that provides post-harvest and midstream services to growers by drying and processing harvested hemp directly from the field.

 

We presently own one industrial warehouse located in Denver, Colorado and lease 100% of this space within that project to aid a licensed hemp seed grower. To-date, this project has been successful in generating net revenue to the Company. We exercise appropriate and reasonable care to screen our tenants. We require and verify that our tenants maintain proper licenses and operate in compliance with all applicable rules and regulations at the federal, state, and local level.

 

We may own properties for our own investment account and as such are solely at financial risk in connection with our investments. In the event we utilize funds loaned to us by third party groups, they may in some circumstances share certain risks.

 

We do not grow, distribute or sell any form of cannabis. We have no present plan to engage in such activities or obtain a license to do so, now, or in the future. We currently plan to only operate in the hemp space. We are in the process of expanding our operations into other states.

 

Marketing of our Services

 

The market, clients, customers and distribution methods for hemp services and hemp-based products are large and diverse. These markets range from hemp mid-stream services for hemp growers/farmers, to hemp derived products like bioplastics, textiles, building materials, food additives, and dietary supplements.  Awareness and demand continues to grow for “green,” environmentally-friendly products derived from hemp, and the consumer market has already begun to integrate hemp products and products that contain hemp derivatives to existing product lines.  The distribution system is constantly evolving as small retailers, retail chains, and big box stores become increasingly educated on and familiar/comfortable with hemp and its derivatives.  The current market is focused on one of the cannabinoids derived from hemp called cannabidiol (“CBD”) and consumer goods that contain CBD. Additionally, consumer awareness followed by increased demand continues to drive and even force companies to make room on their shelves for hemp and products with hemp derivatives.  For products with hemp derivatives like CBD, direct to consumer Ecommerce through online store sales remains the main source of revenue for consumer goods companies, accounting for reported percentages of approximately 70-80% of sales.  

 

The Company continues to implement a plan to become a seed to sales company and its first target is the midstream market.  Our marketing efforts began with a grass roots approach in order to meet with farmers, growers, and seed operations that would benefit from midstream services.  To supplement the grass roots outreach, we built our online web presence to reflect our desire to educate, to become a contributor and part of the hemp community, and also to act as a pioneer company to connect investors in the U.S. public markets to a hemp education and platform that is dually informed. 

 

2
 

 

We maintain and update our website and engage on social media platforms to market our ongoing hemp sector efforts.  We use globally distributed YouTube video ad campaigns to increase our brand awareness and encourage markets and the investment community to learn more about the hemp space. These videos have been played on several business sites such as CNBC, MSNBC, Fox News, Fox Business, Yahoo Finance, among others.  We will soon begin to market with a version of “Fireside Chats” from our Chairman and CEO to talk about various topics of interest in the hemp space.  These video segments will post on our social media platforms and they will also be used to create awareness campaigns that will have a global outreach.  In order to reach region specific growers/farmers in hemp, we have teed up EDDM marketing materials which prove effective for service markets within a specified radius.  These materials will serve as invitations to the farmers and growers in areas that the midstream services which we are acquiring will reach.  These are designed to add an identity to the midstream facility and provide an offer of help and partnership.  As we continue to become involved with additional verticals in the hemp supply chain, we will expand and tailor these marketing and advertising efforts to the specific needs of each segment. All marketing, ad creation, ad campaigns, and creative work has been done internally and with a very lean budget. 

 

Competition

 

The hemp industry and hemp-based consumer product industry is highly competitive and fragmented in its nascency with numerous companies, consisting of publicly (mostly Canadian) and privately-owned companies. There are also large, well-funded companies beginning to emerge in the U.S. with a similar intention asGeneration Hemp; to consolidate and vertically integrate along the hemp supply chain through acquisitions. These companies have indicated their intention to compete in the hemp industry and hemp-based product category. However, certain holdings companies such as Acreage Holdings (domiciled in British Columbia) also include marijuana companies in their portfolio, whereas Generation Hemp is and will be hemp only. We routinely evaluate internal and external opportunities to optimize value for shareholders through market research, strategic relationships and/or partnerships, and by asset acquisitions. We believe we are well-positioned to capitalize in the growing hemp industry and hemp-based product industry. 

 

There are several companies developing hemp-based products and materials that will potentially displace existing products and materials sourced from less sustainable or less environmentally friendly sources. These hemp-based products are developing in the markets of textiles, building materials, biofuels, as food additives, skin care topicals and other therapeutics, and dietary supplements. Also, it is thought that cannabinoids derived from hemp can be used as therapeutics for a range of medical indications. The hemp-derived cannabinoid therapeutic market currently includes extracts of the hemp plant in several formulations, including proprietary formulations from several companies. These formulations include CBD and other cannabinoid such as,” CBG”, “CBC”, and “CBN” or a combination of several cannabinoids as the active ingredients. There are over one hundred different cannabinoids, therefore the market potential is only beginning to be realized. The therapeutics and supplement market are flooded with competition for hemp-based cannabinoid therapeutics. There are also companies that are using hemp-based cannabinoids as active ingredients in pharmaceutical formulations. Certain companies such as GW Pharmaceuticals plc have focused on plant-based CBD formulations; while other companies such as Zynerba Pharmaceuticals Inc. and Insys Therapeutics Inc. have focused on synthetic CBD formulations.

 

Our Competitive Strengths

 

We believe that we have the following competitive strengths:

 

● Experienced and Committed Management Team. Gary C. Evans, our CEO, and other anticipated members of our senior management team have substantial experience in all aspects of growing a public company in a highly competitive sector, including acquisitions, dispositions, construction, development, management, finance and capital markets. In particular, Mr. Evans has previously been the Chairman and CEO of four different public companies that obtained financial success on the New York Stock Exchange.

 

● Focus on Consolidating Atomized Industry. Our focus on revenue generating and positive cash flow businesses is a key part of our growth strategy. Moreover, we believe the beginning of an entire new industry creates numerous opportunities to evaluate and consolidate very fragmented businesses. Our ultimate goal of being a seed to sales enterprise will eventually give us control of the entire value chain and separate us from most of our competition.

 

3
 

 

● Demonstrated Investment and Capital Raising Acumen. We will continue to utilize rigorous underwriting standards for evaluating acquisitions and potential tenants to ensure that they meet our strategic and financial criteria. Our management team’s extensive experience and relationships established in mergers and acquisitions over the past 35 years should enable us to identify, negotiate and close on acquisitions cost effectively, efficiently, and with shareholder interest first in mind.

 

Our Growth Strategy

 

We believe there are significant opportunities to grow a vertically integrated hemp business by executing the following elements of our strategy:

 

Since the first harvests following the signing of the 2018 Farm Bill, the rush to capitalize on the hemp sector led to several pioneers launching a number of businesses within each vertical – many with very little capital resources available to them. Today:

 

● The strong have survived

 

● Hemp/CBD space is ripe for consolidation

 

● Time for expansion and vertical integration

 

● Seasoned business professionals have now just begun to enter the space

 

Generation Hemp has taken an aggressive, boots-on-the-ground approach to its analysis of the overall industry and due diligence on specific businesses. Generation Hemp’s management has traveled all over the United States, using a hands-on vetting process to meet with target companies’ teams, get site tours, verify operations, and have in-person discussions on operating activities, historical financial reviews, and projections.

 

Intellectual Property

 

As a company within the hemp industry, one of the fastest growing industries in the United States, our current initial effort is to protect and distinguish our company and brand identity amidst several other entities currently operating within and entering the space. Our first step to this end is registering both our company name and company logo with the U.S. Patent and Trademark Office, in each applicable Class.

 

Governmental Regulation

 

We are subject to local and federal laws in our operating jurisdictions. We will hold required licenses for product production and distribution to the extent that our business requires and will monitor changes in laws, regulations, treaties and agreements.

 

The Agriculture Improvement Act of 2018 known as the “2018 Farm Bill” is United States federal legislation signed into law on December 20, 2018 which provides much of the legal framework for the hemp-based CBD product category. The 2018 Farm Bill permanently removed “hemp” from the purview of the Controlled Substances Act, and accordingly, the Drug Enforcement Administration (“DEA”) no longer has any claim to interfere with the interstate commerce of hemp products. Some of the immediate impact from this legislation includes the ability for farmers to access crop insurance and U.S. Department of Agriculture programs for certification and competitive grants. While the DEA is now officially not involved in hemp regulation, the FDA retains its authority to regulate ingestible and topical products, including those that contain hemp and hemp extracts such as CBD.

 

4
 

 

A range of federal regulations govern any potential product development, manufacturing, distribution, sales and marketing, including the Dietary Supplement Health and Education Act of 1994 (the “DSHEA”). Under DSHEA, supplements are effectively regulated by the FDA for Good Manufacturing Practices under 21 CFR Part 111. DSHEA defines a “dietary supplement” as a product intended to supplement the diet that contains one or more of the following: (a) a vitamin; (b) a mineral; (c) an herb or other botanical; (d) an amino acid; (e) a dietary substance for use by man to supplement the diet by increasing the total dietary intake; or (f) a concentrate, metabolite, constituent, extract, or combination of any ingredient described in clause (a) through (e). Thus, the law permits a wide range of dietary ingredients in dietary supplements, including CBD which is an extract of a botanical (Cannabis sativa L. plant). CBD also falls under clause (e) as it is a dietary substance for use by man to supplement the diet by increasing the total dietary intake.

 

Markets and Distribution Methods

 

The market, customers and distribution methods for hemp-based products are large and diverse. These markets range from hemp-based bio plastics to textiles. This is an ever-evolving distribution system that today includes early adopter retailers and ecommerce entities, and product development companies. We believe that as awareness grows for the “green”, environmentally-friendly products derived from hemp/cannabis, the consumer market will adapt its current product lines to integrate them with hemp-based additives or replace harmful components in their existing products with the components of hemp.

 

Environmental Matters

 

Compliance with federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any material effect on the capital expenditures, earnings or competitive position of the Company.

 

Properties

 

Our industrial warehouse is located at 4430 Garfield Street, Denver, Colorado 80216 in an industrial neighborhood zoned for cannabis cultivation. Properties located in the 80216 zip code have recently had some of the highest appreciation rates in the Denver region. Numerous warehouses utilized for cannabis cultivation are located in this industrial district of Denver.

 

Employees

 

As of the date of this report we have two employees, Gary C. Evans our Chairman and CEO and Melissa M. Pagen, Managing Director, Chief Branding Officer, and Corporate Secretary. We also utilize contract employees to provide certain specialized skills and expertise that may be required from time to time.

 

5
 

 

ITEM 1A. RISK FACTORS

 

You should carefully consider the following risk factors, in addition to the other information contained in this report on Form 10-K, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. If any of the events described in the following risk factors and the risks described elsewhere in this report occurs, our business, operating results and financial condition could be seriously harmed. This report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward¬looking statements as a result of factors that are described below and elsewhere in this report.

 

Risks Related to our Activities in the Legal Hemp Industry

 

We will be subject to a myriad of different laws and regulations governing hemp and our inability to comply with such laws in a cost-effective manner may have an adverse effect on our business and result of operations.

 

Laws and regulations governing the use of hemp in the United States are broad in scope; subject to evolving interpretations; and subject to enforcement by a myriad of regulatory agencies and law enforcement entities. Under the Agriculture Improvement Act of 2018, also known as the 2018 Farm Bill, a state or Indian tribe that desires to have primary regulatory authority over the production of hemp in the state or territory of the Indian tribe must submit a plan to monitor and regulate hemp production to the Secretary of the USDA. The Secretary must then approve the state or tribal plan after determining if the plan complies with the requirements set forth in the Agriculture Improvement Act of 2018. The Secretary may also audit the state or Indian tribe’s compliance with the federally-approved plan. If the Secretary does not approve the state or Indian tribe’s plan, then the production of hemp in that state or territory of that Indian tribe will be subject to a plan established by USDA. USDA has not yet established such a plan. We anticipate that many states will seek to have primary regulatory authority over the production of hemp. States that seek such authority may create new laws and regulations that limit or restrict the use of hemp.

 

Federal and state laws and regulations on hemp may address production, monitoring, manufacturing, distribution, and laboratory testing to ensure that that the hemp has a delta-9 tetrahydrocannabinol concentration of not more than 0.3% on a dry weight basis. Federal laws and regulations may also address the transportation or shipment of hemp or hemp products, as the Agriculture Improvement Act of 2018 prohibits states and Indian tribes from prohibiting the transportation or shipment of hemp or hemp products produced in accordance with that law through the state or territory of the Indian tribe, as applicable. We may be subject to many different state-based regulatory regimens for hemp, all of which could require us to incur substantial costs associated with compliance requirements. Our operations will be restricted to only where such operations are legal on the local, state and federal levels.

 

In addition, it is possible that additional regulations may be enacted in the future in the United States and globally that will be directly applicable to research and development operations.

 

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 have no operating history in the legal hemp or cannabis industry, which makes it difficult to accurately assess our future growth prospects.

 

The legal hemp and cannabis industry is an evolving industry that may not develop as expected. Furthermore, our operations will continue to evolve as we continually assess new strategic opportunities for our business within this industry. Assessing the future prospects of this industry is challenging in light of both known and unknown risks and difficulties we may encounter.

 

Growth prospects in the legal hemp and cannabis industry can be affected by a wide variety of factors including:

 

● Competition from other similar companies;

 

● Fluctuations in the market price of CBD oil;

 

6
 

 

● Regulatory limitations on the types of research and development with respect to cannabis;

 

● Other changes in the regulation of cannabis and legal hemp use; and

 

● Changes in underlying consumer behavior, which may affect the demand of our legal hemp and cannabis traits.

 

We may not be able to successfully address the above factors, which could negatively impact our intended business plans.

 

Because we have only recently begun our legal hemp operations, we anticipate our operating expenses will increase prior to earning revenue from these operations.

 

As we identify and develop strategic opportunities, conduct any necessary research and development with respect to legal hemp, and expand our operations, we anticipate significant increases in our operating expenses, and we may not realize significant revenues from such operations. As a result, the Company may incur significant financial losses with respect to such operations in the foreseeable future. There is no history upon which to base any assumption as to the likelihood that these operations will prove successful.

 

Negative press from being in the hemp/cannabis space could have a material adverse effect on our business, financial condition, and results of operations.

 

The hemp plant and the cannabis/marijuana plant are both part of the same cannabis sativa genus/species of plant, except that hemp, by definition, has less than 0.3% THC content, but the same plant with a higher THC content is cannabis/marijuana, which is legal under certain state laws, but which is not legal under federal law. The similarities between these plants can cause confusion, and our activities with legal hemp may be incorrectly perceived as us being involved in federally illegal cannabis. Also, despite growing support for the cannabis industry and legalization of cannabis in certain U.S. states, many individuals and businesses remain opposed to the cannabis industry. Any negative press resulting from any incorrect perception that we have entered into the cannabis space could result in a loss of current or future business. It could also adversely affect the public’s perception of us and lead to reluctance by new parties to do business with us or to own our common stock. We cannot assure you that additional business partners, including but not limited to financial institutions and customers, will not attempt to end or curtail their relationships with us. Any such negative press or cessation of business could have a material adverse effect on our business, financial condition, and results of operations.

 

Risks Related to Our Business

 

The impact of the COVID-19 pandemic, or the impact of any future pandemic, is uncertain and difficult to predict, but the COVID-19 pandemic and the measures taken to contain it has had a material adverse effect on our business and revenues to date and may have a material adverse effect on our business, financial condition, results of operations, stock price, and liquidity in the future.

 

The COVID-19 pandemic has materially and adversely impacted the U.S. economy and financial markets, with legislative and regulatory responses including unprecedented monetary and fiscal policy actions across all sectors, and there is significant uncertainty as to timing of stabilization and recovery. Our business, results of operations and financial condition were adversely affected by the COVID-19 pandemic in the first quarter of 2020, especially beginning in mid-March, and such impact has materially worsened to date in the second quarter. The COVID-19 pandemic and measures taken to contain it have subjected our business, results of operations, financial condition, stock price and liquidity to a number of material risks and uncertainties, all of which may continue or worsen.

 

The extent of the potential effect of the COVID-19 pandemic will depend on future actions and outcomes, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the short-term and long-term economic impact of the outbreak (including the effect on consumer discretionary spending and our employees in the markets in which we operate), the actions taken to mitigate the impact of the virus, and the pace of economic and financial market recovery when the COVID-19 pandemic subsides, among others.

 

Many of the Risk Factors described in this report are more likely to occur and be further intensified as a result of the impact of the COVID-19 pandemic.

 

7
 

 

Unfavorable global economic or political conditions could adversely affect our business, financial condition or results of operations.

 

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. A global financial crisis or a global or regional political disruption could cause extreme volatility in the capital and credit markets. For example, outbreaks of epidemic, pandemic, or contagious diseases, such as the recent COVID-19 outbreak, could disrupt our business. Business disruptions could include disruptions to the productivity of our employees working remotely and restrictions on their travel may hinder their ability to meet with potential customers and close transactions, as well as temporary closures of the facilities of suppliers or contract growers as we try to develop our supply chain. In addition, the COVID-19 outbreak may result in a severe economic downturn and has already significantly affected the financial markets of many countries. A severe or prolonged economic downturn or political disruption could result in a variety of risks to our business, including our ability to raise capital when needed on acceptable terms, if at all. A weak or declining economy or political disruption could also strain our operations, possibly resulting in a future supply disruption, or cause our future customers to delay making payments for our services. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the political or economic climate and financial market conditions could adversely impact our business.

 

There is substantial doubt that we will be able to continue as a going concern

 

Our independent registered public accounting firm’s auditors’ report includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern. We have had substantial losses since inception and as of December 31, 2019, and the date of this report we have minimal cash reserves. While we are beginning to generate increasing revenue and a positive cash flow, our ability to build significant cash reserves and continue as a going concern over the long term remains unproven. In the event that we are forced to reduce operations or seriously curtail our business, an investor will lose all money invested.

 

We have a history of significant losses, which we expect to continue, and we may never achieve nor maintain profitability.

 

We have incurred significant net losses since our formation and expect to continue to incur net losses for the foreseeable future as we complete our acquisition efforts. We incurred net losses of $8.2 million and $3.7 million for the years ended December 31, 2019 and 2018, respectively - most of which were non-cash charges. To date, we have not generated any significant revenues from the hemp business. If we are unsuccessful in implementing our strategic plan we may never become profitable.

 

A significant portion of our monthly cash flow derives from rental revenue derived from our industrial warehouse, which may prove uncollectable.

 

We carefully vet prospective tenants, and we obtain their personal guarantees as to payment and performance under the lease terms, when deemed necessary.

 

In the event the cultivation business of one or more grower tenants fails, or for any reason our tenant fails to pay rent in a timely fashion and we do not receive the rent payments as such payments become due under lease terms, thereafter, if satisfactory payment arrangements as acceptable to us are not made, we may be forced to evict.

 

Under terms of the leases now in effect, if we do not receive rent payments as such payments become due and payable under lease terms, we may first utilize the sums we hold as tenant security deposits to collect the late rent payments with penalty. Under the terms of the leases in place, tenants then are required, within five days, to replace such security deposit sums such that the full tenant security deposit is restored. There is no assurance that such replacements of deposit sums will actually occur.

 

In any event, if tenants do not comply with lease terms, and no workable arrangement can be achieved, we may be forced to evict one or more tenants. This has occurred in the past and could occur again. Unfavorable developments of this nature could contribute to or cause us to fall behind on our obligations to make monthly mortgage payments as such payments become due.

 

8
 

 

During the past, the Company has experienced disagreements with certain previous warehouse tenants.  One tenant abandoned his unit and was subsequently evicted. The other tenant ultimately amended his lease to include the abandoned space but only after considerable argument over various lease terms had been settled.  As of the date of this report, a single tenant is leasing our entire Garfield Street warehouse and that tenant has remained current on its lease obligations.

 

If we pursue an action for eviction, one or more tenants might cause physical damage to our real estate and/or fight an action for eviction, and/or refuse to vacate or otherwise undertake to block and/or slow our efforts to regain proper possession of our warehouse or to locate a suitable alternative tenant to re-lease our warehouse.

 

We believe that we have acted legally and in good faith with respect to our warehouse tenant(s). We further believe that our real estate is adequately insured. We plan to defend our property and related contractual rights to the fullest extent of the law.  In the past we were assisted by counsel to negotiate a suitable remedy to various disputes.  There is no present way to predict the final outcome of any new issues that may arise.

 

A tenant, present or former, may claim to have suffered damages and in connection with that belief, may elect to initiate and thereafter pursue one or more regulatory complaints or lawsuits against the Company, its management and subsidiaries.

 

We believe we have acted properly in all of our dealings with tenants at our warehouse and properties we manage for third parties and otherwise. We have requested counsel to confirm the legality of our past and present agreements and actions and to advise us accordingly. In any case, we have prevailed in various prior matters of this nature and we plan to vigorously defend any suit or regulatory complaint brought against the Company, its employees or agents.

 

We have a limited operating history and operate under the professional guidance of our Chairman and CEO

 

Our ability to achieve consistent cash flow and profitability depends upon the continued service of Gary C. Evans. Mr. Evans is our Chairman and CEO, largest shareholder, and one of two management level executives.

 

Our business plan provides that we will grow the Company’s asset base and revenues rapidly and ultimately deliver a positive cash flow generating company.

 

We may not be able to generate predictable and continuous revenue in the future. Further, there is no assurance that we will ever grow operations in the manner contemplated.

 

We may incur significant operating losses in the future, due to the expansion of our operations or other factors. There is no assurance that we can expand under terms that permit profitable operations over the long term. Failure to generate sufficient revenue to pay expenses as they come due may make us unable to continue as a going concern and result in the failure of our company and the complete loss of any money invested to purchase our shares.

 

We may be unable to manage our growth or implement our expansion strategy.

 

As a public company, our expenses include, but are not limited to, annual audits, legal costs, SEC reporting costs, costs of a transfer agent and the costs associated with fees and compliance. Further, our management will need to invest significant time and energy to stay current with the public company responsibilities of our business and may from time to time have diminished time available to apply to other tasks necessary to our survival and growth.

 

It is therefore possible that the financial and time burdens of operating as a public company will cause us to fail to achieve profitability. If we exhaust our funds, our business will fail and our investors will lose all money invested in our stock.

 

If we fail to pay public company costs, as such costs are incurred; we could become delinquent in our reporting obligations and face the delisting of our shares.

 

9
 

 

It is essential that we grow our overall business, achieve significant profits and maintain adequate cash flow in order to pay the cost of remaining a public entity which includes but is not limited the costs of remaining current with SEC reporting obligations.

 

The issuance of additional shares of our common stock may be necessary for the implementation of our growth strategy.

 

A limited private placement of restricted shares of our common stock has been completed when deemed necessary. Cash generated in prior years was used to acquire cannabis zoned real property, finance our office space and provide working capital.  Issuance of any additional securities pursuant to future fundraising activities undertaken may significantly dilute the ownership of existing shareholders and may reduce the price of our common stock.

 

We acquired, improved and leased our Denver warehouse to a licensed third party hemp seed grower. Rental payments are current and the warehouse is presently reflecting positive cash flow.

 

While we have been able to acquire a warehouse in Denver, Colorado with owner financing, future acquisitions may require financial resources well in excess of our present balance sheet. Failure to successfully obtain additional funding would likely jeopardize our ability to expand our hemp business and related operations.

 

The loss of our current executive officer or key management personnel or inability to attract and retain the necessary personnel could have a material adverse effect upon our business, financial condition or results of operations

 

Our success is heavily dependent on the continued active participation of our current executive officer, largest shareholder, and sole director listed under “Management.” Loss of the services of Mr. Evans, would have a material adverse effect upon our business, financial condition or results of operations. Further, our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain other highly qualified technical, professional, clerical, administrative and managerial personnel. Inability to attract and retain the necessary personnel, consultants and advisors could have a material adverse effect on our business, financial condition or results of operations.

 

Our Chief Executive Officer and sole director will have significant influence over us.

 

Our Chief Executive Officer is currently the sole member of the Board of Directors and have the ability to influence our business affairs.

 

We have only one director who serves as our Chairman, President, Chief Executive Officer, and Chief Financial Officer, decisions which affect the company will be made by only one individual

 

Since we have only one director who serves as our Chairman, President, Chief Executive Officer, and Chief Financial Officer, decisions which affect the company will be made by only one individual.

 

It is likely that conflicts of interest may arise in the day-to- day operations of our business.  Such conflicts, if not properly resolved, could have a material negative impact on our business.

 

In the past, the Company has issued shares for cash and services at prices which were solely determined by prior management. At that time, management made a determination of both the value of the exchange for our shares, and, as well, the price per share used in the capital raising effort.   Transactions of this nature were not made at arm’s length and were made without input from a knowledgeable and non-interested third party.  Future transactions of a like nature could dilute the percentage ownership of the company owned by a given investor. While the company believes its past transactions were appropriate, and plans to act in good faith in the future, an investor in our shares will have no ability to alter such transactions as they may occur in the future and, further, will not be consulted by the company in advance of any such transactions. An investor who is unwilling to endure such potential dilution should not purchase our shares.

 

10
 

 

Adverse outcomes in future legal proceedings could subject us to substantial damages and adversely affect our results of operations and profitability.

 

We may become party to legal proceedings, including matters involving personnel and employment issues, personal injury, environmental matters, and other proceedings. Some of these potential proceedings could result in substantial damages or payment awards that exceed our insurance coverage. We will estimate our exposure to any future legal proceedings and establish provisions for the estimated liabilities where it is reasonably possible to estimate and where an adverse outcome is probable. Assessing and predicting the outcome of these matters will involve substantial uncertainties. Furthermore, even if the outcome is ultimately in our favor, our costs associated with such litigation may be material. Adverse outcomes in future legal proceedings or the costs and expenses associated therewith could have an adverse effect on our results of operations.

 

We will seek to expand through acquisitions of and investments in various brands, businesses, and assets in the Hemp sector. These acquisition activities may be unsuccessful or divert management’s attention.

 

We will consider strategic and complementary acquisitions of and investments in other brands, businesses or other assets in the hemp sector, and such acquisitions or investments are subject to risks that could affect our business, including risks related to:

 

● the necessity of coordinating geographically disparate organizations;

 

● implementing common systems and controls;

 

● integrating personnel with diverse business and cultural backgrounds;

 

● integrating acquired manufacturing and production facilities, technology and products;

 

● unanticipated expenses related to integration, including technical and operational integration;

 

● increased costs and unanticipated liabilities, including with respect to registration, environmental, health and safety matters, that may affect sales and operating results;

 

● retaining key employees;

 

● obtaining required government and third-party approvals;

 

● legal limitations in new jurisdictions;

 

● installing effective internal controls and audit procedures;

 

● issuing common stock that could dilute the interests of our existing stockholders;

 

● spending cash and incurring debt;

 

● assuming contingent liabilities; and

 

● creating additional expenses.

 

We may not be able to identify opportunities or complete transactions on commercially reasonable terms, or at all, or actually realize any anticipated benefits from such acquisitions or investments. Similarly, we may not be able to obtain financing for acquisitions or investments on attractive terms. In addition, the success of any acquisitions or investments also will depend, in part, on our ability to integrate the acquisition or investment with our then existing operations.

 

We risk insolvency if revenues decline sharply and we are unable pay our bills and unable to timely locate and negotiate a suitable business combination or capital injection.

 

Management is always concerned over potentially unfavorable events and related sharp reductions in revenues. If such problems occur, we will first reduce expenses, conserve cash and endeavor to replace lost revenue. In anticipation of possible problems of this nature, and alternatively to grow our business when opportunity presents, management has continued its negotiations in connection with potential business combinations and continues to explore other means of raising cash. Our goal is to develop cash reserves, either for expansion, or to cover shortfalls in revenue. Management believes that ultimately, consummation of one or more such transactions would serve the best interests of shareholders; however, there is no assurance that we can locate or consummate a suitable business combination or otherwise provide for liquidity, expanded working capital and a stronger balance sheet.

 

11
 

 

We are subject to corporate governance and internal control reporting requirements, and our costs related to compliance with, or our failure to comply with existing and future requirements, could adversely affect our business.

 

We face corporate governance requirements under the Sarbanes-Oxley Act of 2002, as well as new rules and regulations subsequently adopted by the SEC and the Public Company Accounting Oversight Board. These laws, rules and regulations continue to evolve and may become increasingly stringent in the future. In particular, under new SEC rules we will be required to include management’s report on internal controls as part of our annual report pursuant to Section 404 of the Sarbanes-Oxley Act. Furthermore, under the proposed rules, an attestation report on our internal controls from our independent registered public accounting firm will be required as part of our annual report. We are in the process of evaluating our control structure to help ensure that we will be able to comply with Section 404 of the Sarbanes-Oxley Act. The financial cost of compliance with these laws, rules and regulations is expected to be substantial. We cannot assure you that we will be able to fully comply with these laws, rules and regulations that address corporate governance, internal control reporting and similar matters. Failure to comply with these laws, rules and regulations could materially adversely affect our reputation, financial condition and the value of our securities.

 

Natural and other disasters, information technology system failures and network disruptions and cybersecurity breaches and attacks could adversely affect our business.

 

Our business and results of operations could be negatively affected by certain factors beyond our control, such as natural disasters and/or climate change-related events (such as hurricanes, earthquakes, fires, and floods); civil unrest; negative geopolitical conditions and developments; war, terrorism, or other man-made disasters; and information technology system failures, network disruptions and cybersecurity breaches and attacks. Any of these events could result in, among other things, damage to or the temporary closure of our facilities; a temporary lack of an adequate work force in one or more markets; an interruption in power supply; a temporary or long-term disruption in our supply chain; and short- or long-term damage to our prospective customers’ businesses (which would adversely impact demand for our products and services). ∙ We rely on our own information systems, as well as those of our third-party business partners and suppliers. Despite the introduction of system backup measures and engage in information system redundancy planning and processes, such measures, planning and processes may be ineffective or inadequate to address all eventualities.

 

Further, our information systems and our business partners’ and suppliers’ information systems may be vulnerable to attacks by hackers and other security breaches, including computer viruses and malware, through the internet (including via devices and applications connected to the internet), email attachments and persons with access to these information systems, such as our employees or third parties with whom we do business. As information systems and the use of software and related applications by us, our business partners, suppliers, and customers become more cloud-based and connected to the internet, there has been an increase in global cybersecurity vulnerabilities and threats, including more sophisticated and targeted cyber-related attacks that pose a risk to the security of our information systems and networks and the confidentiality, availability and integrity of data and information. Any such attack or breach could compromise our networks and the information stored thereon could be accessed, publicly disclosed, lost, or stolen.

 

If we or our business partners or suppliers were to experience a system disruption, attack or security breach that impacts any of our critical functions, or our customers were to experience a system disruption, attack or security breach via any of our connected products and services, it could result in a period of shutdown of information systems during which we may not be able to operate, the loss of sales and customers, financial misstatement, potential liability for damages to our customers, reputational damage and significant incremental costs, which could adversely affect our business, results of operations and profitability. Furthermore, any access to, public disclosure of, or other loss of data or information (including any of our confidential or proprietary information or personal data or information) as a result of an attack or security breach could result in governmental actions or private claims or proceedings, which could damage our reputation, cause a loss of confidence in our products and services, damage our ability to develop (and protect our rights to) our proprietary technologies and adversely affect our business.

 

12
 

 

Failure to comply with U.S. federal, state and international laws and regulations relating to privacy or data protection, or the expansion of current or the enactment of new laws or regulations relating to privacy or data protection, could adversely affect our business and our financial condition.

 

Failure to comply with U.S. federal, state and international laws and regulations relating to privacy or data protection, or the expansion of current or the enactment of new laws or regulations relating to privacy or data protection, could adversely affect our business and our financial condition . ∙ A variety of U.S. federal, state and international laws and regulations govern the collection, use, retention, sharing and security of data. Laws and regulations relating to privacy and data protection are evolving and subject to potentially differing interpretations. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. As a result, our practices may not have complied or may not comply in the future with all such laws, regulations, requirements and obligations. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any federal, state or international privacy or data protection related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject or other legal obligations relating to privacy or data protection could adversely affect our reputation and business, and may result in claims, proceedings or actions against us by governmental entities or others or other liabilities or require us to change our operations and/or cease using certain data sets. Any such claim, proceeding or action could hurt our reputation and business, force us to incur significant expenses in defense of such proceedings, distract our management, increase our costs of doing business, result in a loss of customers.

 

We are delinquent in our filings with the SEC.

 

Delays in combining the financial reporting of HTF and EHR has caused us to be delinquent in our SEC filings since the quarter ended October 31, 2019. We intend to rectify this situation as soon as possible.

 

Our failure to prepare and timely file our periodic reports with the SEC limits our access to the public markets to raise debt or equity capital.

 

We did not file this Annual Report within the timeframe required by the SEC; thus, we have not remained current in our reporting requirements with the SEC. We are not currently eligible to use a registration statement on Form S-3 that would allow us to continuously incorporate by reference our SEC reports into the registration statement, or to use “shelf” registration statements to conduct offerings, until approximately one year from the date we regained and maintain status as a current and timely filer. If we wish to pursue an equity or debt offering within the next year, we would be required to conduct the offering on an exempt basis, such as in accordance with Rule 144A, or file a registration statement on Form S-1. Using a Form S-1 registration statement for a public offering would likely take significantly longer than using a registration statement on Form S-3 and increase our transaction costs, and could, to the extent we are not able to conduct offerings using alternative methods, adversely impact our liquidity, ability to raise capital or complete acquisitions in a timely manner.

 

The Company will incur expenses in connection with its SEC filing requirements and may not be able to meet such costs, which could jeopardize its filing status with the SEC.

 

As a public reporting company, the Company is required to meet the filing requirements of the SEC. The Company may see an increase in its legal, accounting, auditing and fees and expenses as a result of such requirements. Our costs will increase significantly as the Company expands operations. Our filings are subject to comment from the SEC on its filings and/or it is required to file supplemental filings for transactions and activities. If the Company is not compliant in meeting the filing requirements of the SEC, it could lose its status as a 1934 Act Company, which could compromise its ability to raise funds.

 

13
 

 

Risks Related to Ownership of Our Common Stock

 

Our stock price has been and may continue to be volatile, and you could lose all or part of your investment.

 

The market price of our common stock is subject to wide fluctuations in response to various risk factors, some of which are beyond our control and may not be related to our operating performance, including:

 

● addition or loss of significant customers, suppliers, or distributors;

 

● changes in laws or regulations applicable to our industry ;

 

● additions or departures of key personnel;

 

● the failure of securities analysts to cover our common stock after an offering;

 

● actual or anticipated changes in expectations regarding our performance by investors or securities analysts;

 

● price and volume fluctuations in the overall stock market;

 

● volatility in the market price and trading volume of companies in our industry or companies that investors consider comparable;

 

● share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

● our ability to protect our intellectual property and other proprietary rights;

 

● sales of our common stock by us or our stockholders;

 

● the expiration of contractual lock-up agreements;

 

● litigation involving us, our industry, or both;

 

● major catastrophic events; and

 

● general economic and market conditions and trends.

 

Further, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. In addition, the stock prices of many cannabis-related companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions such as recessions, interest rate changes, or international currency fluctuations, may cause the market price of our common stock to decline. If the market price of our common stock fluctuates or declines, you may not realize any return on your investment and may lose some or all of your investment.

 

Our operating results will be subject to fluctuations and our stock price may decline significantly.

 

Our quarterly revenue and operating results will be difficult to predict from quarter to quarter. We derive relatively stable revenue from our property leased industrial warehouse. Nonetheless, it is possible that our net operating results in some quarters will fall below our expectations. Our quarterly operating results will be affected by a number of factors, including:

 

● Timing, availability and changes in government incentive programs;

 

● Unplanned additional expenses and/or shortfalls in anticipated rental income at our warehouse property;

 

● Logistical costs;

 

● The timing of new technology announcements or introductions by our competitors and other developments in the competitive environment;

 

● Increases or decreases in real estate appreciation rates due to changes in economic growth;

 

14
 

 

● Travel costs and other factors; and

 

● State and federal government regulations

 

If revenue for a particular quarter is lower than we expect, we may not be unable to proportionately reduce our operating expenses for that quarter, which would harm our operating results for that quarter. If we fail to meet investor expectations or our own future guidance, even by a small amount, our stock price could decline, perhaps substantially.

 

There are restrictions on the transferability of the securities.

 

Until registered for resale, investors must bear the economic risk of an investment in the Shares for an indefinite period of time. Rule 144 promulgated under the Securities Act (“Rule 144”), which provides for an exemption from the registration requirements under the Securities Act under certain conditions, requires, among other conditions,a six month holding period prior to the resale (in limited amounts) of securities acquired in a non-public offering without having to satisfy the registration requirements under the Securities Act. There can be no assurance that we will fulfill any reporting requirements in the future under the Exchange Act or disseminate to the public any current financial or other information concerning us.

 

A substantial number of our issued shares are or are being made available for sale on the open market. The resale of these securities might adversely affect our stock price.

 

The sale of a substantial number of shares of our common stock, or the market’s anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise obtain.

 

Availability of these shares for sale in the public market could also impair our ability to raise capital by selling equity securities.

 

There is presently a limited trading market for our shares. An investment in our shares may be or become totally illiquid and any investor purchasing our shares may be unable to resell their shares. There can be no assurance that market interest in our shares will develop or continue. Therefore, investors who purchase our shares could lose their entire investment.

 

Even if significant trading activity involving our shares continues, the volume of trading may be small and on some days the volume may be zero. Our share price will likely be volatile and will likely fall rapidly should an investor attempt to liquidate a significant number of shares. These conditions are likely to persist and could prevent resale of our shares on desirable terms.

 

If the Company uses its stock in acquisitions of other entities there may be substantial dilution at the time of a transaction.

 

The offering price of the common stock we sold as a private placement of restricted shares of our common stock to raise working capital, was arbitrarily set. The price did not bear any relationship to our assets, book value, earnings or net worth and it is not an indication of actual value. You may also suffer additional dilution in the future from the sale of additional shares of common stock or other securities or if the Company’s shares are issued to purchase other assets or to raise additional working capital.

 

Trading on the OTC Markets may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.

 

As of December 31, 2019, our common shares are quoted on OTC Pinks Current. There is no cost of such quotation and related services from OTC Markets, Inc. Trading in stock quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange like the New York Stock Exchange. Accordingly, our stockholders may have difficulty reselling any of their shares.

 

15
 

 

The Company currently plans move to a more advantageous trading market and then potentially uplist, to a national exchange, however, there is no assurance that we will be able to successfully move trading markets or uplist to a national exchange.

 

We have completed our application and paid the required fees to graduate from the OTCPK market to the OTCQX Market. OTCQX provides investors with aU.S. public market to research and trade the shares of investor-focused companies. Graduating to the OTCQX Market would mark an important milestone for the Company. Once certain financial reporting forms are filed, the Company believes that all OTCQX requirements will have been met.

 

The Company has also paid fees necessary to uplist to NASDAQ. Following the currently planned graduation to OTCQX and execution on certain company milestones, management believes it will meet all currently applicable requirements to uplist to NASDAQ. There is no assurance, however, that we will meet the necessary milestones and achieve an uplisting to NASDAQ or other national exchange.

 

Because we do not expect to pay any dividends for the foreseeable future, investors may be forced to sell their stock to realize a return on their investment.

 

We do not anticipate that we will pay any dividends to holders of our common stock for the foreseeable future. Any payment of cash dividends will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions including compliance with covenants under our debt agreements, and other factors that our board of directors may deem relevant. Our ability to pay dividends might be restricted by the terms of any indebtedness that we incur in the future. In addition, certain of our current outstanding debt agreements prohibit us from paying cash dividends on our common stock. Consequently, you should not rely on dividends to receive a return on your investment.

 

Our common stock is presently subject to the “Penny Stock” rules of the SEC.

 

We are subject now to the “Penny Stock” rules since our shares of common stock sell below $5.00 per share. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation. ∙ In addition, the penny stock rules require that prior to a transaction, the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce the trading activity for shares of our common stock. As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.

 

If we fail to remain current on our reporting requirements, we could be removed from the OTC Pinks Current which would limit the ability of broker-dealers to sell our securities in the secondary market.

 

Companies trading on the Over the Counter Pinks Current must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Pinks Current. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. In addition, we may be unable to get relisted on the OTC Pinks Current or on the OTCQX, which may have an adverse material effect on the Company.

 

If we decide to implement a reverse stock split, a reverse stock split may decrease the liquidity of the shares of our common stock.

 

The liquidity of the shares of our common stock may be affected adversely by a reverse stock split given the reduced number of shares that will be outstanding following a reverse stock split, especially if the market price of our common stock does not increase as a result of the reverse stock split.

 

16
 

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2. PROPERTIES

 

We own a 5,600 square foot warehouse located at 4430 Garfield Street, Denver, CO 80216. The facility is leased to a licensed grower of hemp seeds.

 

ITEM 3.  LEGAL PROCEEDINGS

 

As a normal incident of the businesses in which the Company is engaged, various claims, charges and litigation are asserted or commenced from time to time against the Company. With respect to claims and litigation currently asserted or commenced against the Company, it is the opinion of management that final judgments, if any, which might be rendered against the Company are adequately reserved for, are covered by insurance, or are not likely to have a material adverse effect on the Company’s financial condition or results of operations. Nevertheless, given the uncertainties of litigation, it is possible that certain types of claims, charges and litigation could have a material adverse impact on the Company; see Item 1A, “Risk Factors.” See Note 9 to the consolidated financial statements included in this annual report for additional information relating to legal matters.

 

ITEM 4.  MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

 

Market Information

 

As of December 31, 2019 our shares were quoted on OTC Pinks Current under the symbol “GENH.” In the future, should we meet stringent qualifications and pay the required fee, we may seek to have our shares quoted on Capital Markets tier of NASDAQ, however here is no assurance that our shares will continue to be quoted on any market.

 

Since inception of a trading market in our shares activity have been unpredictable and highly volatile. For the years ending December 31, 2018 and 2017, closing prices have ranged from $0.03 to $0.26.

 

Shareholders

 

As of the date of this report, there were approximately 51 direct holders of our common stock certificates as shown on the list maintained by our transfer agent. We may have a substantial number of additional shareholders who purchased their shares on OTCQB or Pink Current who hold shares in street name. These additional shareholders and are not included in the list maintained by our transfer agent.

 

Dividends

 

We have not declared or paid any cash dividends on our common stock. To date we have utilized all available cash to finance our operations. Payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our earnings levels, capital requirements, any restrictive loan covenants and other factors the Board considers relevant.

 

17
 

 

Warrants or Options

 

At December 31, 2019, there were 14,488,638 warrants outstanding for the purchase of Company common stock. The warrants have an exercise price of $0.352 per share and expire on November 27, 2021. The warrants may be redeemed beginning October 1, 2020 for $0.0001 per warrant at the Company’s option with 30 days advanced notice should the weighted average price exceed $1.00 for any five out of seven consecutive trading days with a minimum average daily trading volume for such seven day period of at least 25,000 shares of common stock. One-half of the warrants have a cashless exercise feature.

 

Equity Compensation Plans

 

The Company has not adopted an equity-based management incentive compensation plan

 

Recent Sales of Unregistered Securities

 

Since January 1, 2019, we have sold securities without registering the securities under the Securities Act as shown below:

 

EHR Series C Preferred Stock – In the third quarter of 2019, EHR raised $850,000 of additional funding through the issuance of 34,000 shares of EHR Series C Preferred Stock. The EHR Series C Preferred Stock converted into 2,414,773 shares of EHR’s common stock upon completion of the Transaction. These common shares were initially accounted for as noncontrolling interests in EHR.

 

In an exchange transaction effective November 27, 2019, the Company acquired these noncontrolling interests representing approximately 26% of the ownership of EHR through the issuance of 2,414,773 shares of Company common stock and 14,488,638 warrants for the purchase of Company common stock. The warrants have an exercise price of $0.352 per share and expire on November 27, 2021. The warrants may be redeemed beginning October 1, 2020 for $0.0001 per warrant at the Company’s option with 30 days advanced notice should the weighted average price exceed $1.00 for any five out of seven consecutive trading days with a minimum average daily trading volume for such seven day period of at least 25,000 shares of common stock. One-half of the warrants have a cashless exercise feature.

 

The common stock issued in the exchange was valued using the traded price of the common stock on November 27, 2019.

 

Issuance of Common Stock – In February 2020, Generation Hemp sold 250,000 units for $100,000 to accredited investors. Each unit consists of one share of common stock and one warrant to purchase one common share at $0.40 per share. The warrant expires in March 2022 and is exercisable for one share of common stock at an exercise price of $0.40 per share. Proceeds of this issuance were used for general corporate purposes.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

We made no purchases of our equity securities.

 

Between January and June 2020, our CEO made a series of purchases of Series A preferred shares totaling 546,667 shares for $205,000. Each share of the Series A Preferred (a) converts into 12 shares of common stock of the Company, (b) possesses full voting rights, on an as-converted basis, with the common stock of the Company, and (c) has no dividend rate. Proceeds of these issuances were used for general corporate purposes.

 

18
 

 

Our Transfer Agent

 

We have retained Standard Registrar and Transfer Agency, Albuquerque, New Mexico, as transfer agent for our Common shares. Shareholders are responsible to contact Standard to update their address. This may be done by writing:

 

Standard Registrar and Transfer Agency

P.O. Box 14411

Albuquerque, NM 87191

Phone : 505-828-2839

 

Or by e-mail to:  mary_standardreg@comcast.net

 

Standard is responsible for all record-keeping and administrative functions in connection with our common shares.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included within “Item 8. Financial Statements and Supplementary Data.” In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect the Company’s plans, estimates, or beliefs. Actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, including, without limitation, those described in the sections titled “Cautionary Note Regarding Forward Looking Statements” and Part I, Item 1A “Risk Factors” of this Annual Report.

 

There is limited historical financial information about our Company upon which to base an evaluation of our future performance.  We cannot guarantee that we will be successful in our hemp businesses. We are subject to risks inherent in a small company, including limited capital resources, delays and cost overruns due to price and cost increases. There is no assurance that future financing will be available to our company on acceptable terms. Additional equity financing could result in dilution to existing shareholders.

 

Overview

 

Generation Hemp was initially incorporated on July 28, 2008 in the State of Colorado. On November 27, 2019, we completed the Transaction with EHR. As part of the Transaction, we changed our name from Home Treasure Finders, Inc. to Generation Hemp, Inc. We own approximately 94% of the issued and outstanding common stock of EHR.

 

EHR held an 8.0% interest in certain oil and gas and/ or oil, gas and mineral leases, lands interests, and other properties located in Cochran County and a 28.125% interest in certain oil and gas and/or oil, gas and mineral leases, lands interests, and other properties located in Karnes County. EHR’s oil & gas activities are currently held for sale and are presented in the consolidated financial statements as discontinued operations for each of the periods presented.

 

The Transaction was accounted for as a reverse merger, whereby EHR is considered to be the accounting acquirer and became a majority-owned subsidiary of the Company. Accordingly, the Company’s historical financial statements prior to the reverse merger were and will be replaced with the historical financial statements of EHR prior to the reverse merger and in this and all future filings with the U.S. Securities and Exchange Commission (the “SEC”) There is limited historical financial information about our Company upon which to base an evaluation of our future performance. We cannot guarantee that we will be successful in the hemp businesses. We are subject to risks inherent in a small company, including limited capital resources, delays and cost overruns due to price and cost increases. There is no assurance that future financing will be available to our Company on acceptable terms. Additional equity financing could result in dilution to existing shareholders.

 

19
 

 

How the Company Generates Revenue

 

We presently generate revenue from rental of our “Cannabis Zoned” (Hemp) warehouse property located in Denver, Colorado leased to a hemp seed company.

 

Our Costs and Expenses of Conducting Business

 

The principal costs and expenses involved in conducting our business are real estate holding costs (interest, taxes, depreciation and maintenance costs). We incur general and administrative expenses for our management, contract labor, professional fees and other costs of being a public company. We also incur costs in seeking acquisitions and financings of our business.

 

Results of Operations

 

Years Ended December 31, 2019 and 2018

 

The net loss for the year ended December 31, 2019 was $7.9 million as compared with a net loss of $5.1 million for 2018. The larger loss in 2019 was principally caused by higher impairment expenses as discussed further below.

 

The Company reports its oil & gas activities as discontinued operations. The loss from discontinued operations was $1.0 million in 2019 as compared with $791 thousand in 2018.

 

The Company’s continuing operations were limited in 2019 to merger and acquisition activities including preparing for and closing the Transaction. We are active within the “hemp” space and intent to grow by acquisition of businesses and assets within the hemp industry.

 

Revenue. Revenue from continuing operations was limited in 2019. The Company leases its Denver warehouse under a lease for $7,500 per month. We recognized one month of rental revenue since closing of the Transaction on November 27, 2019.

 

Impairment Expense. Goodwill totaling $5.0 million was recorded in the Transaction. An impairment analysis performed as of the date of closing showed that the recorded goodwill was fully impaired. As such, goodwill impairment expense of $5.0 million was recorded subsequent to the Transaction. The Company also recognized a $247 thousand impairment of its right-to-use asset for leased office space.

 

Merger and Acquisition Costs. We incurred $512 thousand of costs in evaluating acquisition opportunities in 2019 and $1.5 million in 2018. The amount of future expenses of this type that we incur will depend upon our future acquisition activities.

 

General and Administrative Expense. General and administrative expenses totaled $1.0 million in 2019 as compared with $2.6 million in 2018. We had a larger administrative staff in previous years to support our operations and activities.

 

Depreciation and Amortization. Total depreciation and amortization expense was not significant in 2019 or 2018. We expect higher levels of depreciation expense as our asset base grows.

 

Other Income/Expense. Other expense, net totaled $394 thousand for the year ended December 31, 2019 as compared with $218 thousand for 2018 and includes interest income, interest expense and the change in fair value of marketable securities. Higher net expense recognized in 2019 was due principally to recognition of the decline in value of a marketable equity security we hold for investment of $217 thousand.

 

Loss from Discontinued Operations. In 2019, we recognized a loss from discontinued operations of $1.0 million as compared with $791 thousand in 2018. The major classes of line items constituting the loss on discontinued operations is presented in Item 8 of Part II, “Financial Statements and Supplementary Data—Note 4—Discontinued Operations.”

 

During the year ended December 31, 2019, the Company’s oil and gas properties became impaired due to the market decline and the Company’s determination to exit the oil and gas business. Accordingly, impairment expense totaling $3.7 million was recorded within the loss from discontinued operations. The Company recorded $89 thousand for impairments of oil and gas properties during the year ended December 31, 2018.

 

20
 

 

On March 1, 2019, the Company entered into a Termination, Repurchase and Release Agreement (the “Agreement”) with LEP wherein the Company reassigned a 52% working interest in the oil & gas assets acquired in the San Andres Acquisition #1 back to LEP (with the Company continuing to hold an 8% working interest in those assets) in exchange for the return and cancellation of 412,500 shares of the Company’s Series A Preferred Stock plus all accrued and unpaid dividends thereon and LEP’s assumption of the Company’s obligations under its Senior Subordinated Debentures totaling $400,000. Operatorship of the oil & gas assets was transferred by the Company to LEP, and amounts owed by the Company to LEP and all trade payables associated with the assets were memorialized in the form of a non-recourse promissory note totaling $1.1 million. The Company and LEP also entered into certain financial arrangements and mutual releases in order to settle all existing disputes relating to the assets arising prior to the effective date. The promissory note was due March 1, 2020, bore interest at 5% per annum and required no payments until maturity. The Company recognized a gain on disposal of $1.6 million within the loss from discontinued operations. In June 2020, the $1.1 million non-recourse promissory note and accrued interest thereon was settled upon LEP’s foreclosure of the Company’s Gap Band property interest.

 

We recognized other income of $1.2 million as part of discontinued operations in 2019 for option and promote fees on oil & gas property interest transactions with third parties. We do not expect such activities in the future.

 

Until we fully dispose of our remaining oil & gas property interests, we expect that future revenues and costs will be substantially lower than incurred in previous periods as our ownership interests are lower and production activities have declined substantially. We do not anticipate making future investment of growth capital into these properties.

 

Liquidity and Capital Resources

 

Our primary source of cash from continuing operations is limited presently to rental income for the lease of our hemp warehouse in Denver, Colorado. Our primary uses of cash include general and administrative expenses and merger and acquisition expenses.

 

Cash flow information from continuing operations was as follows:

 

● Cash used in operating activities during 2019 was $1.7 million; an improvment from the prior year primarily resulting from lower overall costs and expenses. The Company used $2.6 million of cash for operating activities in 2018.

 

● Net cash used in investing activities was $135 thousand for the year ended December 31, 2019 as compared with $44 thousand for 2018. Investing activities each year was principally for purchases of property and equipment.

 

● Cash flows from financing activities were $1.3 million for the year ended December 31, 2019, which was primarily due to net borrowings and private placements of common and preferred stock during the period. Cash flows from financing activities were $530 thousand for 2018, which was due to the private placement of equity.

 

Cash flow information from discontinued operations was as follows:

 

● Cash flows from operating activities totaled $162 thousand during 2019 as compared with $2.2 million in 2018. The decline from the prior year primarily resulting from the lower oil & gas operating results.

 

● Net cash used in investing activities was $17 thousand for the year ended December 31, 2019 as compared with $1.7 million for 2018. Investing activities each year was for capital expenditures. We significantly curtailed oil & gas development efforts in 2019 as we were making our decision to exit this business.

 

● There were no cash flows from financing activities in 2019. In 2018, cash flows from financing activities were $400 thousand.

 

21
 

 

Funding Requirements

 

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we grow our hemp business and add operational and financial personnel to handle the public company reporting and other requirements to which we will be subject.

 

We expect that we will require additional capital to fund operations, including hiring additional employees and completing acquisitions during the next twelve (12) month period.

 

Because of the numerous risks and uncertainties associated with the development and commercialization of our business, we are unable to estimate the amounts of increased capital outlays and operating expenses. Our future capital requirements will depend on many factors, including:

 

● our success in identifying and making acquisitions of profitable operations;

 

● our ability to negotiate operating contracts with growers and others within the hemp industry on favorable terms, if at all;

 

● deriving revenue from our assets and operations; and

 

● the cost of such operations and costs of being a public company.

 

Until such time, if ever, as we can generate substantial revenues, we expect to finance our cash needs through a combination of equity offerings and debt financings. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our growth plans and future commercialization efforts.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2019, we had no off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amounts of revenue and expenses reported for the period then ended.

 

Asset retirement obligations. We recognize as a liability an asset retirement obligation, or ARO, associated with the retirement of a tangible long-lived asset in the period in which it is incurred or becomes determinable, with an associated increase in the carrying amount of the related long-lived asset. The initially recognized asset retirement cost is amortized using the same method and useful life as the long-lived asset to which it relates. Accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value.

 

Estimating the future ARO requires management to make estimates and judgments regarding timing and existence of a liability, as well as what constitutes adequate restoration. Inherent in the fair value calculation are numerous assumptions and judgments including the ultimate costs, inflation factors, credit adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the related asset.

 

Impairment of Long-lived Assets. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These events and circumstances include, but are not limited to, a current expectation that a long-lived asset will be disposed of significantly before the end of its previously estimated useful life, a significant adverse change in the extent or manner in which we use a long-lived asset or a change in its physical condition.

 

22
 

 

When such events or changes in circumstances occur, a recoverability test is performed comparing projected undiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying amount. If the projected undiscounted cash flows are less than the carrying amount, an impairment is recorded for the excess of the carrying amount over the estimated fair value.

 

We make various assumptions, including assumptions regarding future cash flows in our assessments of long-lived assets for impairment. The assumptions about future cash flows and growth rates are based on the current and long-term business plans related to the long-lived assets.

 

Recent Accounting Pronouncements. See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 2—Summary of Significant Accounting Policies—Recent Accounting Pronouncements.”

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

23
 

 

ITEM 8. FINANCIAL STATEMENTS

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm F-1
   
Consolidated Balance Sheets F-2
   
Consolidated Statements of Operations F-3
   
Consolidated Statements of Equity (Deficit) F-4
   
Consolidated Statements of Cash Flows F-5
   
Notes to Consolidated Financial Statements F-6

 

24
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of

Generation Hemp, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Generation Hemp, Inc. (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, equity (deficit) and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Notes to Consolidated Financial Statement. The consolidated 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 audits 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 audit 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/ Marcum LLP

 

We have served as the Company’s auditor since 2019.

 

Houston, Texas

December 15, 2020

 

F-1
 

 

Generation Hemp Inc.

Consolidated Balance Sheets

 

    December 31,  
    2019     2018  
Assets            
Current Assets            
Cash   $ 101,337     $ 426,952  
Prepaid expenses     -       188,567  
Current assets of discontinued operations held for sale     20,835       437,125  
Total Current Assets     122,172       1,052,644  
                 
Property and Equipment                
Property and equipment, other     1,223,353       75,269  
Accumulated depreciation     (32,322 )     (16,713 )
Total Property and Equipment, Net     1,191,031       58,556  
                 
Noncurrent assets of discontinued operations held for sale     1,196,161       15,206,750  
Deposits     -       10,690  
Investment in common stock, at cost     32,959       250,000  
                 
Total Assets   $ 2,542,323     $ 16,578,640  
                 
Liabilities and Equity (Deficit)                
Current Liabilities                
Accounts payable   $ 685,692     $ 814,506  
Accrued liabilities     269,410       -  
Accrued interest – related party     247,500       97,500  
Senior secured promissory note – related party     1,500,000       1,500,000  
Convertible note payable – related party     208,874       -  
Current liabilities of discontinued operations held for sale     1,315,581       4,236,956  
Mortgage payable     626,086       -  
Total Current Liabilities     4,853,143       6,648,962  
Lease liability     44,333       -  
Long term liabilities of discontinued operations held for sale     119,657       1,357,270  
Total Liabilities     5,017,133       8,006,232  
                 
Commitments and Contingencies                
                 
EHR Series A Redeemable Preferred stock, $0.0001 par value, 500,000 shares authorized, 412,500 shares issued and outstanding at December 31, 2018     -       9,118,691  
                 
Equity (Deficit)                
Series A preferred stock, no par value; $1.00 stated value; 6,500,000 shares authorized, 6,328,948 shares issued and outstanding at December 31, 2019 and 2018, respectively     4,975,503       4,975,503  
Common stock, no par value; 100,000,000 shares authorized, 17,130,317 and 418,342 shares issued and outstanding at December 31, 2019 and 2018, respectively     6,029,328       889,697  
Common stock warrants     3,426,946       -  
Accumulated deficit     (16,722,036 )     (6,411,483 )
Generation Hemp equity     (2,290,259 )     (546,283 )
Noncontrolling interest     (184,551 )     -  
Total Equity (Deficit)     (2,474,810 )     (546,283 )
Total Liabilities and Equity (Deficit)   $ 2,542,323     $ 16,578,640  

 

See accompanying notes to consolidated financial statements.

 

F-2
 

 

Generation Hemp Inc.
Consolidated Statements of Operations

 

    For the year ended
December 31, 		 
    2019     2018  
             
Revenue   $ 7,500     $ -  
                 
Costs and Expenses                
Depreciation and amortization     15,609       10,640  
Impairment expense     5,203,621       -  
Merger and acquisition costs     512,801       1,458,450  
General and administrative     997,348       2,593,435  
Total costs and expenses     6,729,379       4,062,525  
                 
Operating loss     (6,721,879 )     (4,062,525 )
                 
Other expense (income)                
Interest and other income     (2,696 )     (3,121 )
Change in fair value of marketable security     217,041       -  
Interest expense     179,986       220,798  
Total other expense     394,331       217,677  
                 
Loss from continuing operations     (7,116,210 )     (4,280,202 )
Loss from discontinued operations     (1,004,853 )     (791,132 )
                 
Net loss   $ (8,121,063 )   $ (5,071,334 )
Less: net loss attributable to noncontrolling interests     (212,124 )     -  
                 
Net loss attributable to Generation Hemp   $ (7,908,939 )   $ (5,071,334 )
                 
Earnings (loss) per common share:                
Loss from continuing operations - basic and diluted   $ (3.60 )   $ (58.17 )
Loss from discontinued operations - basic and diluted   $ (0.41 )   $ (9.60 )
Loss per share - basic and diluted   $ (4.01 )   $ (67.76 )
                 
Weighted average number of common shares used in computing earnings (loss) per share:                
Basic and diluted     1,973,662       82,421  

 

See accompanying notes to consolidated financial statements.

 

F-3
 

 

Generation Hemp Inc.

Statements of Changes in Stockholders’ Deficit

 

    EHR
Series A Redeemable
Preferred Stock 		    Preferred Stock     Common Stock     Common
Stock 		    Accumulated     Noncontrolling     Total
Stockholders’
Equity 		 
    Shares     Amount     Shares     Amount     Shares     Amount     Warrants     Deficit     Interest     (Deficit)  
Balance at January 1, 2018     412,500     $ 8,604,803       6,029,460     $ 3,727,561       240,510     $ 148,689     $     -     $ (826,261 )   $       -     $ 3,049,989  
Private placement of common stock     -       -       73,800       307,500       53,520       223,000       -       -       -       530,500  
Common shares issued for VCAB merger     -       -       225,688       940,442       124,312       518,008       -       -       -       1,458,450  
Accrued preferred stock dividend     -       513,888       -       -       -       -       -       (513,888 )     -       (513,888 )
Net loss     -       -       -       -       -       -       -       (5,071,334 )     -       (5,071,334 )
                                                                                 
Balance at December 31, 2018     412,500       9,118,691       6,328,948       4,975,503       418,342       889,697       -       (6,411,483 )     -       (546,283 )
Cancellation of Series A preferred stock in disposal of oil & gas property interests     (412,500 )     (9,118,691 )     -       -       -       -       -       -       -       -  
Private placement of common stock     -       -       -       -       165,611       125,000       -       -       -       125,000  
Series C convertible preferred stock issuance     -       -       34,000       850,000       -       -       -       -       -       850,000  
Conversion of Series C preferred stock     -       -       (34,000 )     (850,000 )     2,414,773       850,000       -       -       -       -  
Distribution of promissory note to shareholders     -       -       -       -       -       -       -       (208,099 )     -       (208,099 )
Reverse acquisition of EHR     -       -       -       -       13,653,574       5,051,822       -       -       -       5,051,822  
Noncontrolling interest in consolidated subsidiary     -       -       -       -       (2,998,726 )     (1,864,697 )     -       1,723,102       141,595       -  
Acquisition of noncontrolling interests     -       -       -       -       2,414,773       603,693       3,426,946       (3,916,617 )     (114,022 )     -  
Conversion of shareholder note to common stock     -       -       -       -       1,061,970       373,813       -       -       -       373,813  
Net loss     -       -       -       -       -       -       -       (7,908,939 )     (212,124 )     (8,121,063 )
                                                                                 
Balance at December 31, 2019     -     $ -       6,328,948     $ 4,975,503       17,130,317     $ 6,029,328     $ 3,426,946     $ (16,722,036 )   $ (184,551 )   $ (2,474,810 )

 

See accompanying notes to consolidated financial statements.

 

F-4
 

 

Generation Hemp Inc.

Consolidated Statements of Cash Flows

 

    For the year ended
December 31, 		 
    2019     2018  
Cash Flows From Operating Activities            
Net loss   $ (8,121,063 )   $ (5,071,334 )
Loss from discontinued operations     (1,004,853 )     (791,132 )
Net loss from continuing operations     (7,116,210 )     (4,280,202 )
Adjustments to reconcile net loss from continuing operations to net cash from operating activities:                
Depreciation expense     15,609       10,639  
Impairment expense     5,203,621       -  
Noncash VCAB acquisition costs     -       1,458,450  
Change in fair value of marketable securities     217,041       -  
Changes in operating assets and liabilities:                
Prepaid expenses and other assets     (18,757 )     (103,612 )
Deposits     -       (3,990 )
Accounts payable and accrued liabilities     23,545       365,534  
Net cash from operating activities – continuing operations     (1,675,151 )     (2,553,181 )
Net cash from operating activities – discontinued operations     161,680       2,238,613  
Net cash from operating activities     (1,513,471 )     (314,568 )
                 
Cash Flows From Investing Activities                
Additions to property and equipment     (136,584 )     (44,355 )
Proceeds from disposal of property and equipment     1,000       -  
Reverse merger with Home Treasure Finders, Inc., net of acquired cash     291       -  
Net cash from investing activities – continuing operations     (135,293 )     (44,355 )
Net cash from investing activities – discontinued operations     (17,333 )     (1,717,686 )
Net cash from investing activities     (152,626 )     (1,762,041 )
                 
Cash Flows From Financing Activities                
Series C convertible preferred stock issuance     850,000       -  
Private placement of equity     125,000       530,500  
Payment of note payable     (5,288 )     -  
Proceeds from related party note payable     370,770       -  
Net cash from financing activities – continuing operations     1,340,482       530,500  
Net cash from financing activities – discontinued operations     -       400,000  
Net cash from financing activities     1,340,482       930,500  
                 
Net change in cash     (325,615 )     (1,146,109 )
                 
Cash, beginning of period     426,952       1,573,061  
Cash, end of period   $ 101,337     $ 426,952  

 

See accompanying notes to consolidated financial statements.

 

F-5
 

 

Generation Hemp Inc.
Notes to Consolidated Financial Statements

 

1. Description of the Business

 

Generation Hemp, Inc. (the “Company”), formerly known as Home Treasure Finders, Inc. (“HTF”), was initially incorporated on July 28, 2008 in the State of Colorado. On March 3, 2014, the Company formed a wholly-owned subsidiary, HMTF Cannabis Holdings, Inc. to purchase properties that qualify for legal cultivation of cannabis. The Company generates income from its real estate holdings.

 

On November 27, 2019, HTF completed the purchase of approximately 68% of the common stock of Energy Hunter Resources, Inc. (“EHR”) through the issuance of 6,328,948 shares of the Company’s Series A Preferred Stock (“Series A Preferred”). Each share of the Series A Preferred; (a) converts into 12 shares of common stock of the Company, (b) possesses full voting rights, on an as-converted basis, with the common stock of the Company, and (c) has no dividend rate. The acquisition, together with the other transactions contemplated by the Stock Purchase Agreement, dated August 15, 2019 are referred to herein as the “Transaction”. In connection with the closing of the Transaction, HTF changed its name to Generation Hemp, Inc.

 

In an exchange transaction also effective November 27, 2019, the Company acquired an additional 26% of the common stock of EHR through the issuance of common stock and warrants (see Note 11).

 

The Company owns approximately 94% of the issued and outstanding common stock of EHR. Thus, EHR is a majority-owned subsidiary of the Company. EHR is an oil and gas exploration and production company whose core properties as of December 31, 2019 were located in (a) Cochran County, Texas within the Slaughter-Levelland Field of the San Andres formation in the Northwest Shelf of West Texas and (b) certain areas of the Eagle Ford Shale Trend in Karnes County, Texas. EHR held an 8.0% interest in certain oil and gas and/ or oil, gas and mineral leases, lands interests, and other properties located in Cochran County and a 28.125% interest in certain oil and gas and/or oil, gas and mineral leases, lands interests, and other properties located in Karnes County. EHR’s oil & gas activities are currently held for sale and are presented in these consolidated financial statements as discontinued operations for each of the periods presented.

 

Going Concern and Management’s Plans – The Company is dependent upon obtaining additional funding to continue ongoing operations, pursue its new strategy and execute its acquisition plans.

 

Management plans to continue to pursue additional funding opportunities, in order for the Company to meet its obligations as they become due and may not be successful in obtaining additional financing. In the event financing cannot be obtained, the Company may not be able to satisfy its obligations as they become due.

 

Based on these factors, there is substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation – The acquisition of EHR by HTF has been accounted for as a reverse merger. Under this method of accounting, EHR is treated as the acquirer, and HTF is treated as the acquired party. Therefore, the consolidated financial statements presented are those of EHR prior to the closing date as the Company’s predecessor entity and of the Company subsequent to the closing date. The financial statements reflect the Transaction as the equivalent of the issuance of stock by EHR for the net monetary assets of HTF. The accounting for the Transaction did not affect the carrying values of the assets and liabilities of EHR.

 

Stockholders’ deficit of the accounting acquirer, EHR, has been retroactively restated for the equivalent number of shares issued to the accounting acquirer.  Similarly, shares outstanding and earnings per share have also been also retroactively restated based on the equivalent number of shares issued to the accounting acquirer. 

 

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

 

F-6
 

 

Principles of Consolidation – The consolidated financial statements comprise the financial statements of the Company, its wholly-owned subsidiaries, and subsidiaries that it controls due to ownership of a majority voting interest. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company. All significant intercompany balances and transactions are eliminated upon consolidation.

 

Business Combinations – The Company accounts for business combinations under the acquisition method of accounting. Under this method, acquired assets, including separately identifiable intangible assets, and any assumed liabilities are recorded at their acquisition date estimated fair value. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition.

 

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the (i) impairment of long-lived assets and goodwill, (ii) valuation allowances for deferred income tax assets, (iii) oil and gas reserves and (iv) estimates of accrued liabilities. Actual results could differ from those estimates.

 

Cash – The Company maintains its deposits of cash in financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses related to amounts in excess of FDIC limits.

 

Accounts Receivable – Accounts receivable consists primarily of accrued oil and gas production receivables and joint interest receivables from outside working interest owners. Management routinely assesses accounts receivable balances to determine their collectability and accrues an allowance for uncollectible receivables, when, based on the judgment of management, it is probable that a receivable will not be collected.

 

Investment in Common Stock – For periods before March 2019, the investment in common stock did not have readily determinable fair value. The Company held less than a 20% voting interest and therefore the investment was accounted for at cost. The investment was reviewed for impairment when factors indicate that a decrease in value of the investment is other than temporary. As of December 31, 2018, there were no factors indicating other than temporary impairments of the Company’s investment.

 

In February 2019, the investee was acquired by a public company whose common stock has a readily determinable market value. As such, the Company began accounting for the investment in common stock at its fair value with unrealized gains and losses included in income. The Company recognized an unrealized loss of $217,041 in 2019.

 

Property and Equipment - property and equipment consists of a warehouse, computer equipment, office furniture and fixtures, recorded at cost and depreciated using the straight-line method. The warehouse is depreciated over a useful life of 30 years. The remaining items are depreciated over a range of three to five years. Upon disposition, the cost and accumulated depreciation are removed and any gain or loss on the disposal is reflected in the statements of operations.

 

Oil and Gas Properties – The Company follows the successful efforts method of accounting for its oil and gas properties. Costs to acquire mineral interests in oil and gas properties and to drill and equip new development wells and related asset retirement costs are capitalized. Costs to acquire mineral interests and drill exploratory wells are also capitalized pending determination of whether the wells have proved reserves or not. These capitalized costs are amortized using the unit-of-production method based on estimated proved reserves. Proceeds from sale of properties are generally credited to property costs, and a gain or loss is recognized when a significant portion of an amortization base is sold or abandoned.

 

F-7
 

 

Exploration costs, including geological and geophysical expenses and delay rentals, are charged to expense as incurred. Exploratory drilling costs, including the cost of stratigraphic test wells, are initially capitalized but are charged to exploration expense if the well is determined to be nonproductive at that time. The determination of an exploratory well’s ability to produce must be made within one year from the completion of drilling activities. The acquisition costs of unproved acreage are initially capitalized and carried at cost, net of accumulated impairment provisions, until such leases are transferred to proved properties or charged to exploration expense as impairments of unproved properties.

 

The Company computes its provision for depreciation, depletion & amortization (“DD&A”) on its proved producing properties under the unit-of-production method. Acquisition costs of proved properties are depleted based on total proved reserves while well costs are depleted based on proved developed reserves. Reserve estimates are expected to have a significant impact on the DD&A rate.

 

The Company reviews its unproved oil and gas properties at least annually to determine if there has been impairment. To the extent that the carrying cost of a property exceeds its estimated fair value, the Company makes a provision for impairment that is recorded in the statement of operations.

 

When circumstances indicate that the carrying value of proved oil and gas properties may not be recoverable, the Company compares capitalized costs to the expected undiscounted pre-tax future cash flows for the associated assets grouped at the lowest level for which identifiable cash flows are independent of cash flows of other assets. If the expected undiscounted pre-tax future cash flows, based on estimates of future oil and gas prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the capitalized cost, the capitalized cost is reduced to fair value. Fair value is generally estimated using the income approach described in the ASC 820. If applicable, the Company utilizes prices and other relevant information generated by market transactions involving assets and liabilities that are identical or comparable to the item being measured as the basis for determining fair value. The expected future cash flows used for impairment reviews and related fair value calculations are typically based on judgmental assessments of future production volumes, commodity prices, operating costs, and capital investment plans, considering all available information at the date of review. These assumptions are applied to develop future cash flow projections that are then discounted to estimated fair value, using a discount rate believed to be consistent with those applied by market participants. These fair value measurements are classified as Level 3 in the fair value hierarchy.

 

Asset Retirement Obligations – The Company records a liability for the plugging, abandonment and remediation of its properties at the end of their productive lives. The Company computes the liability for asset retirement obligations by calculating the present value of estimated future cash flows related to each property. This requires the Company to use significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells and its risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligations.

 

Asset retirement obligations are recorded as a liability at their estimated present value at the asset’s inception, with an offsetting increase to producing properties in the accompanying balance sheet which is amortized to expense on a unit-of-production basis. Periodic accretion of the discount on asset retirement obligations is recorded as expense.

 

Noncontrolling Interest – Noncontrolling interests represent the portion of net assets in consolidated entities that are not owned by the Company. As of December 31, 2019, minority investors owned approximately 6% of EHR.

 

Revenue Recognition – In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. This new standard supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted ASU 2014-09 on January 1, 2018 using the modified retrospective method. Before adoption of the new standard, revenue was recognized when production was sold to a purchaser at a fixed or determinable price, when delivery occurred and title transferred, and if collectability of the revenue was probable. The timing of revenue recognition remained consistent between the new and previous standards. There was no material impact on our consolidated financial statements from adopting the new standard.

 

F-8
 

 

For periods subsequent to adoption of the new standard, sales of oil and gas are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligation primarily comprise delivery of oil and gas at a delivery point. Each barrel of oil, million Btu (MMBtu) of gas, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The term between delivery and when payments are due is not significant.

 

The Company uses the sales method of accounting for gas production imbalances. The volumes of gas sold may differ from the volumes to which the Company is entitled based on its interests in the properties. These differences create imbalances that are recognized as a liability only when the properties’ estimated remaining reserves net to the Company will not be sufficient to enable the under-produced owner to recoup its entitled share through production. The Company’s recorded liability is generally reflected in other non-current liabilities. There were no significant gas imbalances at December 31, 2019 or 2018.

 

Rental income is recognized based on the contractual cash rental payments for the period.

 

Earnings (loss) per share – Basic earnings (loss) per share amounts are calculated by dividing income available to common shareholders, after deducting preferred stock dividends, by the weighted average number of shares of common stock outstanding. Diluted earnings per share amounts are calculated by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents represent shares issuable upon the assumed conversion of preferred stock outstanding and the assumed exercise of common stock warrants outstanding.

 

Fair Value Measurement – Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels related to fair value measurements are as follows:

 

Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities.

 

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

 

The estimated fair value of cash, accounts receivable, and accounts payable approximate the carrying amount due to the relatively short maturity of these instruments.

 

The Company’s non-financial assets measured at fair value on non-recurring basis include impairment measurements of oil and gas properties and the Company’s investment in common stock before it became publicly traded. These are considered Level 3 measurements as they involve significant unobservable inputs.

 

Fair value of the investment in common stock is determined based on a level 1 input for periods after February 2019 after it became publicly traded.

 

Income Taxes – 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. 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. In assessing the realizability of 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 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 asset (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized.

 

F-9
 

 

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs. The Company had no material uncertain tax positions as of December 31, 2019 and 2018.

 

The Company is subject to the Texas margin tax; however, tax expense was zero for the years ended December 31, 2019 and 2018.

 

Major Customer and Concentration of Credit Risk – We have a limited number of customers. We estimate an allowance for doubtful accounts based on an analysis of specific customers, taking into consideration the age of past due accounts and an assessment of the customer’s ability to pay. An allowance for doubtful accounts was not needed as of December 31, 2019 or 2018.

 

During 2019, our rental income was derived from a single lessee. There were no amounts due from this customer at December 31, 2019.

 

Recent Accounting Pronouncements – In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows — Classification of Certain Cash Receipts and Cash Payments, to clarify how eight specific cash receipt and cash payment transactions should be presented in the statement of cash flows. We adopted the new standard on January 1, 2018. Adoption of this standard had no material impact on our consolidated statements of cash flows and related disclosures.

 

In February 2016, the FASB issued ASU 2016-02, Leases, which aims to make leasing activities more transparent and comparable and requires substantially all leases be recognized by lessees on their balance sheet as a night-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases, Leases of mineral reserves and related land leases are exempted from the standard. The Company adopted ASU 2016-02 on January 1, 2019 and elected the package of practical expedients within the standard which permits the Company not to reassess prior conclusions about lease identification, lease classification and initial direct costs, The Company made an accounting policy election to not separate lease and non-lease components for all leases. The adoption of this standard resulted in the recognition of right-of-use assets and lease liabilities for the Company’s office lease totaling $279,111.

 

3. Merger with Home Treasure Finders

 

On November 27, 2019, HTF completed the purchase of approximately 68% of the common stock of EHR through the issuance of 6,328,948 shares of the Company’s Series A Preferred.

 

F-10
 

 

As discussed above, the acquisition of EHR by HTF has been accounted for as a reverse merger. The fair value of the assets acquired and liabilities assumed are based on management’s estimates. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:

 

Assets acquired:      
Cash   $ 291  
Property and equipment     1,012,500  
Liabilities assumed:        
Accounts payable     (78,226 )
Convertible note payable     (208,099 )
Mortgage payable     (630,691 )
         
Net assets acquired     95,775  
         
Purchase consideration paid -        
Common stock     5,051,822  
         
Goodwill   $ 4,956,047  

 

An impairment analysis performed as of the date of closing showed that the acquired goodwill was fully impaired. As such, goodwill impairment expense of $4,956,047 was recorded subsequent to the Transaction.

 

The consolidated statement of operations for the year ended December 31, 2019 includes $7,500 of HTF revenue and HTF losses of $4,952,563 since the acquisition date.

 

The following unaudited pro forma consolidated results of operations have been prepared as if the Transaction had occurred as of January 1, 2018:

 

    Year ended December 31,  
    2019     2018  
             
Revenue, continuing operations   $ 69,381     $ 82,508  
Loss from continuing operations   $ (7,176,631 )   $ (4,357,748 )
Earnings (loss) per common share:                
Basic and diluted   $ (4.04 )   $ (68.71 )

 

Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the period presented and is not intended to be a projection of future results.

 

Sale of HTF’s Legacy Business – On December 20, 2019, the Company entered the Legacy Business Bill of Sale, Assignment and Assumption Agreement (“Bill of Sale”) with Corey Wiegand, HTF’s former CEO. Under the Bill of Sale, we agreed to sell to Mr. Wiegand HTF’s property management and residential real estate sales business (the “Legacy Business”) for $160,000.

 

As alternative consideration to paying the purchase price in cash, the Bill of Sale provided that Mr. Wiegand had the right to redeem a portion of his existing common stock ownership in the Company as consideration for purchase of the Legacy Business, in lieu of paying cash. Based on an agreed upon reference price of $0.37 per share of common stock of the Company, Mr. Wiegand redeemed ownership equivalent to 432,432 shares to satisfy the required payment of the Legacy Business sale price. Pursuant to certain provisions set forth in the Stock Purchase Agreement entered into at the time of the Transaction, the shares of common stock utilized by Mr. Wiegand for payment of the Legacy Business purchase price were returned to the Company’s treasury and have been re-issued on a pro rata basis to the shareholders of record of the Company (other than Mr. Wiegand) as of the day immediately preceding the date of closing under the Stock Purchase Agreement. The Company recognized no gain or loss on the Legacy Business sale.

 

F-11
 

 

4. Discontinued Operations

 

In connection with the Transaction, management determined to fully divest of EHR’s oil and gas activities. These activities are presented as discontinued operations for each of the periods presented and are being actively marketed for sale.

 

The following is a summary of the carrying amounts of major classes of assets and liabilities of the discontinued operations to assets and liabilities held for sale:

 

    December 31,  
    2019     2018  
Assets            
Accounts receivable -            
Current assets of discontinued operations held for sale   $ 20,835     $ 437,125  
                 
Oil and Natural Gas Properties held for sale, at cost, using the successful efforts method     5,285,340       15,712,417  
Accumulated DD&A     (4,089,179 )     (505,667 )
Total oil and gas properties, net of discontinued operations held for sale     1,196,161       15,206,750  
Total assets of discontinued operations held for sale   $ 1,216,996     $ 15,643,875  
                 
Liabilities                
Accounts payable   $ -     $ 820,201  
Deferred revenue     -       1,076,390  
Accrued liabilities     92,196       466,254  
Asset retirement obligations     52,776       415,061  
Revenue payable     70,609       1,459,050  
Note payable     1,100,000       -  
Current liabilities of discontinued operations held for sale     1,315,581       4,236,956  
                 
Senior subordinated convertible debenture     -       400,000  
Asset retirement obligations     119,657       957,270  
Net deferred income tax liability     -       -  
Long term liabilities of discontinued operations held for sale     119,657       1,357,270  
Total liabilities of discontinued operations held for sale   $ 1,435,238     $ 5,594,226  

 

The following is a summary of the major classes of line items constituting loss on discontinued operations shown in the consolidated statements of operations:

 

    Year ended December 31,  
    2019     2018  
Revenue            
Oil and gas sales   $ 485,655     $ 2,527,038  
Overhead fees     31,000       144,000  
Total revenue     516,655       2,671,038  
                 
Costs and Expenses                
Lease operating expense     377,486       1,744,009  
Exploration expense     -       3,446  
Depreciation, depletion & amortization     82,300       470,445  
Accretion     32,974       177,282  
Gain on disposal of oil & gas property interests     (1,666,790 )     -  
Impairment & abandonment     3,730,678       89,411  
Mergers & acquisition costs     100,000       977,577  
Total costs and expenses     2,656,648       3,462,170  
                 
Other income     (1,176,390 )     -  
Interest expense     41,250       -  
                 
Loss from discontinued operations   $ (1,004,853 )   $ (791,132 )

 

F-12
 

 

San Andres Acquisition #2 – On March 27, 2018, the Company entered into an agreement with Lubbock Energy Partners LLC (“LEP”) to acquire an additional 8,817 gross acres in the San Andres oil play in Cochran County, Texas of the Permian Basin. In a related transaction, the Company received a payment of $881,697 from Brigadier under its option agreement to purchase an interest in these acres. The acquisition was anticipated to close in January 2019. The Company elected not to complete its portion of the acquisition because of market conditions. Brigadier completed its purchase with LEP in 2019 at which time the Company recognized the option fee in income, within the loss from discontinued operations in the consolidated statements of operations.

 

San Andres Acquisition #3 – On November 5, 2018, the Company made an initial payment of $100,000 for an agreement to acquire another 4,287 acres located in the San Andres oil play of the Permian Basin, adjacent to its existing leasehold position in Cochran County, Texas. The anticipated closing would have been in January 2019. The Company elected not to complete this acquisition because of market conditions. The initial payment was expensed in 2019 within the loss from discontinued operations in the consolidated statements of operations.

 

Disposal of Oil & Gas Property Interests – On March 1, 2019, the Company entered into a Termination, Repurchase and Release Agreement (the “Agreement”) with LEP wherein the Company reassigned a 52% working interest in the oil & gas assets acquired in the San Andres Acquisition #1 back to LEP (with the Company continuing to hold an 8% working interest in those assets) in exchange for the return and cancellation of 412,500 shares of the Company’s Series A Preferred Stock plus all accrued and unpaid dividends thereon and LEP’s assumption of the Company’s obligations under its Senior Subordinated Debentures totaling $400,000. Operatorship of the oil & gas assets was transferred by the Company to LEP, and amounts owed by the Company to LEP and all trade payables associated with the assets were memorialized in the form of a non-recourse promissory note totaling $1.1 million. The Company and LEP also entered into certain financial arrangements and mutual releases in order to settle all existing disputes relating to the assets arising prior to the effective date. The promissory note was due March 1, 2020, bore interest at 5% per annum and required no payments until maturity. The Company recognized a gain on disposal of $1,666,790 within the loss from discontinued operations in the consolidated statements of operations. In June 2020, the $1.1 million non-recourse promissory note and accrued interest thereon was settled upon LEP’s foreclosure of the Company’s Gap Band property interest.

 

Impairment of Oil & Gas Property Interests – During the year ended December 31, 2019, the Company’s oil and gas properties became impaired due to the market decline and the Company’s determination to exit the oil and gas business. The Company’s interest in the San Andres Acquisition #1 was determined to be fully impaired and its interest in the Gap Band property was determined to have a fair value of $1.2 million. Impairment expense totaling $3,730,678 was recorded within the loss from discontinued operations in the consolidated statements of operations to reduce the carrying values of the Company’s oil and gas property interests to their estimated fair values. The Company recorded no impairments or abandonments of oil and gas properties during the year ended December 31, 2018.

 

5. Note Payable — Related Party

 

Senior Secured Promissory Note – On March 31, 2017, the Company entered into a subscription agreement under which we issued a $3,000,000 10% Senior Secured Promissory Note with an initial maturity of September 1, 2017 to Satellite Overseas (Holdings) Limited (“SOHL”), a stockholder of the Company’s common shares. The Senior Secured Promissory Note was funded through three equal monthly draws of $1 million made in April, May, and June 2017. Upon maturity, at the option of the holder, the Senior Secured Promissory Note may either become due and payable or convert into shares of common stock at 75% of the share price in a qualified equity offering. Upon an occurrence of an event of default, the interest rate of the Senior Secured Promissory Note escalates to 12%. The Senior Secured Promissory Note is secured, pursuant to a deed of trust, by a first priority security interest in a 50% working interest in the profits from all oil and gas produced from the Gap Band 2-H well in Karnes County, Texas.

 

The Company and SOHL agreed to nine interim extensions of the maturity date. As extended, the maturity date was April 30, 2020. The note is currently past due.

 

F-13
 

 

The contingent put option in the Senior Secured Promissory Note is an embedded derivative that is recorded at fair value. The fair value calculation includes Level 3 inputs including the estimated fair value of the Company’s common stock and assumptions regarding the probability that the contingent put will be exercised. Management determined that the probability that the convertible note will be settled in shares was near zero at inception and has remained near zero during the term of the promissory note. The holder has indicated to the Company that they do not intend to exercise the conversion option. Therefore, the Company concluded that the fair value of the embedded derivative was near zero throughout the term of the convertible note.

 

The provision in the Senior Secured Promissory Note for escalation of interest rates from 10% to 12% is also an embedded derivative that must be recorded at fair value as the escalation of the interest rate is based on factors other than credit risk. The fair value of this derivative is not material because there has not been an escalation of the interest rate on the Senior Secured Promissory Note during the term of the note, the Company has been able to extend the maturity of the Note and any potential escalation of the interest rate would be immaterial to the financial statements.

 

Accrued interest and fees on the Senior Secured Promissory Note were $247,500 and $97,500 at December 31, 2019 and 2018, respectively.

 

Senior Subordinated Debentures – On October 10, 2018, the Company issued Senior Subordinated Debentures totaling $400,000 with certain investors. The term of the debentures was 36 months with 10% interest per annum payable quarterly. The Senior Subordinated Debentures were extinguished in March 2019 as part of the disposal of oil & gas property interests (see Note 4).

 

Convertible Promissory Note – In October 2019, HTF issued a convertible promissory note to EHR in exchange for EHR’s payment of HTF’s accounts payable and Transaction expenses. The convertible promissory note bears interest at 4% per annum and matures on November 1, 2021. Commencing 180 days subsequent to the date of the convertible promissory note, any portion or all of the principal and accrued interest payable is convertible by the holder at any time prior to payment into the common stock of the Company at a rate of $0.352 of principal and/or interest per share.

 

EHR distributed the convertible promissory note receivable to its shareholders prior to consummation of the Transaction. The outstanding balance owed by the Company under this convertible promissory note at December 31, 2019 was $208,874.

 

6. Mortgage Payable and Operating Lease

 

The Company is obligated under a mortgage payable, dated September 15, 2014 and as amended October 1, 2019, secured by its warehouse property located in Denver, Colorado. The note provides for a 25 year amortization period and an initial interest rate of 9% annually. As amended, the note matured on July 15, 2020 but was extended under terms of the amendment to January 15, 2021 after payment by the Company of a extension fee of 1% of the then outstanding principal. The rate during this first extension period is 10% annually and the monthly payment is $5,590.11. The maturity date may be subsequently extended at the Company’s option to July 15, 2021 after payment again of a extension fee of 1% of the then outstanding principal. The interest rate will increase to 11% annually if this extension is made.

 

As of December 31, 2019, the balance of the mortgage payable was $626,086 and the present maturity is January 15, 2021.

 

The Company leases the Denver warehouse property to a tenant under an operating leases expiring June 30, 2021 for a monthly rent of $7,500. The lease requires the tenant reimburse us for property taxes and insurance and maintains the interior and exterior of the warehouse (except for the roof). Minimum future rents for 2020 are $90,000 and for 2021 are $45,000.

 

7. Other Related Party Transactions

 

The Company had a previous business relationship with Pilatus Hunter, LLC, (“Pilatus Hunter”), a company owned by the Company’s CEO. Pilatus Hunter provides private air travel services, which began in September 2016. Pilatus Hunter was paid or advanced $137,151 for services during the year ended December 31, 2018. No amounts were paid or advanced during the year ended December 31, 2019. At December 31, 2018, accounts receivable – related parties included $54,305 due from Pilatus Hunter. There were no amounts receivable or payable to Pilatus Hunter at December 31, 2019.

 

F-14
 

 

Before completion of the Transaction, the Company had balances due from employees from time to time in the normal course of business. At December 31, 2018, accounts receivable from employees totaled $5,377. No amounts were due from employees at December 31, 2019.

 

In 2019, our CEO advanced $370,770 under a convertible note bearing interest at 10% per annum. This note, including accrued interest, was converted into 1,061,970 shares of common stock on December 31, 2019.

 

8. Asset Retirement Obligations

 

Total asset retirement obligations (“ARO”) consist of amounts for future plugging and abandonment liabilities on our wellbores and facilities based on third-party estimates of such costs, adjusted for inflation at a rate of 2%. These values are discounted to present value using our credit-adjusted risk-free rate of 10% per annum. The following table summarizes the changes in ARO included in discontinured obligations:

 

Balance at January 1, 2018   $ 1,195,049  
Accretion expense     177,282  
Balance at December 31, 2018     1,372,331  
Disposal of oil & gas property interests     (1,232,872 )
Accretion expense     32,974  
Balance at December 31, 2019   $ 172,433  

 

9. Commitments and Contingencies

 

Leases – On March 31, 2019, the Company abandoned its office lease. The right of use asset on the balance sheet at this date was fully impaired. The Company recognized impairment expense totaling $247,574 for this abandonment.

 

This office lease required monthly payments of $10,802 until its expiration on May 31, 2021. No rent payments have been made since abandonment. The lessor has made a claim for rent and the Company has made a counterclaim due to the premises being uninhabitable due to the actions of other tenants located on the floor. At December 31, 2019, the Company had accrued unpaid rent totaling $244,202. The discount rate used in computing the lease obligation was 10%.

 

Rent expense for 2019 and 2018 totaled $64,323 and $214,411, respectively.

 

Litigation – From time to time, we are subject to various litigation and other claims in the normal course of business. Below is a discussion of two specific matters. We cannot estimate the ultimate outcome of these matters.

 

JDONE, LLC v. Grand Traverse Holdings, LLC and John Gallegos, Denver District Court Case No. 2019CV33723

 

JDONE is a wholly owned subsidiary of the Company and landlord of a commercial warehouse building (“the Property”) that was leased to Grand Traverse on December 31, 2018 for a term of 61 months, with a personal guaranty from Defendant John Gallegos. On April 12, 2019, Grand Traverse presented JDONE with a forged, signed copy of the draft early termination amendment that JDONE had previously rejected. JDONE has suffered damages due to Defendant’s misconduct of approximately $823,504 plus interest and attorney’s fees. A court ordered mediation was held in May 2020 without success. All material defendant motions have been denied by the court. The case is set for jury trial in calendar year 2021.

 

KBSIII Tower at Lake Carolyn, LLC and Prime US-Tower at Lake Carolyn, LLC (collectively – “KBSIII”) vs. Energy Hunter Resources, Inc.

 

Plaintiff/Counterdefendant KBSIII is seeking lost rent on office space for periods after EHR vacated office premises located in Las Colinas, Texas. EHR has filed a counter suit alleging specific damages due to uninhabitable premises of the office space due to the intolerable conduct of other tenants located on the same floor. Discovery in the case is complete. The case has not been set for trial.

 

F-15
 

 

Environmental Remediation – Various federal, state, and local laws and regulations covering the discharge of materials into the environment, or otherwise relating to the protection of the environment, may affect the Company’s operations and the costs of its crude oil and gas exploration, development, and production operations. The Company does not anticipate that it will be required in the near future to expend significant amounts due to environmental laws and regulations, and accordingly no reserves have been recorded.

 

10. Income Taxes

 

No amounts were recorded for income tax expense during the years ended December 31, 2019 or 2018.

 

A reconciliation of the expected statutory federal tax and the total income tax expense from continuing operations was as follows:

 

    Year Ended December 31,  
    2019     2018  
             
Federal statutory rate   $ (1,494,404 )   $ (898,842 )
State income taxes, net     (229,304 )     -  
Change in valuation allowance     792,853       896,528  
Other, net     930,855       2,314  
Total income tax expense   $ -     $ -  

 

The tax effect of temporary differences that gave rise to significant components of deferred tax assets and liabilities consisted of the following:

 

    December 31,  
    2019     2018  
Assets:            
Net operating loss carryforwards   $ 1,388,111     $ 2,234,623  
Property and equipment     76,340          
Liabilities:                
Other     (310,482 )     (287,801 )
Subtotal     1,153,969       1,946,822  
Valuation allowance     (1,153,969 )     (1,946,822 )
Net deferred tax asset (liability)   $ -     $ -  

 

The Company has federal net operating loss (“NOL”) carryforwards of approximately $6.6 million at December 31, 2019, of which about $106,000 begin to expire in 2036 and the remainder have no expiration.

 

The Company estimates that approximately $4.4 million of its NOL carry-forwards are subject to annual limitations under Internal Revenue Code Section 382 as a result of ownership changes at various times including in the Transaction. The Company estimates that approximately $125,000 of these NOL carry-forwards may be utilized annually because of the impact of the Section 382 limitations.

 

11. Equity

 

Common Stock Issued for VCAB Acquisition - On May 4, 2018, the Company entered into an “Agreement and Plan of Merger” with VCAB Five Corporation (“VCAB”) to substantially facilitate an increase in the number of qualified shareholders of the Company. In connection with the merger, the Company issued 350,000 shares of EHR common stock to the holders of Class 5 claims following VCAB’s bankruptcy filing. Noncash costs for this transaction totaled $1,458,450 and were expensed in 2018 within merger and acquisition costs in the consolidated statement of operations.

 

Common Stock Issued in Private Placement - In 2019, the Company sold 165,611 shares of common stock to three investors for an aggregate of $125,000 in cash through a private placement.

 

F-16
 

 

EHR Series A Redeemable Preferred Stock – On December 1, 2017, EHR designated 500,000 shares of Series A 6.00% Perpetual Redeemable Convertible Preferred Stock (the “EHR Series A Preferred Shares”). Of the 500,000 EHR Series A Preferred Shares, (i) 412,500 shares were issued to LEP in the San Andres Acquisition #1 and (ii) 87,500 shares were reserved for the payment of dividends in kind. All of the EHR Series A Preferred Shares had a stated value of $20.00 per share. The EHR Series A Preferred Shares contained a substantive conversion option, were not mandatorily redeemable and converted into a fixed number of common shares. As of December 31, 2018, there were 412,500 EHR Series A Preferred Shares outstanding.

 

Pursuant to the Certificate of Designation for the EHR Series A Preferred Shares (the “Certificate of Designations”) each EHR Series A Preferred Share was convertible at any time, at the option of the Holder into one share of EHR common stock. If not converted sooner, the Company had the right to repurchase all or any portion of the then outstanding shares of EHR Series A Preferred Shares at a price, in cash, equal to the stated value per share, plus all accrued but unpaid dividends thereon to the date of payment, (i) at any time following the one-year anniversary of the original issue date, or (ii) if (A) the average closing bid price of the corporation’s common stock shall have equaled or exceeded 125% of the stated value for the immediately preceding 20 trading days and (B) the shares of common stock issuable upon conversion. This conversion option was considered clearly and closely related to the EHR Series A Preferred Stock host contract and therefore did not require bifurcation.

 

Dividends on the EHR Series A Preferred Shares were payable quarterly at the Company’s election in cash, EHR Series A Preferred shares or a combination of cash and shares at an annual dividend rate of 6.00%. The EHR Series A Preferred Stock was presented as “mezzanine equity” in the Company’s consolidated balance sheets because it was mandatorily redeemable.

 

On March 1, 2019, all outstanding shares of the EHR Series A Preferred Stock and accrued dividends thereon were returned and cancelled in the disposal of oil & gas property interests. Refer to Note 4 for more discussion.

 

EHR Series C Preferred Stock – In the third quarter of 2019, EHR raised $850,000 of additional funding through the issuance of 34,000 shares of EHR Series C Preferred Stock. The EHR Series C Preferred Stock converted into 2,414,773 shares of EHR’s common stock upon completion of the Transaction. These common shares were initially accounted for as noncontrolling interests in EHR.

 

In an exchange transaction effective November 27, 2019, the Company acquired these noncontrolling interests representing approximately 26% of the ownership of EHR through the issuance of 2,414,773 shares of Company common stock and 14,488,638 warrants for the purchase of Company common stock. The warrants have an exercise price of $0.352 per share and expire on November 27, 2021. The warrants may be redeemed beginning October 1, 2020 for $0.0001 per warrant at the Company’s option with 30-days advanced notice should the volume weighted average price exceed $1.00 for any five out of seven consecutive trading days with a minimum average daily trading volume for such seven-day period of at least 25,000 shares of common stock. One-half of the warrants have a cashless exercise feature.

 

Series A Preferred Stock – The Company has 6,328,948 shares of Series A Preferred outstanding. Each share of the Series A Preferred; (a) converts into 12 shares of common stock of the Company, (b) possesses full voting rights, on an as-converted basis, with the common stock of the Company, and (c) has no dividend rate.

 

F-17
 

 

12. Supplemental Cash Flow Information

 

    Year ended December 31,  
    2019     2018  
             
Cash paid for interest   $ -     $ -  
Cash paid for taxes     -       -  
                 
Noncash investing and financing activities:                
Initial recognition of right to use asset and lease liabilities     279,111       -  
Right of use asset amortization     31,537       -  
Apply deposit against lease liability     10,690       -  
Recognition of noncontrolling interests in reverse merger     95,743       -  
Conversion of Series C preferred stock into common stock     850,000       -  
Acquisition of noncontrolling interests     (114,022 )        
Conversion of shareholder note to common stock     373,813       -  
Distribution of promissory note to shareholders     208,099       -  
Capital expenditures in accounts payable     -       561,796  
Accrual of preferred stock dividends     -       513,888  

 

13. Earnings (Loss) per Share

 

The following table is a calculation of the earnings (loss) per basic and diluted share:

 

Amounts attributable to Generation Hemp:            
Numerator            
Loss from continuing operations   $ (7,102,542 )   $ (4,280,202 )
Less: Preferred stock dividends     -       (513,888 )
Net loss from continuing operations attributable to common stockholders     (7,102,542 )     (4,794,090 )
Loss from discontinued operations     (806,397 )     (791,132 )
Net loss attributable to common stockholders   $ (7,908,939 )   $ (5,585,222 )
                 
Denominator                
Weighted average shares used to compute basic EPS     1,973,662       82,421  
Dilutive effect of preferred stock     -       -  
Weighted average shares used to compute diluted EPS     1,973,662       82,421  
                 
Earnings (loss) per share:                
Loss from continuing operations - basic and diluted   $ (3.60 )   $ (58.17 )
Loss from discontinued operations - basic and diluted   $ (0.41 )   $ (9.60 )
Loss per share - basic and diluted   $ (4.01 )   $ (67.76 )

 

The computation of diluted earnings per common share for the year ended December 31, 2019 excludes (i) the assumed conversion of the Series A Preferred Stock and (ii) the effect of assumed exercise of approximately 14,488,638 warrants, as their exercise price was greater than the average market value of our common stock for the period, as these would be anti-dilutive.

 

F-18
 

 

14. Subsequent Events

 

Issuances of Common Stock – In February 2020, Generation Hemp sold 250,000 units for $100,000 to accredited investors. Each unit consists of one share of common stock and one warrant to purchase one common share at $0.40 per share. The warrant expires in March 2022 and is exercisable for one share of common stock at an exercise price of $0.40 per share. Proceeds of this issuance were used for general corporate purposes.

 

Response to the Coronavirus Disease 2019 (COVID-19) Pandemic on Our Business—On March 11, 2020, the World Health Organization declared the current COVID-19 outbreak to be a global pandemic, and on March 13, 2020, the United States declared a national emergency. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence and practice social distancing when engaging in essential activities. These actions and the global health crisis caused by COVID-19 have created significant volatility, uncertainty and economic disruption.

 

Our business, results of operations and financial condition were adversely affected by the COVID-19 pandemic, especially beginning in mid-March, and such impact has materially worsened to date in the second quarter. The COVID-19 pandemic and measures taken to contain it have subjected our business, results of operations, financial condition, stock price and liquidity to a number of material risks and uncertainties, all of which may continue or worsen.

 

The extent of the potential effect of the COVID-19 pandemic will depend on future actions and outcomes, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the short-term and long-term economic impact of the outbreak (including the effect on consumer discretionary spending and our employees in the markets in which we operate), the actions taken to mitigate the impact of the virus, and the pace of economic and financial market recovery when the COVID-19 pandemic subsides, among others.

 

Paycheck Protection Program Loan – Congress created the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide forgivable loans to eligible small businesses facing economic hardship to retain U.S. employees on their payroll during the Coronavirus Disease 2019 (“COVID-19”) pandemic.

 

PPP loan recipients may be eligible to have their loans forgiven if the funds were used for eligible expenses over the eight-week coverage period commencing when the loan was originally disbursed. The amount of forgiveness may be reduced if the percentage of eligible expenses attributed to nonpayroll expenses exceeds 25% of the loan, if employee headcount decreases, or compensation decreases by more than 25% for each employee making less than $100,000 per year, unless the reduced headcount or compensation levels are restored by June 30, 2020.

 

On April 29, 2020, Generation Hemp, Inc. received disbursement of an approved PPP loan in the amount of $25,200. The company anticipates that this entire disbursement amount will be forgiven under the current program requirements for forgiveness eligibility.

 

Disposal of Gap Band Property Interest – In June 2020, LEP completed the foreclosure of the Company’s remaining ownership interest in the Gap Band property due to the Company’s default on its $1.1 million non-recourse promissory note and accrued interest thereon. The Company estimates that a gain of approximately $25,000 will be recognized in 2020 as a result of this disposal.

 

Subordinated Promissory Note—Our CEO made additional advances through 2020 under a subordinated promissory note due September 30, 2021. The total outstanding balance at November 30, 2020 was $440,000.

 

Pending Acquisition of Halcyon Thruput, LLC – On March 7, 2020, we entered into Definitive Agreements with Halcyon Thruput, LLC (“Halcyon”) to acquire 100% of their assets for total consideration of $5.1 million. The consideration includes $2.5 million of restricted common stock (valued at $0.50 per share) of Generation Hemp, Inc., restricted from trading for one year, and $2.6 million in cash. Halcyon is a leading emerging company active in the hemp sector that provides postharvest and midstream services to growers by drying and processing harvested hemp directly from the field and wetbaled at their 48,000 square foot facility located in Hopkinsville, Kentucky. The transaction is expected to close in the fourth quarter of 2020.

 

*  *  *  *  *

 

F-19
 

 

Supplemental Oil and Gas Information

(Unaudited)

 

Oil and Gas Reserve Information

 

Proved oil and gas reserves are those quantities of crude oil, natural gas, condensate, and NGLs, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. Estimated proved developed oil and gas reserves can be expected to be recovered through existing wells with existing equipment and operating methods. The Company reports all estimated proved reserves held under production-sharing arrangements utilizing the “economic interest” method.

 

Proved oil and gas reserves have been estimated by independent, third-party petroleum engineers, Mire & Associates, Inc. These reserve estimates have been prepared in compliance with the Securities and Exchange Commission rules and accounting standards based on the 12-month unweighted first-day-of-the-month average price for the year.

 

There are numerous uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production and timing of development expenditures. The reserve data in the following tables only represent estimates and should not be construed as being exact.

 

The following reserves schedule sets forth the changes in estimated quantities of proved crude oil reserves:

 

    Crude Oil
(Bbls) 		    Natural Gas
(mcf) 		    Total (Boe)  
Total proved reserves:                  
Balance at December 31, 2017     748,100       1,150,100       939,784  
Revisions of previous estimates     (271,083 )     (511,140 )     (356,274 )
Production     (82,607 )     (117,210 )     (102,142 )
Balance at December 31, 2018     394,410       521,750       481,368  
Revisions of previous estimates     (6,969 )     203,192       26,897  
Divestiture of Reserves     (202,187 )     (101,786 )     (219,151 )
Production     (6,815 )     (18,566 )     (9,909 )
Balance at December 31, 2019     178,440       604,590       279,205  
                         
Proved developed reserves as of:                        
December 31, 2017     235,700       276,100       281,717  
December 31, 2018     66,610       113,630       85,548  
December 31, 2019     30,420       132,800       52,553  
Proved undeveloped reserves as of:                        
December 31, 2017     512,400       874,000       658,067  
December 31, 2018     327,800       408,120       395,820  
December 31, 2019     148,020       471,790       226,652  

 

The decrease in proved quantities for 2018 was due principally to revisions of previous reserve estimates caused by a decrease in average NYMEX-WTI oil and Henry Hub natural gas prices.

 

On March 1, 2019, the Company reassigned 52% of its working interest in the San Andres #1 oil & gas assets to LEP (with the Company continuing to hold an 8% working interest in those assets). The decrease in proved quantities for 2019 was due principally to this disposal and revisions of previous reserve estimates caused by a decrease in average NYMEX-WTI oil and Henry Hub natural gas prices.

 

Costs Incurred in Oil and Natural Gas Property Acquisitions and Development Activities

 

Costs incurred by the Company in oil and natural gas acquisitions and development are presented below:

 

    For the year ended
December 31, 		 
    2019     2018  
Acquisitions:            
Proved   $ -     $ -  
Unproved     -       -  
Exploration     -       3,446  
Development     17,333       1,222,286  
Costs incurred   $ 17,333     $ 1,225,732  

 

F-20
 

 

Capitalized Costs

 

The following table sets forth the capitalized costs and associated accumulated depreciation, depletion, and amortization relating to the Company’s oil and gas acquisition, exploration, and development activities:

 

    December 31,  
    2019     2018  
             
Proved properties   $ 3,685,294     $ 5,963,638  
Unproved properties     1,600,046       9,748,779  
      5,285,340       15,712,417  
Accumulated DD&A     (4,089,179 )     (505,667 )
Total   $ 1,196,161     $ 15,206,750  

 

Future Net Cash Flows

 

Future cash inflows as of December 31, 2019 and 2018 were calculated using an unweighted arithmetic average of oil and gas prices in effect on the first day of each month in the respective year, except where prices are defined by contractual arrangements. Operating costs, production and ad valorem taxes and future development costs are based on current costs with no escalation. Future development costs include abandonment and dismantlement costs.

 

The following table sets forth unaudited information concerning future net cash flows for proved oil and gas reserves, net of income tax expense. Income tax expense has been computed using expected future tax rates and giving effect to tax deductions and credits available, under current laws, and which relate to oil and gas producing activities. This information does not purport to present the fair market value of the Company’s oil and gas assets, but does present a standardized disclosure concerning possible future net cash flows that would result under the assumptions used.

 

    December 31,  
    2019     2018  
             
Future cash inflows   $ 11,701,830     $ 27,502,600  
Future production costs     (3,095,970 )     (6,993,170 )
Future development costs     (3,812,090 )     (8,051,580 )
Future income tax expense     -       -  
Future net cash flows     4,793,770       12,457,850  
10% annual discount for estimated timing of cash flows     (1,348,110 )     (5,719,100 )
Discounted future net cash flows   $ 3,445,660     $ 6,738,750  

 

The following table sets forth the principal sources of change in the discounted future net cash flows:

 

    December 31,  
    2019     2018  
             
Balance, beginning of period   $ 6,738,750     $ 6,903,800  
Sales, net of production costs     139,169       927,029  
Net change in prices and production costs     1,343,106       3,208,773  
Changes in future development costs     (3,118,134 )     (1,151,702 )
Previously estimated development costs incurred during the period     (17,333 )     (1,222,286 )
Revision of quantities     376,534       (2,617,244 )
Accretion of discount     673,875       690,380  
Sales of minerals in-place     (2,690,307 )     -  
Balance, end of period   $ 3,445,660     $ 6,738,750  

 

*  *  *  *  *

 

F-21
 

 

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

 

Pursuant to Rules adopted by the Securities and Exchange Commission, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rules. This evaluation was done as of the end of the fiscal year by and under the supervision of the Company’s principal executive officer (who is also the principal financial officer and sole director). There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation. There is only one officer and director of the Company, and as such is solely responsible for evaluating the Company’s disclosure controls and procedures. Based upon that evaluation, the principal executive officer believes that the Company’s disclosure controls and procedures are not effective due to the following material weaknesses.

 

We lacked the ability to have adequate segregation of duties in the financial statement preparation process. Further the Company did not maintain adequate documentation for review and supporting matters impacting financial reporting in gathering, analyzing and disclosing information needed to ensure that the information required to be disclosed by the Company in its periodic reports is recorded, summarized and processed timely. The principal executive officer is directly involved in the day-to-day operations of the Company.

 

Plan for Remediation of Material Weaknesses

 

Since these entity level controls have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

 

We believe that we have improved our internal control over financial reporting by taking certain corrective steps that we believe minimize the likelihood of a recurrence. We have designed a disclosure controls and procedures regime pursuant to which our management has, among other things:

 

(a) identified the definition, objectives, application and scope of our internal control over financial reporting;

 

(b) delineated the duties of each member of the group responsible for maintaining the adequacy of our internal control over financial reporting. This group consists of our Chief Executive Officer and independent consultants who were engaged to prepare and assure compliance with both our internal control over financial reporting as well as our disclosure controls and procedures and review our disclosure controls and procedures on a regular basis, subject to our management’s supervision.

 

We continue implementation of required key controls, the necessary steps required for procedures to ensure the appropriate communication and review of inputs necessary for the financial statement closing process, as well as for the appropriate presentation of disclosures within the financial statements. The remediation steps taken are subject to the Chief Executive Officer’s oversight. While management believes there have been significant improvements of internal controls over financial reporting since year ended December 31, 2019, management anticipates that further continuing efforts will be needed to effectively remediate the material deficiencies relating to segregation of duties and maintaining adequate supporting documentation to substantiate the information reported in the financial statements which existed as of December 31, 2019, and to assure that complex transactions are properly recorded as the business continues to grow. Our management has been actively engaged in planning for, designing and implementing the corrective steps described above to enhance the effectiveness of our disclosure controls and procedures as well as our internal control over financial reporting. Our management is committed to achieving and maintaining a strong control environment, high ethical standards, and financial reporting integrity, and will take further steps to ensure that personnel are adequate in terms of sophistication and quantity to adequately assure that the financial reporting process is efficient and operated with the sufficient level of integrity to meet and surpass all regulatory standards.

 

25

 

 

While management is implementing corrective steps to remediate its internal control deficiencies, we cannot assure you that they will be sufficient enough to be free of a material weakness. If we should in the future conclude that our internal control over financial reporting suffers from a material weakness, we will be required to expend additional resources to improve it. Any additional instances of material deficiencies could require a restatement of our financial statements. If such restatements are required, there could be a material adverse effect on our investors’ confidence that our financial statements fairly present our financial condition and results of operations, which in turn could materially and adversely affect the market price of our common stock.

 

Changes in Internal Control over Financial Reporting

 

Other than the remediation activities undertaken by us as disclosed above, there have been no changes in our internal control over financial reporting during the 2019 fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following persons are our executive officers and directors and hold the offices set forth opposite their names.

 

Name   Age   Position
         
Gary C. Evans   63   Chairman and CEO
         
Melissa M. Pagen   45   Managing Director, Chief Branding Officer, Corporate Secretary

 

The following is a brief account of the business experience of each of our directors and executive officers:

 

Gary C. Evans, Chairman of the Board and Chief Executive Officer. Mr. Evans previously led Energy Hunter Resources, Inc. and Magnum Hunter Resources Corporation, a public energy company specializing in unconventional resource plays predominately in the Appalachian Basin, for seven years, from 2009 to May 2016. Mr. Evans was also founder and CEO of Eureka Hunter Holdings, LLC, a mid-stream gas gathering company transporting and managing up to 1 Bcf of daily natural gas volumes from production in West Virginia and Ohio on approximately 200 miles of newly constructed pipeline during the similar seven-year period. Additionally, Mr. Evans previously founded and served as the Chairman and Chief Executive Officer of Magnum Hunter Resources Inc. (MHRI), a NYSE listed company, for 20 years before MHRI was acquired by Cimarex Energy for approximately $2.2 billion in June 2005. Later that year, Mr. Evans formed Wind Hunter Energy, LLC, a renewable energy company which was subsequently acquired in December 2006 by GreenHunter Energy, Inc., an emerging water resource company focusing on oil field water management and clean water technologies active in the Marcellus and Utica resource plays in Appalachia. As founder, Mr. Evans served as Chairman and Chief Executive Officer of GreenHunter Energy, Inc. from December 2006 until May 2016. Its assets were sold to a private equity fund.

 

Mr. Evans serves as an Individual Trustee of TEL Offshore Trust, a publicly listed oil and gas trust, and is a Director of Novavax Inc., a NASDAQ listed clinical-stage vaccine biotechnology company, where he previously served as Chairman, CEO and Lead Director. Mr. Evans was recognized by Ernst & Young as the Southwest Area 2004 Entrepreneur of the Year for the Energy Sector and was subsequently inducted into the World Hall of Fame for Ernst & Young Entrepreneurs. Mr. Evans was also recognized as the Energy Industry Leader of the year in 2013 and chosen by Finance Monthly in 2013 as one of the most respected CEOs. Mr. Evans was chosen as the Best CEO in the “Large Company” category by Texas Top Producers in 2013. He additionally won the Deal Maker of the Year Award in 2013 by Finance Monthly. Mr. Evans serves on the board of the Maguire Energy Institute at Southern Methodist University and speaks regularly at energy industry conferences around the world and on national television networks on the current affairs of the oil and gas industry.

 

26

 

 

Melissa M. Pagen has over eighteen years of professional and executive experience in managerial and officer positions in several industries - both in the private and public sectors, and with a demonstrated history in consumer goods, business development, investor relations, and industrial technologies. Ms. Pagen brings a unique combination of talents. She has also developed and launched several start-up companies, in ecommerce, nutraceuticals, and the energy sector. Ms. Pagen earned a Bachelor of Arts degree from University of California, Los Angeles where she graduated summa cum laude, and in 2014 was honored with a WING Award (Women In Natural Gas), by Shale Media Group.

 

Involvement in Certain Legal Proceedings

 

In March 2016, during Mr. Evans’ tenure as interim CEO of GreenHunter Resources, Inc. that company and certain of its subsidiaries (namely, GreenHunter Water, LLC; Hunter Disposal, LLC; Ritchie Hunter Water Disposal, LLC; Hunter Hauling, LLC; White Top Oilfield Construction, LLC; Blackwater Services, LLC; Virco Realty, LLC; Little Muskingum Drilling, LLC; Blue Water Energy Solutions, LLC; GreenHunter Wheeling Barge, LLC; GreenHunter Environmental Solutions, LLC; and MAG Tank Hunter, LLC) filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. Similar to Magnum Hunter Resources Corporation discussed immediately below, GreenHunter Resources, Inc. sought protection in large part because of the cyclical downturn in the commodity prices of both oil and natural gas. GreenHunter Resources, Inc.’s assets were subsequently sold to a private equity group, which allowed predominately all secured indebtedness to be fully repaid.

 

In December 2015, during Mr. Evans’ tenure as CEO of Magnum Hunter Resources Corporation, that company filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code in Delaware (In re Magnum Hunter Resources Corporation, et al., included the following debtors in addition to Magnum Hunter Resources Corporation, each of which was a directly or indirectly owned subsidiary of Magnum Hunter Resources Corporation: Alpha Hunter Drilling, LLC; Bakken Hunter Canada, Inc.; Bakken Hunter, LLC; Energy Hunter Securities, Inc.; Hunter Aviation, LLC; Hunter Real Estate, LLC; Magnum Hunter Marketing, LLC; Magnum Hunter Production, Inc.; Magnum Hunter Resources GP, LLC; Magnum Hunter Resources, LP; Magnum Hunter Services, LLC; NGAS Gathering, LLC; NGAS Hunter, LLC; PRC Williston LLC; Shale Hunter, LLC; Triad Holdings, LLC; Triad Hunter, LLC; Viking International Resources Co., Inc.; and Williston Hunter ND, LLC). This filing was due in large part to the precipitous commodity cycle downturn which saw the price of natural gas and crude oil reach lows not seen for over a decade. Magnum Hunter Resources Corporation subsequently emerged from bankruptcy with no indebtedness in May 2016 under Mr. Evans’ leadership.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Narrative Disclosures

 

Employment, Severance or Change in Control Agreements

 

We currently do not maintain any employment, severance or change in control agreements with our named executive officers. In addition, our named executive officers are not entitled to any payments or other benefits in connection with a termination of employment or a change in control.

 

Retirement Benefits

 

We have not maintained, and do not currently intend to maintain, a defined benefit pension plan or nonqualified deferred compensation plan.

 

27

 

 

Compensation of Named Executive Officers

 

The following table contains compensation data for our named executive officers for the fiscal years ending December 31, 2019 and 2018 and for the current fiscal year through June 30, 2020.

 

Name and Principal Position   Fiscal
Year 		  Salary(1)     Bonus     Stock
Awards 		    All Other
Compensation 		    Total
Received(2) 		 
Gary C. Evans   2018   $ —     $ —     $       —     $        —     $       —  
Chief Executive Officer   2019   $ 360,000                                  
    2020   $ 360,000                                  
Melissa M. Pagen   2018   $ —     $      —     $ —     $ —     $ —  
Managing Director, Chief Branding   2019   $ 120,000     $       $       $       $    
Officer, Corporate Secretary   2020   $ 120,000     $       $       $       $    

 

(1) Salary reflects annual amount. Salary was prorated in 2019, see Total Received column.
(2) For 2018 and 2019, amount reflects total compensation received for calendar year. For 2020, amount reflects total compensation received through June 30, 2020.

 

Compensation of Directors

 

We currently have one director, Mr. Evans. Since Mr. Evans is also an employee he does not receive any additional compensation for this service on our board of directors.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth information regarding beneficial ownership of our Common Stock, as of March 31, 2020.

 

We have determined beneficial ownership in accordance with Commission rules. The information does not necessarily indicate beneficial ownership for any other purpose. The applicable percentage ownership is based on 93,077,693 shares of common stock as of December 31, 2019 (17,130,317 shares of common stock outstanding and 75,947,376 shares issuable upon conversion of Series A preferred stock outstanding).

 

Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each stockholder named in the following table possesses sole voting and investment power over the shares listed. Unless otherwise noted below, the address of each person listed on the table is c/o Generation Hemp, Inc., P.O. Box 540308, Dallas, Texas 75354.

 

Name of Beneficial Owner(1)   Number of shares
beneficially owned 		    Percentage Ownership  
5% Stockholders:            
Satellite Overseas (Holdings) Limited(2)     25,263,144       27.1 %
Corey Weigand     6,687,275       7.2 %
                 
Directors and Named Executive Officers:                
Gary C. Evans     36,000,000       38.7 %
                 
Directors and Executive Officers as a Group (1 Persons)     40,500,000       38.7 %

 

(1) The amounts and percentages of Common Stock beneficially owned are reported on the basis of regulations of the Commission governing the determination of beneficial ownership of securities. Under the rules of the Commission, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power, which includes the power to vote or direct the voting of such security, or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be the beneficial owner of any securities such person has the right to acquire within 60 days. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person’s ownership percentage, but not for purposes of computing any other person’s percentage. Under these rules, more than one person may be deemed beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. Except as discussed in the footnotes to this table, each of the beneficial owners has, to our knowledge, sole voting and investment power with respect to the indicated shares of Common Stock, except to the extent this power may be shared with a spouse. All shares shown in the table are currently outstanding,

 

(2) Satellite Overseas (Holdings) Limited (“SOHL”) is the record holder of these shares of Common Stock. SOHL is a wholly-owned subsidiary of Cadila Pharmaceuticals Ltd. (“Cadila”). Cadila is owned by the IRM Trust. Rajiv I. Modi, Ph. D. and Mrs. Shilaben I. Modi are the trustees of the IRM Trust. As trustees of the IRM Trust, Dr. Modi and Mrs. Modi have shared voting and dispositive power with respect to these shares and, therefore, under rules issued by the Commission may be deemed to be beneficial owners of the shares.

 

28

 

 

ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

On November 27, 2019, Generation Hemp, Inc. (f/k/a Home Treasure Finders, Inc.) (“HTF”) completed the purchase of approximately 68% of the common stock of Energy Hunter Resources, Inc. (“EHR”) through the issuance of 6,328,948 shares of the Company’s Series A Preferred Stock (“Series A Preferred”). Each share of the Series A Preferred; (a) converts into 12 shares of common stock of the Company, (b) possesses full voting rights, on an as-converted basis, with the common stock of the Company, and (c) has no dividend rate. The acquisition, together with the other transactions contemplated by the Stock Purchase Agreement, dated August 15, 2019 are referred to herein as the “Transaction”. In connection with the closing of the Transaction, HTF changed its name to Generation Hemp, Inc.

 

The Transaction was accounted for as a reverse merger, whereby EHR is considered to be the accounting acquirer and became a majority-owned subsidiary of the Company. Accordingly, the Company’s historical financial statements prior to the reverse merger were and will be replaced with the historical financial statements of EHR prior to the reverse merger and in this and all future filings with the U.S. Securities and Exchange Commission (the “SEC”).

 

Upon completion of the Transaction, Corey Wiegand, who had been the President and sole Director of Home Treasure Finders, Inc. since its founding, resigned from these positions and Gary C. Evans, previous Chairman and Chief Executive Officer of Energy Hunter Resources, Inc., took the helm of the combined entity as Chairman of the Board of Directors and Chief Executive Officer.

 

In an exchange transaction also effective November 27, 2019, the Company acquired an additional 26% of the common stock of EHR through the issuance of common stock and warrants.

 

The Company owns approximately 94% of the issued and outstanding common stock of EHR. Thus, EHR became a majority-owned subsidiary of the Company.

 

Board Leadership Structure

 

Our Board does not have a policy on whether or not the roles of Chief Executive Officer and Chairman should be separate and, if they are to be separate, whether the Chairman should be selected from the non-employee directors or be an employee. Currently, Gary C. Evans serves as our sole director as Chairman of the Board and our Chief Executive Officer.

 

Board Role in Risk Oversight

 

Our Board of Directors is responsible for the oversight of the Company’s risk management efforts. Members of management are responsible for particular areas of risk for the company and provide presentations, information and updates on risk management efforts as requested by our Board. 

 

Family Relationships

 

There are no family relationships among our executive officers and directors.

 

29

 

 

Related Transactions

 

Gary C. Evans Ownership

 

In November, 2019, in accordance with the stock purchase agreement by HTF, Series A Preferred stock in the Company was issued to our Chief Executive Officer Gary C. Evans for shares held of EHR common stock. Each Series A Preferred stock held converts to 12 shares of common stock of the Company. As of December 31, 2019, Mr. Evans still retains ownership of 1,061,970 shares of EHR common stock (See below Gary C. Evans Convertible Note with EHR).

 

Gary C. Evans Convertible Note with EHR

 

In October and December, Mr. Evans advanced EHR $370,770 under a convertible note bearing interest at 10% per annum. This note, including accrued interest, was converted into 1,061,970 shares of common stock of EHR on December 31, 2019.

 

Satellite Overseas (Holdings) Ltd.

 

In November, 2019, in accordance with the stock purchase agreement by HTF, Series A Preferred stock in the Company was issued to SOHL for shares held of EHR common stock. Each Series A Preferred stock held converts to 12 shares of common stock of the Company.

 

Sale of HTF’s Legacy Business

 

On December 20, 2019, the Company entered the Legacy Business Bill of Sale, Assignment and Assumption Agreement (“Bill of Sale”) with Corey Wiegand, HTF’s former CEO. Under the Bill of Sale, we agreed to sell to Mr. Wiegand HTF’s property management and residential real estate sales business (the “Legacy Business”) for $160,000.

 

As alternative consideration to paying the purchase price in cash, the Bill of Sale provided that Mr. Wiegand had the right to redeem a portion of his existing common stock ownership in the Company as consideration for purchase of the Legacy Business, in lieu of paying cash. Based on an agreed upon reference price of $0.37 per share of common stock of the Company, Mr. Wiegand redeemed ownership equivalent to 432,432 shares to satisfy the required payment of the Legacy Business sale price. Pursuant to certain provisions set forth in the Stock Purchase Agreement entered into at the time of the Transaction, the shares of common stock utilized by Mr. Wiegand for payment of the Legacy Business purchase price were returned to the Company’s treasury and have been re-issued on a pro rata basis to the shareholders of record of the Company (other than Mr. Wiegand) as of the day immediately preceding the date of closing under the Stock Purchase Agreement.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following table sets forth the fees paid or accrued by us for the audit and other services provided by our auditor, Marcum, LLC during the years ended December 31, 2019 and 2018:

 

    2019     2018  
Audit fees (1)   $ 24,000     $ -  
Audit related fees (2)     -       -  
Tax fees (3)     -       -  
All other fees     -       -  
                 
Total fees   $ 24,000     $ -  

 

(1) Audit Fees: This category represents the aggregate fees billed for professional services rendered by the principal independent accountant for the audit of our annual financial statements and review of financial statements included in our Form 10-K and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years.

 

(2) Audit Related Fees: This category consists of the aggregate fees billed for services by our independent consultant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.”

 

(3) Tax Fees: This category consists of the aggregate fees billed for professional services rendered by the principal independent consultant for tax compliance, tax advice, and tax planning.

 

30

 

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a) The following documents are filed as part of this Report:

 

(1) Report of Independent Registered Public Accounting Firm F-1
   
Consolidated Balance Sheets as of December 31, 2019 and 2018 F-2
   
Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018 F-3
   
Consolidated Statements of Equity (Deficit) for the Years Ended December 31, 2019 and 2018 F-4
   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018 F-5
   
Notes to Consolidated Financial Statements F-6
   
(2) Supplemental Oil and Gas Information (Unaudited) F-20

 

(b) Exhibits:

 

Exhibit Number   Description
     
3.1   Certificate of Incorporation
     
3.2    Bylaws
     
3.3   Certificate Of Designation of Rights, Preferences And Limitations Of The Series A Convertible Voting Preferred Stock 
     
4.1**   2020 Form of Generation Hemp Warrant
     
10.1   Deed of Trust, dated September 15, 2014, between  JDONE LLC and Thomas S. Yang.
     
10.2   Promissory Note, dated  September 15, 2014, made by JDONE LLC in favour Thomas S. Yang.
     
10.3**   Amendment No. 1 to Promissory Note and Deed of Trust, dated October 1, 2019, between JDONE LLC, Thomas S. Yang, and Gary C. Evans.
     
10.4   Stock Purchase Agreement,dated August 15, 2019, among Home Treasure Finders, Inc., HMTF Merger Sub Inc,, Energy Hunter Resources, Inc. (the “Company”), certain stockholders of the Company set forth therein, and Gary C. Evans
     
10.5   Amendment No. 1 to Stock Purchase Agreement,dated October 1, 2019, among Home Treasure Finders, Inc., HMTF Merger Sub Inc,, Energy Hunter Resources, Inc. (the “Company”), certain stockholders of the Company set forth therein, and Gary C. Evans.
     
10.6   Legacy Business Bill of Sale, Assignment and Assumption Agreement, dated December 20, 2019, between Generation Hemp. Inc.  and Corey Wiegand
     
10.7**   2019 Form of Common Stock Subscription Agreement of Energy Hunter Resources, Inc.
     
10.8**   Convertible Promissory Note, dated October 15, 2019, made by Home Treasure Finders, Inc. in favor of Energy Hunter Resources, Inc.
     
10.9**   Security Exchange Agreement, dated as of November 27, 2019, among Energy Hunter Resources, Inc., the former Series C Preferred Shareholders of Energy Hunter Resources, Inc., and Generation Hemp, Inc.
     
10.10**   2020 Form of Common Stock and Warrant Subscription Agreement of Generation Hemp, Inc.
     
10.11**   Subordinated Promissory Note, dated September 30, 2020, made by Generation Hemp, Inc. in favor of Gary C. Evans
     
10.12**    Asset Purchase Agreement, dated March 7, 2020, by and among, Generation Hemp, Inc., GENH Halcyon Acquisition, LLC, Oz Capital, LLC, OZC Agriculture KY LP, Halcyon Thruput, LLC, and the owners set forth therein.
     
10.13   Amendment No. 2 to Stock Purchase Agreement,dated October 1, 2019, among Home Treasure Finders, Inc., HMTF Merger Sub Inc,, Energy Hunter Resources, Inc. (the “Company”), certain stockholders of the Company set forth therein, and Gary C. Evans.

 

31

 

 

21**   List of Subsidiaries of the Company
     
31.1   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302
     
32.1   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of The Sarbanes-Oxley Act of 2004
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document*
     
101.INS   XBRL Instance Document
     
101SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

 

** Exhibit filed herewith

 

32

 

 

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.  

 

  GENERATION HEMP, INC.
(Registrant)
     
DATE:    December 15, 2020 By: /s/ Gary C. Evans
    Gary C. Evans
    Chairman and Chief Executive Officer

 

 

33

 

 

Exhibit 4.1

 

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE 1933 ACT, OR AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER HEREOF, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT AS SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND APPLICABLE LAWS IS AVAILABLE.

 

Warrant No. CS-____   Number of Shares: ______________
Warrant Date: __________, 2020    

  

[FORM OF]

 

GENERATION HEMP, INC.
WARRANT
FOR THE PURCHASE OF
COMMON STOCK

 

1. Issuance. For value received, the receipt of which is hereby acknowledged by Generation Hemp, Inc., a Colorado corporation (the “Company”), _________________, or registered and permitted assigns (the “Holder”), is hereby granted the right to purchase, at any time or times on or after the six month and one day anniversary of the Warrant Date (the “Initial Exercisability Date”) until 5:00 P.M., Mountain Standard Time on March 1, 2022 (the “Expiration Date”), ______________________ (___________) fully paid and nonassessable shares of the Company’s Common Stock, no par value per share (the “Common Stock”), at an exercise price of US$ per share (the “Exercise Price”). This Warrant is one of several Warrants issued pursuant to the offering of Common Stock and warrants to purchase Common Stock described in that certain Common Stock and Warrant Subscription Agreement (the “Subscription Agreement”), dated as of the Warrant Date by and between the Company and the Holder (the “Offering”). Capitalized terms used herein, but not otherwise defined shall have the meanings given to such terms in the Subscription Agreement.

 

2. Procedure for Exercise. 

 

a. At any time after the Initial Exercisability Date, and upon surrender of this Warrant with the annexed Notice of Exercise Form duly executed, together with payment in cash of the Exercise Price (a “Cash Exercise”) (provided that the Exercise Price shall be deemed delivered in connection with the delivery of a Notice of Exercise Form in connection with a Cashless Exercise (as defined below), if applicable) for the shares of Common Stock purchased (the “Warrant Shares”), the Holder shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. This Warrant may be exercised in whole or in part. On any such partial exercise, provided the Holder has surrendered the original Warrant, the Company will issue and deliver to the order of the Holder a new Warrant of like tenor, in the name of the Holder, for the whole number of shares of Common Stock for which such Warrant may still be exercised. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number.

 

 

 

 

b. Notwithstanding anything to the contrary contained in this Warrant, this Warrant shall not be exercisable by the Holder hereof to the extent (but only to the extent) that the Holder or any of its affiliates would beneficially own in excess of 9.99% (the “Maximum Percentage”) of the Common Stock. To the extent the above limitation applies, the determination of whether this Warrant shall be exercisable (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder or any of its affiliates) and of which such securities shall be exercisable (as among all such securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to exercise this Warrant pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of exercisability. For the purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the Exchange Act (as defined in the Subscription Agreement) and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant.

 

3. Reservation and Listing of Shares. The Company hereby agrees that at all times during the term of this Warrant there shall be reserved for issuance upon exercise of this Warrant such number of shares of Common Stock as shall be required for issuance upon exercise hereof (the “Warrant Shares”). Any shares issuable upon exercise of this Warrant will be duly and validly issued, fully paid and free of all liens and charges and not subject to any preemptive rights. The Company, at its expense, shall cause such securities to be included in or listed on all markets or stock exchanges in or on which the Common Stock is included or listed not later than the date on which the Common Stock is first included or listed on any such market or exchange and will thereafter maintain such inclusion or listing of all shares of Common Stock from time to time issuable upon exercise of this Warrant.

 

4. Mutilation or Loss of Warrant. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) receipt of reasonably satisfactory indemnification, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver a new warrant of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become void.

 

5. No Rights as Shareholder. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder of the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein.

 

6. Effect of Certain Transactions

 

6.1 Adjustments for Stock Splits, Stock Dividends Etc. If the number of outstanding shares of Common Stock of the Company are increased or decreased by a stock split, reverse stock split, stock dividend, stock combination, recapitalization or the like, the Exercise Price and the number of shares purchasable pursuant to this Warrant shall be adjusted proportionately so that the ratio of (i) the aggregate number of shares purchasable by exercise of this Warrant to (ii) the total number of shares outstanding immediately following such stock split, reverse stock split, stock dividend, stock combination, recapitalization or the like shall remain unchanged, and the aggregate purchase price of shares issuable pursuant to this Warrant shall remain unchanged.

 

6.2 Expiration Upon Certain Transactions. If at any time the Company plans to sell all or substantially all of its assets or engage in a merger or consolidation of the Company in which the Company will not survive and in which holders of the Common Stock will receive consideration at or above the Exercise Price, as adjusted (other than a merger or consolidation with or into a wholly- or partially-owned subsidiary of the Company), the Company will give the Holder of this Warrant advance written notice. Upon the occurrence of any such event, this Warrant shall automatically be deemed to be exercised in full without any action required on the part of the Holder.

 

2

 

 

6.3 Adjustments for Reorganization, Mergers, Consolidations or Sales of Assets. If at any time there is a capital reorganization of the Common Stock (other than a recapitalization, combination, or the like provided for elsewhere in this Section 6) or merger or consolidation of the Company with another corporation (other than one covered by Section 6.2), or the sale of all or substantially all of the Company’s properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant (and only to the extent this Warrant is exercised), the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such merger or consolidation or sale, to which a holder of Common Stock, or other securities, deliverable upon the exercise of this Warrant would otherwise have been entitled on such capital reorganization, merger, consolidation or sale. In any such case, appropriate adjustments shall be made in the application of the provisions of this Section 6 (including adjustment of the Exercise Price then in effect and number of Warrant Shares purchasable upon exercise of this Warrant) which shall be applicable after such events.

 

6.4 Adjustment Upon Issuance of Shares of Common Stock.

 

(a) If and whenever on or after the Warrant Date, the Company issues or sells any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued by the Company in connection with any Excluded Securities (as defined below)) (the “Additional Shares”) for a consideration per share (the “New Issuance Price”) less than a price (the “Applicable Price”) equal to the Exercise Price in effect immediately prior to such issuance or sale or deemed issuance or sale (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to a price determined as follows:

 

    Adjusted Exercise Price = C  x  (A + B) 

 (A + D)

 

Where:

 

“A” equals (1) the number of shares of Common Stock outstanding immediately preceding the Dilutive Issuance; together with (2) the number of shares of Common Stock of the Company issuable upon exercise of outstanding options, warrants, preferred stock, convertible notes and other convertible securities (i.e., the fully-diluted Common Stock outstanding of the Company);

 

“B” equals the Aggregate Consideration received by the Company in connection with the Dilutive Issuance divided by the Applicable Price in effect immediately prior to such Dilutive Issuance;

 

“C” equals the Applicable Price in effect immediately preceding such Dilutive Issuance; and

 

“D” equals the number of Additional Shares issued or deemed issued hereunder as a result of the Dilutive Issuance.

 

3

 

 

“Convertible Securities” means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.

 

“Excluded Securities” means (A) Common Stock or Options issued to directors, officers, employees or consultants of the Company in connection with their service as directors of the Company, their employment by the Company or their retention as consultants for bona fide services; (B) shares of Common Stock issued upon the conversion or exercise of Convertible Securities (other than Options that are covered by clause (A) above) issued prior to the date hereof, provided that the conversion price of any such Convertible Securities (other than Options that are covered by clause (A) above) is not lowered, except pursuant to the terms of such Convertible Securities), none of such Convertible Securities (other than options that are covered by clause (A) above) are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such Convertible Securities (other than Options covered by clause (A) above) are otherwise materially changed in any manner that adversely affects the Holder (except pursuant to the terms of such Convertible Securities in effect as of the Warrant Date); (C) the Securities; (D) shares of Common Stock or Convertible Securities issued or issuable in connection with strategic alliances, acquisitions, mergers, joint ventures, and strategic partnerships, provided, that (1) the primary purpose of such issuance is not to raise capital, (2) the purchasers or acquirers of the securities in such issuance does not include any affiliate of the Company or any of its subsidiaries, other than the stockholders of Energy Hunter Resources, Inc., not including the Company, and solely consists of either (x) the actual participants in such strategic alliance or strategic partnership, (y) the actual owners of such assets or securities acquired in such acquisition or merger or (z) the stockholders, partners or members of the foregoing persons, and (3) the number or amount of securities issued to such person by the Company shall not be disproportionate to such person’s actual participation in such strategic alliance or strategic partnership or ownership of such assets or securities to be acquired by the Company, as applicable; (E) shares of Common Stock issued or issuable by reason of a dividend, stock split or other distribution on shares of Common Stock (but only to the extent that such a dividend, split or distribution results in an adjustment in the Exercise Price pursuant to the other provisions of this Warrant); and (F) Common Stock and Options issued to any placement agent placing securities in connection with any offering of the Company’s securities.

 

“Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

 “Trading Day” means any day on which the Common Stock is traded on the Principal Market or if not traded on the Principal Market, quoted on the Quotation Market, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on the Principal Market or to be quoted on the Quotation Market for less than 4.5 hours.

 

(b) Calculation of Consideration Received. If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the average volume weighted average closing prices of such security for the five (5) Trading Day period immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly-traded securities will be determined by the reasonable determination of the Board of Directors of the Company.

 

4

 

 

6.5 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to Sections 6.1 through 6.4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall promptly furnish or cause to be furnished to such Holder a like certificate setting forth: (i) such adjustments and readjustments; and (ii) the number of shares and the amount, if any, of other property which at the time would be received upon the exercise of the Warrant. 

 

6.6 Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company (a “Voluntary Adjustment”).

 

7. Transfer to Comply with the Securities Act. This Warrant has not been registered under the Securities Act of 1933, as amended, (the “Securities Act”) and has been issued to the Holder for investment and not with a view to the distribution of either this Warrant or the Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other security issued or upon exercise of this Warrant may be sold, transferred, pledged or hypothecated in the absence of an effective registration statement under the Act relating to such security or an opinion of counsel satisfactory to the Company that registration is not required under the Act and that such transfer further complies with applicable securities laws and transfer restrictions. Each certificate for this Warrant, the Warrant Shares and any other security issued or issuable upon exercise of this Warrant shall contain a legend in form and substance satisfactory to counsel for the Company, setting forth the restrictions on transfer contained in this Section.

 

8. No Stock Rights and Legend.

 

No holder of this Warrant, as such, shall be entitled to vote or be deemed the holder of any other securities of the Company that may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, the rights of a stockholder of the Company or the right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or give or withhold consent to any corporate action or to receive notice of meetings or other actions affecting stockholders (except as provided herein), or to receive dividends or subscription rights or otherwise (except as provide herein).

 

Each certificate for Warrant Shares initially issued upon the exercise of this Warrant, and each certificate for Warrant Shares issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.”

 

5

 

 

9. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally or sent by certified, registered or express mail, postage pre-paid. Any such notice shall be deemed given (1) when delivered, in person or by courier or other delivery service, (2) when sent, if sent by facsimile to the party’s fax number below and mechanically confirmed, or (3) three days after deposit in the United States mail, postage prepaid, certified, return receipt requested, as follows:

 

If to the Company, to:

 

Generation Hemp, Inc.

P.O. Box 540308

Dallas, Texas 75354

Attention: Chairman and CEO

 

With a copy (which shall not constitute notice) to:

 

Duane Morris LLP
1540 Broadway
New York, NY 10036
Attention: Dean Colucci.

 

If to the Holder, to his, her or its address appearing on the Company’ records.

 

Any party may designate another address or person for receipt of notices hereunder by notice given to the other parties in accordance with this Section.

 

10. Supplements and Amendments; Whole Agreement. This Warrant may be amended or supplemented only by an instrument in writing signed by the Company and the Holder hereof. This Warrant contains the full understanding of the parties hereto with respect to the subject matter hereof, and there are no representations, warranties, agreements or understandings other than expressly contained herein.

 

11. Governing Law. This Warrant shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. Any action brought by either party against the other concerning the transactions contemplated by this Warrant shall be brought only in the state courts of New York or in the federal courts located in New York County, New York. The parties to this Warrant hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Warrant by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

6

 

 

12. Severability. If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

13. Counterparts. This Warrant may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

 

14. Descriptive Headings. Descriptive headings of the several Sections of this Warrant are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

 

15. Benefits of this Warrant. Nothing in this Warrant shall be construed to confer upon any person other than the Company and Holder any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company and Holder.

 

16. Loss of Warrant. Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.

 

17. Assignability. This Warrant or any part hereof may only be hereafter assigned by the Holder to an affiliate thereof executing documents reasonably required by the Company as described in Section 7 hereof. Any such assignment shall be binding on the Company and shall inure to the benefit of any such assignee.

 

[Signature Pages Follow]

 

7

 

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the Warrant Date set forth above.

 

  GENERATION HEMP, INC.
   
  By:  
  Name: Gary C. Evans
  Title: Chairman and CEO
   
  HOLDER:
   
   
   
  By:  
     
  Name:  
     
  Title:  

 

8

 

 

NOTICE OF EXERCISE OF WARRANT

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

Generation Hemp, Inc.

 

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of [_____________], a Colorado corporation (the “Company”), evidenced by Warrant No. _______ (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1. Payment of Exercise Price. The Holder shall pay the aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

 

2. Maximum Percentage Representation.  Notwithstanding anything to the contrary contained herein, this Notice of Exercise shall constitute a representation by the Holder of the Warrant submitting this Notice of Exercise that, after giving effect to the exercise provided for in this Notice of Exercise, such Holder (together with its affiliates) will not have beneficial ownership (together with the beneficial ownership of such person’s affiliates) of a number of shares of Common Stock which exceeds the Maximum Percentage (as defined in the Warrant) of the total outstanding shares of Common Stock of the Company as determined pursuant to the provisions of Section 2(b) of the Warrant.

 

3. Delivery of Warrant Shares. The Company shall deliver to Holder, or its designee or agent as specified below, __________ Warrant Shares in accordance with the terms of the Warrant. Delivery shall be made to Holder, or for its benefit, as follows:

 

☐ Check here if requesting delivery as a certificate to the following name and to the following address:

 

Issue to:

 
   
   
   
   

 

☐ Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows:

 

DTC Participant:  
   
DTC Number:  
   
Account Number:  

 

 

Name of Registered Holder

 

 
By:  
Name:  
Title:    
Date:   ________________,__ ___________  

Exhibit 10.3

 

AMENDMENT NO. 1 TO

 

PROMISSORY NOTE AND DEED OF TRUST

 

This AMENDMENT NO. 1 TO PROMISSORY NOTE AND DEED OF TRUST (this “Amendment”), is entered into as of October 1, 2019, among:

 

(i) JDone LLC, a Colorado limited liability company (“Borrower”),

 

(ii) Thomas S. Yang, an individual (“Yang”), and

 

(iii) Gary C. Evans, an individual, (“Evans”), and a party solely for purposes of acknowledgment and consent.

 

Each of Borrower and Yang may be individually referred to herein as a “Party” and collectively referred to herein as the “Parties.”

 

RECITALS

 

WHEREAS, Yang and Borrower, entered into that certain Promissory Note and that certain Deed of Trust, each dated as of September 15, 2014 (collectively, the “Garfield Loan Documents”);

 

WHEREAS, each of the Parties wish to amend the maturity date and repayment terms contained in the Promissory Note and reiterated in the Deed of Trust;

 

WHEREAS, capitalized terms used herein that are not otherwise defined shall have the meaning set forth in the Promissory Note.

 

NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows:

 

1. Principal Payment as Consideration. As of the date hereof, the principal outstanding on the Promissory Note is $777,255.49. In consideration for Yang agreeing to an amendment of the maturity date and payment terms, the Borrower agrees to make a principal payment in the amount of $150,000 (“Principal Payment”) on or before October 16, 2019. The Principal Payment is consideration for amendment of the Garfield Loan Documents.

 

2. Amendment to Maturity Date of Promissory Note and Section 2.1 of Deed of Trust.

 

a. “October 16, 2019” in the first paragraph of the Promissory Note is hereby deleted and replaced with “the date set forth in the amended payment terms set forth below.”

 

 

 

 

b. “October 31, 2019” in Section 2.1 of the Deed of Trust is hereby deleted and replaced with “fifteen days after the then effective maturity date as contained in the amended payment terms which have been incorporated by reference.”

 

3. Amendment of Payment Terms of Promissory Note and Section 2.1 of Deed of Trust.

 

a. In the Promissory Note, following the sentence:

 

Fifth year interest rate with 25 year amortization monthly payment at $6,639.64.

 

The following payment schedule and amendment of maturity dates shall be inserted:

 

In addition to the 12 payments of $6,639.64 in the fifth year, following a principal payment of $150,000 on or before October 16, 2019, the Borrower shall be permitted to extend the maturity date of this Promissory Note in accordance with the following schedule:

 

The maturity date shall extend to July 15, 2020 the Borrower shall make 9 monthly payments of $6,639.94 on the 16th of each month beginning on October 16, 2019.

 

Subject to the payment of an extension fee of 1% of the principal then outstanding on July 15, 2020, the maturity date shall extend to January 15, 2021, the Borrower shall make 6 monthly payments based on an interest rate of 10% with 25 year amortization on the 16th of each month beginning on July 16, 2020.

 

Subject to the payment of an extension fee of 1% of the principal then outstanding on January 15, 2021, the maturity date shall extend to July 15, 2021, the Borrower shall make 6 monthly payments based on an interest rate of 11% with 25 year amortization on the 16th of each month beginning on January 16, 2021.

 

b. In the Deed of Trust, Section 2.1 shall be amended by the incorporation by reference of the terms set forth in Section 3(a) of this Amendment, mutatis mutandis.

 

4. Governing Law. This Amendment shall be governed by, and construed in accordance with, the internal laws of the State of Colorado, without regard to the principles of conflicts of laws thereof.

 

5. No Other Amendment. The terms of this Amendment shall supersede and prevail over any conflicting provisions of the Garfield Loan Documents. Except as amended hereby, and subject to the preceding sentence, all of the remaining terms of the Garfield Loan Documents shall remain unchanged and in full force and effect.

 

6. Miscellaneous. This Amendment may be executed by the parties in separate counterparts, each of which when so executed will be deemed an original, and both of which together will constitute one and the same instrument. This Amendment may be executed and delivered by electronic or facsimile transmission with the same effect as if delivered personally.

 

2

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first written above.

 

  Yang:
   
  THOMAS S. YANG
   
  By:  /s/ Thomas S. Yang
  Name:  Thomas S. Yang
  Title: An Individual

 

3

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first written above.

 

  Borrower:
   
  JDONE LLC
  By: Home Treasure Finders, Inc., its Parent
   
  By:  /s/ Corey Wiegand
  Name:  Corey Wiegand
  Title: Chief Executive Officer

 

4

 

 

ACKNOWLEDGEMENT AND CONSENT TO TERMS:

 

  Evans:
   
  /s/ Gary C. Evans
  Gary C. Evans, an Individual

 

 

5

 

 

Exhibit 10.7

 

ENERGY HUNTER RESOURCES, INC.
(A Delaware Corporation)

 

SUBSCRIPTION AGREEMENT
August 2019

 

ENERGY HUNTER RESOURCES, INC.

PO Box 540308

Dallas, Texas 75354

 

Ladies and Gentlemen:

 

Introduction

 

The undersigned investor acknowledges having reviewed this Subscription Agreement (this “Agreement”) relating to the offering (the “Offering”) by Energy Hunter Resources, Inc., a Delaware corporation (the “Company”) of Common Stock (the “Common Stock”). The undersigned understands that the minimum purchase is US $25,000 of Common Stock, unless waived by the Company.

 

Agreement

 

This Agreement sets forth the agreement between the undersigned investor (the “Investor”) and the Company relating to Investor’s subscription for, and purchase of, the Common Stock.

 

1. Terms of Subscription.

 

a. Investor hereby irrevocably subscribes for the purchase of ______ shares of Common Stock at a price per share of US $0.754779 for a total subscription amount of $________ (the “Subscription Amount”), payable as provided in Section 2 hereof. Investor understands and agrees that Investor’s subscription and purchase of Common Stock is subject to the terms of (i) this Agreement and (ii) the Amended and Restated Certificate of Incorporation of the Company (the “Certificate of Incorporation”) attached hereto as Exhibit A (collectively this Agreement and the Certificate of Incorporation, the “Investment Documents”), as such Investment Documents may be amended from time to time.

 

b. Investor understands that any subscriptions may be rejected in whole or in part by the Company in its sole and absolute discretion. The Company will advise the undersigned as soon as possible, but in any event within 5 days, after receipt of this Agreement and payment for the Common Stock whether all or a portion of this subscription has been accepted or rejected. If this subscription is rejected in whole or in part, the full amount of this subscription or the appropriate portion thereof, as applicable, will be returned promptly, but in no event later than five (5) days after the date the subscription or portion thereof is rejected, without interest or deduction. If Investor’s subscription is accepted, the Company will execute a copy of this Agreement and return it to Investor. The sole evidence of such acceptance is a counterpart of this Agreement duly executed by the Company and delivered to Investor.

 

 

 

 

c. Investor hereby acknowledges receipt of a copy of (i) the Investment Documents and (ii) such other documents provided to Investor in connection with a potential investment in the Company, the “Investor Materials”). Investor has not distributed and will not distribute the Investment Documents or the Investor Materials, or any portion thereof, to any person other than Investor’s investment advisor, accountant or legal or tax counsel (a “Representative”). Investor agrees that the Investment Documents and the Investor Materials and any other information relating to the Company which is furnished to Investor or any Representative by the Company shall be kept strictly confidential by Investor and such Representative and shall not be disclosed by Investor or such Representative in any manner whatsoever, in whole or in part, it being understood that such Representative will be informed by Investor of the confidential nature of such information and will be directed by Investor to treat such information confidentially.

 

2. Payment and Deliveries. On the date hereof, Investor shall deliver to the Company:

 

a. A check in the amount of the Subscription Amount payable to “Energy Hunter Resources,” or has delivered such payment by wire transfer of immediately available funds in accordance with the instructions set forth below, which is in full payment of the Subscription Amount.

 

 

Bank:

Capital One Bank
    1110 E. Southlake Blvd.
    Southlake, TX 76092
  Account Name: Energy Hunter Resources Inc. 
  ABA#: 111901014
  A/C#: 4670191309

 

b. An executed counterpart signature page to this Agreement and the Registration Rights Agreement.

 

c. A completed Investor Questionnaire attached hereto as Exhibit B.

 

3. Closing. Closing on the purchase of the Common Stock by the shall occur on the date on which each of the following conditions, have been met (the “Closing Date”):

 

a. All deliveries required of the Investor under Section 2 shall have occurred;

 

b. The representations and warranties set forth in Section 4 hereof for the Investor shall be true and correct in all material respects on and as of the Closing Date except to the extent any such representation and warranty is made of a specific other date; and

 

2

 

 

c. The representations and warranties set forth in Section 5 hereof for the Company shall be true and correct in all material respects on and as of the Closing Date except to the extent any such representation and warranty is made of a specific other date;

 

If requested by an Investor, an officer of the Company shall certify in writing on the Closing Date as to the satisfaction of the above conditions precedent.

 

4. Representations and Warranties of the Investor

 

a. The Investor has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of an unregistered, non-liquid, high-risk investment such as an investment in the Common Stock and has evaluated the merits and risks of such an investment. The Investor understands that the offer and sale of the Common Stock has not been approved or disapproved by the United States Securities and Exchange Commission, or any other federal or state office or agency. The Investor acknowledges that there is no public market for the Common Stock and Securities, and none is likely to develop.

 

b. In purchasing the Common Stock, the Investor is not relying upon any information, other than that contained in this Agreement and the results of its own independent investigation. The Investor has had an opportunity to ask questions of and receive answers from the Company and its officers concerning the terms and conditions of the purchase of the Common Stock, the proposed operations of the Company and the risks thereof, and all such questions have been answered to the full satisfaction of the Investor. The Investor has relied on its own professional advisors with regard to the tax and other economic considerations relating to the purchase of the Common Stock.

 

c. The Investor understands that (a) the Common Stock have not been or will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”), (b) the Common Stock is being offered in reliance upon an exemption from the registration requirements of the Securities Act for transactions by an issuer not involving any public offering and (c) the Investor will have no right to require such registration. In addition, the Investor understands that it may not sell or transfer the Common Stock and/or the Securities except in compliance with the registration requirement of the Securities Act or pursuant to an applicable exemption therefrom.

 

d. The Investor is acquiring its Common Stock for its own account, for investment purposes only, and not with a view to the sale or other distribution thereof, in whole or in part. The Investor is aware that there are substantial restrictions on the transferability of the Common Stock and there will be no public market for the Common Stock. The Investor, therefore, may have to bear the risks of its investment for an indefinite period of time. The Investor acknowledges that it has sufficient liquid assets and is capable of bearing a complete loss of its Subscription Amount.

 

e. This Agreement, when duly executed and delivered, will constitute the valid and binding agreements of the Investor, enforceable in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors’ rights and general principles of equity.

 

3

 

 

f. The Investor is not subject to or obligated under any law, rule or regulation of any governmental authority, material agreement, instrument, license, franchise or permit, or subject to any writ, injunction or decree that would be breached or violated by its execution, delivery and performance of this Agreement.

 

g. The Investor, if a company, partnership, trust or other entity, is duly authorized and qualified to become a stockholder in, and authorized to make its capital contributions to, the Company, and the individual or individuals signing this Agreement and giving these representations and warranties, as the case may be, on behalf of the Investor has been duly authorized by us to do so and, the making of such contribution or signing of this Agreement will not conflict with any agreement to which it is a party or violate its governing instrument or violate any applicable governing laws.

 

h. Within five days after receipt of a request from the Company, the Investor hereby agrees to provide such information with respect to its status as a stockholder (or potential stockholder) and to execute and deliver such documents as may reasonably be necessary to comply with any and all laws and regulations to which the Company is or may become subject, including, without limitation, the need to determine the accredited status of the Company’s stockholders. The Investor further agrees that in the event it transfers the Common Stock, it will require the transferee of such Common Stock to agree to provide such information to the Company as a condition of such transfer.

 

i. The Investor maintains the Investor’s domicile (and is not a transient or temporary resident) at the address shown on the signature page.

 

j. The Investor represents that it is an “accredited investor” as that term is defined in Regulation D promulgated under the Securities Act (the provisions of which are known to and understood by the Investor) and has completed the Accredited Investor Questionnaire attached hereto as Exhibit B.

 

5. Representations and Warranties of the Company. The Company hereby represents and warrants to the Investor:

 

a. The Company is a Company duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and corporate authority to carry on its business as now conducted and as proposed to be conducted. The Company has made available for inspection by Investor and its representatives a true, correct, and complete copy of the Certificate of Incorporation.

 

b. As of the date hereof, the authorized capital stock of the Corporation consists of 500,000,000 shares of Common Stock and 10,000,000 shares of preferred stock, par value $.0001 per share, of which 6,797,790 shares Common Stock and 0 shares of preferred stock have been issued and are outstanding.

 

4

 

 

c. There are no outstanding options, warrants, exchange rights, preemptive rights, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, the issuance, sale, repurchase, transfer or registration of any equity securities of the Company, and the Company has no obligations of any kind to issue any additional securities.

 

d. The Company does not currently have any outstanding commitment to acquire, directly or indirectly, any capital stock or other ownership interests in any Company, partnership, joint venture, limited liability company or partnership or other entity.

 

e. Any Securities being sold by the Company to the Investor hereunder will, upon the issuance thereof in accordance with the terms of this Agreement, be (i) validly issued and outstanding, (ii) fully paid and non-assessable, (iii) not subject to or issued in violation of preemptive or similar rights, rights of first refusal or other rights, and (iv) free and clear of any and all Liens.

 

f. The Company has not ever owned or controlled and does not presently own or control, directly or indirectly, any capital stock or other direct or indirect ownership interest in any other Company, partnership, limited liability company, limited liability partnership, or any association or other business entity.

 

g. The Company has full power and authority to execute and deliver this Agreement, to perform its obligations under this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by the Board, and no other corporate action on the part of the Company or its stockholders is necessary to authorize the Company to enter into the transactions contemplated hereby. This Agreement constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except that (i) enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally, (ii) the remedies of specific performance and injunctive relief are subject to certain equitable defenses and to the discretion of the court before which any proceedings may be brought, and (iii) certain obligations may be limited by principles of public policy.

 

h. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereunder will not (i) conflict with, or result in a breach of any provision of the Articles of Incorporation or bylaws of the Company, (ii) violate any law by which the Company or its properties or assets are bound, or (iii) result in a violation or breach of, or constitute a default under (or an event that, with the giving of notice, the passage of time or otherwise, would constitute a default under), or result in the creation of any lien upon, or create (or entitle any person with the giving of notice, the passage of time or otherwise) any rights of termination, cancellation or acceleration in any person with respect to any license, franchise or permit of the Company, or any agreement, contract, indenture, mortgage or instrument to which the Company is a party or by which any of its properties or assets is bound.

 

5

 

 

i. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, or local governmental authority (other than filings required to be made under applicable Federal and State securities laws, if any) on the part of the Company, or under any contract to which the Company is a party, is required in connection with the authorization, execution, delivery of this Agreement and performance of all obligations the Company hereunder, and the authorization, issuance and delivery of the Common Stock and the Securities pursuant to this Agreement.

 

6. Legends. Any share certificate evidencing the Securities issued hereunder shall be endorsed with the following legend (in addition to any legend required under applicable securities laws or corporate laws or any other contract between the Investor and the Company):

 

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT AND SUCH STATE SECURITIES LAWS. ABSENT AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS COVERING THESE SECURITIES, THE COMPANY MAY IN ITS REASONABLE DISCRETION, REQUIRE AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO IT, AS A CONDITION TO ANY SUCH SALE, TRANSFER OR DISPOSITION.

 

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER CONTAINED IN A SUBSCRIPTION AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER. A COPY OF THE AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPANY.

 

7. Indemnification.

 

a. The Investor agrees to indemnify and hold harmless the Company and its members, managers, employees, agents and officers to the extent permitted by law, for any and all costs, expenses, liabilities or losses (including reasonable legal fees and expenses) which the indemnified party may incur if and to the extent such costs, expenses, liabilities or losses are caused by the inaccuracy or breach by the Investor of any of its Representations and Warranties in Section 4 hereof. Such obligation shall be limited to the dollar amount of the Investor’s Subscription Amount.

 

b. If the information supplied herein by the Investor is inaccurate, the offering or sale to the Investor of the Common Stock and the Securities could result in the loss of the exemption from registration under the Securities Act or blue sky laws of certain States upon which the Company is relying in connection with the offering of the Common Stock. Consequently, the Investor, by completing, executing and delivering this Agreement, acknowledges and represents that the foregoing statements are true and accurate and that the Investor will promptly notify the Company of any changes in the foregoing.

 

6

 

 

8. Market Stand-Off Agreement. The Investor hereby agrees that, to the extent requested by the Company or any managing underwriter retained by the Company, the Investor will not sell, make short sale of, loan, grant any option for the purchase of, or otherwise dispose of (other than to donees who agree to be similarly bound) any of the Securities during a period up to 180 days following the effective date of a registration statement (or offering circular under Regulation A+) relating to securities of the Company filed under the Securities Act for the Company’s initial public offering (or such shorter period as the Company or managing underwriter may authorize). To enforce the foregoing covenant, the Company may impose stock transfer restrictions with respect to the Securities, and the Investor shall enter into customary lockup agreements as requested by the Company or any underwriter with respect to the Securities. Notwithstanding the foregoing, the obligations described in this Section 8 shall not apply to a registration relating solely to employee benefit plans on Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future.

 

9. Tax Consequences. The Investor has reviewed with the Investor’s own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Investor is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Investor understands that the Investor (and not the Company) shall be responsible for the Investor’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.

 

10. Disqualification Events. No “bad actor” disqualification event is applicable to the Investor or, to the Investor’s knowledge, any person, with respect to such Investor as an “issuer” for purposes of Rule 506 promulgated under the Act, listed in the first paragraph of Rule 506(d)(1), except for a disqualification event as to which Rule 506(d)(2)(ii–iv) or (d)(3), is applicable.

 

11. No General Solicitation. Neither the Company, the Investor, nor in the case of an Investor that is a partnership, trust, corporation, or other entity, any of its officers, directors, members, managers, employees, agents, stockholders or partners has either directly or indirectly, including, through a broker or finder (a) engaged in any general solicitation, or (b) published any advertisement in connection with the offer and sale of the Common Stock.

 

12. Miscellaneous.

 

a. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws.

 

b. Assignment. This Agreement is not transferable or assignable by the Investor; provided, the Investor may assign its rights and delegate its duties hereunder in their entirety to any affiliate of the Investor.

 

7

 

 

c. Amendment or Waiver. This Agreement, including any provision hereof, including any provision thereof, may not be amended or waived, except by an instrument in writing properly executed by the Investor and the Company

 

d. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, personal representatives and assigns.

 

e. Adjustment for Stock Split. All references to the number of shares of Common Stock in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Common Stock that may be made by the Company after the Effective Date.

 

f. Entire Agreement; Conflicts. This Agreement constitutes the entire understanding and agreement of the parties hereto with respect to the matters described herein and supersede all prior agreements or understandings, written or oral, between the parties with respect thereto.

 

g. Notices. All notices and other communications in connection with this Agreement shall be in writing and shall be sent to the parties by personal hand delivery, by certified mail, postage prepaid, by recognized international overnight courier service, service fee prepaid, or by facsimile, in accordance with this Section 11(g). All notices shall be deemed received: (i) if given by hand, immediately, (ii) if given by certified mail, three business days after posting, (iii) if given by overnight courier service, the next business day in the jurisdiction of the recipient or (iv) if given by facsimile, upon receipt thereof by the recipient’s facsimile machine as indicated either in the sender’s identification line produced by the recipient’s facsimile machine or in the sender’s transmission confirmation report as produced electronically by the sender’s facsimile machine, in each case to the parties at their respective addresses set forth on the signature page hereto or at such other address as each party may designate for that party by like notice to the other parties.

 

h. Counterparts. This Agreement may be executed in separate counterparts, each of which shall be identical and may be introduced in evidence or used for any other purpose without any other counterpart, but all of which shall together constitute one and the same agreement. Signatures of any party transmitted by facsimile or electronic mail (including, without limitation, electronic mailing of a so-called portable document format or “pdf” of a scanned counterpart) shall be treated as and deemed to be original signatures for all purposes, and shall have the same binding effect as if they were original, signed instruments delivered in person.

 

i. Further Assurances. The Investor agrees upon the request of the Company to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement.

 

[Remainder of page intentionally left blank.]

 

8

 

 

 

IN WITNESS WHEREOF, Investor has hereby executed this Subscription Agreement as of the date set forth above.

 

 INVESTOR:

 
   
By:  
Name:  
Title:  

 

Mailing Address:

Phone:

E-Mail Address:

U.S. Employer Identification Number:

Country/State of Residence and Domicile:

 

Subscription Amount:

 

ACCEPTED this ___ day of

 

ENERGY HUNTER RESOURCES, INC.

 

 

 

By:    
Name:  Gary C. Evans  
Title: Chairman & CEO  
    PO Box 540308  
    Dallas, Texas 75354  

 

 

[Signature Page to Subscription Agreement]

 

9

 

 

EXHIBIT A

 

CERTIFICATE OF INCORPORATION

 

A-1

 

 

AMENDED AND RESTATED

 

CERTIFICATE OF INCORPORATION OF

 

ENERGY HUNTER RESOURCES, INC.

 

Energy Hunter Resources, Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the “DGCL”), hereby certifies as follows: 

 

1. The original Certificate of Incorporation of the Corporation (the “Original Certificate of Incorporation”) was filed with the Secretary of State of the State of Delaware on May 11, 2016. 

 

2. This Amended and Restated Certificate of Incorporation, which restates and amends the Original Certificate of Incorporation, has been declared advisable by the board of directors of the Corporation (the “Board of Directors”), duly adopted by the stockholders of the Corporation and duly executed and acknowledged by the officers of the Corporation in accordance with Sections 103, 228, 242 and 245 of the DGCL. References to “this Amended and Restated Certificate of Incorporation” herein refer to the Amended and Restated Certificate of Incorporation, as amended, restated, supplemented and otherwise modified from time to time. 

 

3. The Original Certificate of Incorporation is hereby amended and restated in its entirety to read as follows:

 

ARTICLE I.

 

The name of this corporation (the “Corporation”) is Energy Hunter Resources, Inc.

 

ARTICLE II.

 

The registered office of the Corporation in the State of Delaware is to be located at 1209 Orange Street, Corporation Trust Center, Wilmington, Delaware 19801 in New Castle County. The registered agent of the Corporation at such address is The Corporation Trust Company.

 

ARTICLE III.

 

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.

 

ARTICLE IV.

 

The total number of shares of all classes of stock which the Corporation shall have authority to issue shall be (a) 500,000,000 shares of common stock, par value $.0001 per share (“Common Stock”) and (b) 10,000,000 shares of preferred stock, par value $.0001 per share (“Preferred Stock”).

 

A-2

 

 

Contingent and effective upon the filing of this Amended and Restated Certificate of Incorporation, every 5.7 outstanding shares of Common Stock, which are outstanding on December 1, 2016, will be combined into and automatically, without any further action by the Corporation or the stockholders thereof, become one (1) outstanding share of Common Stock of the Corporation without increasing or decreasing the par value of each share of Common Stock (the “Reverse Stock Split”). No fractional share shall be issued in connection with the foregoing combination of the shares pursuant to the Reverse Stock Split. The Corporation will pay in cash the fair value of such fractional shares, without interest and as determined in good faith by the Board of Directors when those entitled to receive such fractional shares are determined.

 

The Reverse Stock Split shall occur automatically without any further action by the holders of Common Stock, and whether or not the certificates representing such shares have been surrendered to the Corporation; provided, however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable as a result of the Reverse Stock Split unless the existing certificates evidencing the applicable shares of stock prior to the Reverse Stock Split are either delivered to the Corporation, or the holder notifies the Corporation that such certificates have been lost, stolen or destroyed, and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates.

 

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

 

A. Common Stock

 

1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein and as may be designated by resolution of the Board of Directors with respect to any series of Preferred Stock as authorized herein.

 

2. Voting. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings); provided, however, that the holders of the Common Stock are not entitled to vote on any amendment to this Amended and Restated Certificate of Incorporation (including any certificate of designation of Preferred Stock relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by law or pursuant to this Amended and Restated Certificate of Incorporation (including any certificate of designation of Preferred Stock relating to any series of Preferred Stock).

 

B. Preferred Stock

 

1. Issuance and Reissuance. Preferred Stock may be issued from time to time in one or more series, each of such series to consist of such number of shares and to have such terms, rights, powers and preferences, and the qualifications and limitations with respect thereto, as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided (“Preferred Stock Designation”).

 

2. Blank Check Preferred. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including, without limitation thereof, dividend rights, special voting rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the DGCL. Without limiting the generality of the foregoing, and subject to the rights of any series of Preferred Stock then outstanding, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law.

  

A-3

 

 

ARTICLE V.

 

The name and mailing address of the incorporator is as follows:

 

Mr. Gary C. Evans

P.O. Box 540308

Dallas, TX 75354

 

ARTICLE VI.

 

In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the Corporation is expressly authorized to adopt, make, alter, amend, repeal and rescind any or all of the bylaws of the Corporation, whether adopted by them or otherwise. Any adoption, amendment or repeal of the bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the Board of Directors. Stockholders shall also have the power to adopt, amend or repeal the bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Amended and Restated Certificate of Incorporation, the bylaws of the Corporation shall not be adopted, altered, amended or repealed by the stockholders of the Corporation (A) prior to the first date on which the Common Stock of the Corporation is listed or quoted on a national securities exchange (the “Trigger Date”), except by the affirmative vote of holders of not less than 50% in voting power of the then-outstanding shares of stock entitled to vote thereon, voting together as a single class, or (B) on and after the Trigger Date, except by the affirmative vote of holders of not less than 66 2⁄3% in voting power of the then-outstanding shares of stock entitled to vote thereon, voting together as a single class. No bylaws hereafter made or adopted, nor any repeal of or amendment thereto, shall invalidate any prior act of the Board of Directors that was valid at the time it was taken.

 

ARTICLE VII.

 

The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Amended and Restated Certificate of Incorporation or the bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.

 

Until the first annual meeting of stockholders to occur following the Trigger Date, the directors, other than those who may be elected by the holders of any series of Preferred Stock specified in the related Preferred Stock Designation, shall consist of a single class, with the initial term of office to expire at such first annual meeting of stockholders to occur following the Trigger Date, and each director shall hold office until his successor shall have been duly elected and qualified, subject, however, to such director’s earlier death, resignation, disqualification or removal. For purposes of this Amended and Restated Certificate of Incorporation, beneficial ownership of shares shall be determined in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended. At each annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the next succeeding annual meeting of stockholders after their election, with each director to hold office until his successor shall have been duly elected and qualified, subject, however, to such director’s earlier death, resignation, disqualification or removal.

 

On and after the first annual meeting following the Trigger Date, the directors, other than those who may be elected by the holders of any series of Preferred Stock specified in the related Preferred Stock Designation, shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as is reasonably possible, with the initial term of office of the first class to expire at the second annual meeting of stockholders following the Trigger Date, the initial term of office of the second class to expire at the third annual meeting of stockholders following the Trigger Date, and the initial term of office of the third class to expire at the fourth annual meeting of stockholders following the Trigger Date, with each director to hold office until his successor shall have been duly elected and qualified, subject, however, to such director’s earlier death, resignation, disqualification or removal, and the Board of Directors shall be authorized to assign members of the Board of Directors, other than those directors who may be elected by the holders of any series of Preferred Stock, to such classes at the time such classification becomes effective. Beginning at the second annual meeting of stockholders following the Trigger Date and for each annual meeting thereafter, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his successor shall have been duly elected and qualified, subject, however, to such director’s earlier death, resignation, disqualification or removal.

 

A-4

 

 

Subject to applicable law, the rights of the holders of any series of Preferred Stock, if any, then outstanding, any newly created directorship that results from an increase in the number of directors or any vacancy on the Board that results from the death, resignation, disqualification or removal of any director or from any other cause shall, unless otherwise required by law or by resolution of the Board of Directors, be filled (A) prior to the Trigger Date, by the affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director, or the affirmative vote of the holders of a majority of the voting power of the outstanding shares of stock of the Corporation entitled to vote generally for the election of directors, voting together as a single class and acting at a meeting of the stockholders or by written consent (if permitted) in accordance with the DGCL, this Amended and Restated Certificate of Incorporation and the bylaws of the Corporation, and (B) on or after the Trigger Date, solely by the affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director and shall not be filled by the stockholders. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall hold office for the remaining term of his predecessor. No decrease in the number of authorized directors constituting the Board of Directors shall shorten the term of any incumbent director. 

 

Until the Trigger Date, subject to the rights of the holders of shares of any series of Preferred Stock, if any, to elect additional directors pursuant to this Amended and Restated Certificate of Incorporation (including any Preferred Stock Designation thereunder), any director may be removed at any time, either for or without cause, upon the affirmative vote of the holders of a majority of the voting power of the outstanding shares of stock of the Corporation entitled to vote generally for the election of directors, voting together as a single class and acting at a meeting of the stockholders or by written consent (if permitted) in accordance with the DGCL, this Amended and Restated Certificate of Incorporation and the bylaws of the Corporation. On and after the Trigger Date, subject to the rights of the holders of shares of any series of Preferred Stock, if any, to elect additional directors pursuant to this Amended and Restated Certificate of Incorporation (including any Preferred Stock Designation) thereunder), any director may be removed only for cause, upon the affirmative vote of the holders of at least 75% of the voting power of the outstanding shares of stock of the Corporation entitled to vote generally for the election of directors, voting together as a single class and acting at a meeting of the stockholders in accordance with the DGCL, this Amended and Restated Certificate of Incorporation and the bylaws of the Corporation.

 

The number of directors of the Corporation shall be determined in the manner set forth in the bylaws of the Corporation. Unless and except to the extent that the bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.

 

ARTICLE VIII.

 

Meetings of stockholders may be held within or without the State of Delaware, as the bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the bylaws of the Corporation.

 

A-5

 

 

Prior to the Trigger Date, any action required or permitted to be taken at any annual meeting or special meeting of the stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote of stockholders, if a consent or consents in writing, setting forth the action so taken, is or are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. On and after the Trigger Date, subject to the rights of holders of any series of Preferred Stock with respect to such series of Preferred Stock and except as otherwise expressly provided by the terms of any series of Preferred Stock (including any certificate of designation of Preferred Stock relating to any series of Preferred Stock) permitting the holders of such series of Preferred Stock to act by written consent, if any, any action required or permitted to be taken by the stockholders of the Corporation must be taken at a duly held annual or special meeting of stockholders and may not be taken by any consent in writing of such stockholders.

 

Special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the Board of Directors; provided, however, that prior to the Trigger Date, special meetings of the stockholders of the Corporation may also be called by the Secretary of the Corporation at the request of the holders of record of a majority of the outstanding shares of Common Stock. The authorized person(s) calling a special meeting may fix the date, time and place, if any, of such meeting. On and after the Trigger Date, subject to the rights of holders of any series of Preferred Stock, the stockholders of the Corporation do not have the power to call or request a special meeting of stockholders of the Corporation. The Board of Directors may postpone, reschedule or cancel any special meeting of the stockholders previously scheduled by the Board of Directors.

 

ARTICLE IX.

 

To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the DGCL or any other law of the State of Delaware is amended after approval by the stockholders of this Article IX to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended.

 

Any repeal or modification of the foregoing provisions of this Article IX by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.

 

A-6

 

 

ARTICLE X.

 

To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which DGCL permits the Corporation to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the DGCL.

 

Any amendment, repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer or other agent occurring prior to, such amendment, repeal or modification.

 

ARTICLE XI.

 

The Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added, or inserted, in the manner now or hereafter prescribed by law. All rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Amended and Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this Article.

 

ARTICLE XII.

 

The Corporation renounces any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity. An “Excluded Opportunity” is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, “Covered Persons”), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the Corporation.

 

ARTICLE XIII.

 

The Corporation shall not be governed by or subject to the provisions of Section 203 of the DGCL as now in effect or hereafter amended, or any successor statute thereto.

 

A-7

 

 

ARTICLE XIV.

 

Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by applicable law, be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (A) any derivative action or proceeding brought on behalf of the Corporation, (B) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, (C) any action asserting a claim against the Corporation, its directors, officers or employees or agents arising pursuant to any provision of the DGCL, this Amended and Restated Certificate of Incorporation or the Corporation’s bylaws, or (D) any action asserting a claim against the Corporation, its directors, officers or employees or agents governed by the internal affairs doctrine, except as to each of (A) through (D) above, for any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or over which the Court of Chancery does not have subject matter jurisdiction. To the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article XIV.

 

If any provision or provisions of this Article XIV shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article XIV (including, without limitation, each portion of any sentence of this Article XIV containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.

 

To the fullest extent permitted by law, if any action the subject matter of which is within the scope of this Article XIV is filed in a court other than a court located within the State of Delaware (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (A) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce this Article XIV (an “FSC Enforcement Action”) and (B) having service of process made upon such stockholder in any such FSC Enforcement Action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.

 

IN WITNESS WHEREOF, the Corporation has caused its duly authorized officer to execute this Amended and Restated Certificate of Incorporation on this 1st day of December, 2016.

 

  By: /s/ Gary C. Evans
  Name:   Gary C. Evans

 

A-8

 

 

EXHIBIT B

 

CONFIDENTIAL INVESTOR QUESTIONNAIRE

 

B-1

 

 

 

CONFIDENTIAL INVESTOR QUESTIONNAIRE

 

1. ACCREDITED INVESTOR QUESTIONS

 

You represent and warrant to ENERGY HUNTER RESOURCES, INC., a Delaware corporation (the “Corporation”) that you come within one of the categories marked below, and that for any category marked, you have truthfully set forth the factual basis or reason you come within that category.

 

Please mark each applicable box:

 

☐ a. You are: a bank as defined in Section 3(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); an insurance company as defined in section 2(13) of the Securities Act; an investment company registered under the Investment Company Act of 1940 (the “1940 Act”) or a business development company as defined in section 2(a)(48) of the 1940 Act; a Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, and such plan has total assets in excess of U.S.$5,000,000; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 and the investment decisions are made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of U.S.$5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors.
     
     
     
     
     
    (describe entity)
     
 ☐ b. You are a private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940.
     
 ☐ c. You are a natural person (not a partnership, corporation, etc.) whose individual net worth, or joint net worth with his or her spouse, presently exceeds U.S.$1,000,000. In calculating net worth you may include equity in personal property and real estate (other than your principal residence) cash, short-term investments, stock and securities. Equity in personal property and real estate (other than your principal residence) should be based on the appraised fair market value of such property less debt secured by such property. With regard to your principal residence, you should not include any equity in such property, but any indebtedness secured by the residence that is greater than the appraised value of the residence should be included to reduce your net worth.

 

B-2

 

 

 ☐ d. You are a natural person who had an individual income in excess of U.S.$200,000,or joint income with your spouse in excess of U.S.$300,000 in each of the last two calendar years, and you reasonably expect to reach the same income level in the current calendar year.
     
 ☐ e. You are a director or executive officer of the Corporation.
     
 ☐ f. You are a corporation, partnership, limited liability company, business trust, or a non-profit organization within the meaning of Section 501(c)(3) of the United States Internal Revenue Code, in each case not formed for the specific purpose of potentially making an investment in connection herewith and with total assets in excess of U.S.$5,000,000.
   
     
     
     
     
    (describe entity)
     
☐  g. You are a trust (not formed for the specific purpose of potentially making an investment in connection herewith) with total assets in excess of U.S.$5,000,000, where the purchase is directed by a “sophisticated person” as defined in Rule 506(b)(2)(ii) promulgated under the Securities Act. Such “sophisticated person” has the knowledge and experience in financial and business matters to capably evaluate the merits and risks of the prospective investment.
     
 ☐ h. You are an entity all the equity owners of which are “accredited investors” within one or more of the above categories.
   
     
     
     
     
    (describe entity)
     
 ☐ i. You are not a “U.S. Person” as defined in Rule 902 promulgated under the Securities Act.

  

B-3

 

 

2. BACKGROUND AND EXPERIENCE  

 

If Subscriber is an individual, please provide the following information:

 

(a) Education:

 

    Field of Year
  School Degree Conferred

       
     
     
     

 

(b) Occupation: ____________________________________________________
     
  (c) Name of Business: _______________________________________________
     
  (d) Type of Business: _______________________________________________
     
  (e) Business Address: _______________________________________________
     
  (f) Position and Duties: ______________________________________________

 

3. OTHER QUESTIONS  

 

If the subscriber is a partnership, limited liability company, grantor trust or “S” corporation, please mark each applicable box:

 

☐ You have assets of substantial value other than your investment in the Corporation.

 

☐ You were not formed for the principal purpose of investing in the Corporation.

 

4. INVESTMENT COMPANY ACT QUESTIONS  

 

If Subscriber is a corporation, partnership, limited liability company, trust or other entity, please provide the following information:

 

☐ Subscriber is not an investment company under the 1940 Act for reasons other than the exclusions provided under Sections 3(c)(1) or 3(c)(7) thereof, or

 

☐ If Subscriber is not an investment company under the 1940 Act in reliance on the exclusions under Sections 3(c)(1) or 3(c)(7) thereof, state the number of beneficial owners of such entity’s securities (other than short-term paper) computed in accordance with Section 3(c)(1).

 

NUMBER OF BENEFICIAL OWNERS OF ALL SECURITIES: _________________

 

 

B-4 

 

 

Exhibit 10.8

 

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER UNITED STATES FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THIS NOTE OR THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE BE TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT REGISTRATION OF SUCH NOTE OR SECURITIES, AS APPLICABLE, UNDER ALL APPLICABLE UNITED STATES FEDERAL OR STATE SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE, AT THE OPTION OF THE COMPANY, TO BE EVIDENCED BY AN OPINION OF STOCKHOLDER’S COUNSEL, IN A FORM ACCEPTABLE TO THE COMPANY, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.

 

HOME TREASURE FINDERS, INC.

 

CONVERTIBLE PROMISSORY NOTE

 

$207,122.69   Denver Colorado   October 15, 2019

 

FOR VALUE RECEIVED, the Holder, HOME TREASURE FINDERS, INC., a Colorado corporation, and its successors and assigns (the “Company”), promises to pay to the order of ENERGY HUNTER RESOURCES, INC. or its successors and permitted assigns (“Holder”), the principal sum of TWO HUNDRED SEVEN THOUSAND ONE HUNDRED AND TWENTY-TWO Dollars and SIXTY-NINE cents ($207,122.69), together with interest from October 15, 2019 on the balance of this Note from time to time remaining unpaid at a rate of 4.00% per annum until maturity, both principal and interest being payable at the address designated in Section 13, or at such other place as Holder may from time to time designate in writing.

 

The principal of this Note shall mature and be due and payable on November 1, 2021.

 

All accrued and unpaid interest shall be due and payable immediately on maturity of the principal of this Note.

 

All past due principal and accrued interest on this Note shall bear interest from maturity until paid at the rate of 10.00% per annum.

 

 

 

 

All payments under this Note shall be payable in lawful money of the United States of America which shall be legal tender for public and private debts at the time of payments.

 

As used in this Note, “senior indebtedness” means all indebtedness or other monetary obligations of the Company that are secured by assets of the Company (if any) or for which the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such indebtedness or obligation shall be senior in right of payment to this Note or the Company’s subordinated indebtedness.

 

Section 1. CONVERSION. Commencing 180 days subsequent to the date of this Note, any portion or all of the principal and accrued interest payable pursuant to the terms of this Note shall be convertible by the Holder at any time prior to payment into the no par value common stock of the Company (the "Common Stock") at the rate of $0.352 of principal and/or interest per share; provided, however, if the Company files a registration statement, which permits the registration of issued and outstanding shares for resale in accordance with the provisions of Section 2 of this Note, the Holder shall have the right to convert on and after the effective date of such registration statement if the date occurs prior to 180 days prior to the date of this Note. The Company agrees at all times to reserve from its authorized but unissued shares a sufficient number of shares of Common Stock to satisfy the Holder's rights of conversion as set forth herein.

 

Section 2. REGISTRATION. The Holder understands and acknowledges that the offering of the Securities pursuant to this Note will not be registered under the Securities Act of 1933 or qualified under the Colorado Law on the grounds that the offering and sale of the securities contemplated by this Note are exempt from registration under the Securities Act and exempt from qualification pursuant to Colorado Law, and that Company's reliance upon such exemptions is predicated upon Investor's representations set forth in this Note and/or Subscription Agreement. The Company shall have no obligation to register the common shares issued pursuant to the conversion rights set forth herein unless the Company files a form of registration statement pursuant to the Securities Act which permits the registration of issued and outstanding shares for resale under which circumstances it shall include all of the shares issued pursuant to the Holder’s rights of conversion.

 

2

 

 

Section 3. PREPAYMENTS. Commencing 90 days subsequent to the date of this note, the principal and/or interest on this Note may be prepaid in whole or in part without penalty and without the prior consent of Holder provided that no payments of principal or interest shall be made without providing at least 30 days prior notice to the Holder in writing to permit the Holder to exercise his rights of conversion provided for in Section 1.

 

Section 4. DEFAULT; REMEDIES.

 

(a) The Company shall be in default under this Note upon the happening of any condition or event set forth below (each, an “Event of Default”):

 

(i) The Company’s failure to pay any payment of principal or interest as and when due in accordance with the terms of this Note;

 

(ii) default by the Company in the punctual performance of any other obligation, covenant, term or provision contained in this Note or the default by the Company in any senior indebtedness, and such default shall continue unremedied for a period of 10 days or more following written notice of default by Holder to the Company;

 

(iii) if that certain Stock Purchase Agreement, dated as of August 15, 2019, between the Company, HMTF Merger Sub, Inc., the Holder, and certain stockholders of the Holder (as set forth therein) is terminated for any reason prior to the consummation of the transactions contemplated in such agreement;

 

(iv) if the Company fails to make payment to any payee set forth on Appendix A hereto in the amount set opposite such payee’s name, other than any payment to a payee which Holder has agreed to pay directly as specifically noted on Appendix A, within five (5) business days after Company’s receipt of the principal amount (less the funds which are paid directly by Holder to payees); or

 

(v) the Company’s dissolution, termination of existence, insolvency or business failure; the appointment of a receiver of all or any part of the property of the Company; an assignment for the benefit of creditors by the Company; or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Company or any guarantor, surety or endorser for the Company which results in the entry of an order for relief or which remains undismissed, undischarged or unbonded for a period of 60 days or more.

 

3

 

 

(b) The entire unpaid principal balance of this Note and all accrued interest on such unpaid principal balance shall immediately be due and payable at the option of the Holder upon the occurrence of any one or more of the Events of Default and at any time after the occurrence of any one or more of the Events of Default.

 

Section 5. CUMULATIVE RIGHTS. No delay on the part of the Holder in the exercise of any power or right under this Note or under any other instrument executed pursuant to this Agreement shall operate as a waiver of any such power or right, nor shall a single or partial exercise of any power or right preclude other or further exercise of such power or right or the exercise of any other power or right.

 

Section 6. WAIVER. The Company and all endorsers, sureties and guarantors of this Note waive demand, presentment, protest, notice of dishonor, notice of nonpayment, notice of intention to accelerate or notice of acceleration other than notice of default pursuant to Section 3(a)(ii), notice of protest and any and all lack of diligence or delay in collection or the filing of suit on this Note which may occur, and agree to all extensions and partial payments, before or after maturity, without prejudice to the holder of this Note.

 

Section 7. ATTORNEYS’ FEES AND COSTS. In the event that this Note is collected in whole or in part through suit, arbitration, mediation, or other legal proceeding of any nature, then and in any such case there shall be added to the unpaid principal amount of this Note all reasonable costs and expenses of collection, including, without limitation, reasonable attorney’s fees.

 

Section 8. GOVERNING LAW. This Note shall be governed by and construed in accordance with the internal laws of the State of Colorado, without giving effect to conflicts of law provision or rule (whether of the State of Colorado or any other jurisdiction) that would result in the application of the laws of any jurisdiction other than the State of Colorado.

 

Section 9. HEADINGS. The headings and captions used in this Note are used for convenience only and are not to be considered in construing or interpreting this Note. All references in this Note to sections, paragraphs, exhibits, and schedules shall, unless otherwise provided, refer to sections and paragraphs of this Note and exhibits and schedules attached to this Note, all of which exhibits and schedules are incorporated in this Note by this reference.

 

4

 

 

Section 10. USURY. All agreements between the Company and the holders of this Note, whether now existing or hereafter arising and whether written or oral, are expressly limited so that in no contingency or event whatsoever, whether by acceleration of the maturity of this Note or otherwise, shall the amount paid, or agreed to be paid, to the holder of this Note for the use, forbearance or detention of the money to be loaned under this Agreement or otherwise, exceed the maximum amount permissible under applicable Colorado law. If from any circumstances whatsoever fulfillment of any provision of this Note or of any other document evidencing, securing or pertaining to the indebtedness evidenced by this Note, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstances the holder of this Note shall ever receive anything of value as interest or deemed interest by applicable law under this Note or any other document evidencing, securing or pertaining to the indebtedness evidenced by this Note or otherwise an amount that would exceed the highest lawful rate, such amount that would be excessive interest shall be applied to the reduction of the principal amount owing under this Note or on account of any other indebtedness of the Company to the holder of this Note relating to this Note, and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of this Note and such other indebtedness, such excess shall be refunded to the Company. In determining whether or not the interest paid or payable with respect to any indebtedness of the Company to the holder of this Note, under any specific contingency, exceeds the highest lawful rate, the Company and the holder of this Note shall, to the maximum extent permitted by applicable law, (a) characterize any non-principal payment as an expense, fee or premium rather than as interest, (b) amortize, prorate, allocate and spread the total amount of interest throughout the full term of such indebtedness so that the actual rate of interest on account of such indebtedness is uniform throughout the term of such indebtedness, and/or (c) allocate interest between portions of such indebtedness, to the end that no such portion shall bear interest at a rate greater than that permitted by law. The terms and provisions of this Section shall control and supersede every other conflicting provision of all agreements between the Company and the holders of this Note. The Holders has been advised by the Company to seek the advice of an attorney and an accountant in connection with the issuance of this Note. The Company has had the opportunity to seek the advice of an attorney and accountant of the Company’s choice in connection with issuance of this Note.

 

5

 

 

Section 11. SUCCESSORS AND ASSIGNS. This Note may not be sold, transferred or otherwise assigned by Holder without the prior written consent of the Company. All of the stipulations, promises and agreements in this Note made by or on behalf of the Company shall bind the successors and assigns of the Company, whether so expressed or not, and inure to the benefit of the successors and permitted assigns of the Holder.

 

Section 12. SEVERABILITY. If one or more provisions of this Note are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Note and the balance of this Note shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms.

 

Section 13. NOTICES. All notices, requests, consents, and other communications under this Note shall be in writing and shall be delivered personally or by facsimile transmission or by nationally recognized overnight delivery service or by first class certified or registered mail, return receipt requested, postage prepaid:

 

If to the Company, at 4045 Pecos St., Suite 110, Denver, CO 80211 Attention: Corey Wiegand, or at such other address or addresses as may have been furnished by giving five days advance written notice to all other parties, with a copy (which shall not constitute notice) to Roger V Davidson, Esquire, 2540 Westward Dr., Lafayette, CO 80026.

 

If to the Holder at, P.O. Box 540308, Dallas, TX 75354, Attention Gary C. Evans or at such other address or addresses as may have been furnished by giving five days advance written notice to all other parties, with a copy (which shall not constitute notice) to. Duane Morris LLP, 1540 Broadway, New York, New York 10036, Attention: Dean Colucci.

 

Notices provided in accordance with this Section shall be deemed delivered upon personal delivery (including confirmed facsimile) or three business days after deposit in the mail.

 

6

 

 

IN WITNESS WHEREOF, the Company and the Holder have executed this Note on and as of the date first above written.

 

  Home Treasure Finders, Inc.
     
  By:  /s/ Corey Wiegand
    Corey Wiegand
    President

 

 

 

 

NOTICE OF CONVERSION

 

Dated this __day of ___________________, 20__;

 

This is to acknowledge that on the date and year first above set forth the Holder has made an irrevocable election to convert $_____________ of the principal amount and $_____________ of accrued interest under the Note into the Common Shares of the Company pursuant to the conversion rights as established in the Note. Please immediately issue the appropriate certificate for the Common Shares and deliver it to the Holder at:

 

_____________________________________. The conversion is at the rate established in the Note, $0.352 of principal and interest converted for each whole share of the Common Shares.

 

______________________

 

Holder

 

 

 

 

APPENDIX A

 

CONVERTIBLE NOTE PRINCIPAL

ACCOUNTS PAYABLE COVERED BY ENERGY HUNTER

 

Payee   Amount  
Garfield Note Payment*   $ 150,000.00  
Haynie & Company*   $ 24,610.00  
State of Colorado (Property Taxes)   $ 11,587.68  
Warehouse Roof*   $ 10,000.00  
Roger Davidson   $ 4,400.00  
Costar (MLS)   $ 2,494.00  
Edgar Tech (SEC filings)   $ 1,580.00  
Standard Registrar (Transfer Agent)   $ 1,284.00  
Mary Daling (Bookkeeper)   $ 684.00  
City of Denver (Fire Inspection Lien)   $ 483.01  
         
TOTAL   $ 207,122.69  

 

* Payee to be paid directly by Energy Hunter

 

 

 

 

Exhibit 10.9

 

SECURITIES EXCHANGE AGREEMENT

 

THIS SECURITIES EXCHANGE AGREEMENT (this “Agreement”) dated as of November 27, 2019 among:

 

(a) ENERGY HUNTER RESOURCES, INC., a Delaware corporation (the “Company”),

 

(b) Certain former- convertible preferred shareholders of the Company, each of whom are listed on Schedule A hereto (each, a “Transferor”, and collectively, the “Transferors”); and

 

(c) GENERATION HEMP, INC., a Colorado corporation (“GENH”).

 

Background

 

1 On August 15, 2019, GENH, formerly known as Home Treasure Finders, Inc., entered into a Stock Purchase Agreement (as amended, the “Stock Purchase Agreement”) among GENH, HMTF Merger Sub Inc., a Colorado corporation (as “Buyer” and together with GENH, the “Buyer Parties”), the Company, certain stockholders of the Company set for therein (as “Sellers”), and Gary C. Evans (as the “Sellers’ Representative”) pursuant to which, the Company, GENH and Buyer intended to effect a merger of Buyer with and into the Company (the “Merger”) in accordance with this Agreement and the General Corporation Law of the State of Delaware (the “DGCL”), whereupon consummation of the Merger, Buyer ceased to exist and the Company became a Subsidiary of GENH.

 

2. In furtherance of the Merger, Buyer Parties purchased from Sellers 6,328,948 shares of its common stock, par value $0.0001 per share representing approximately 91% of the issued and outstanding common stock of the Company as of August 15, 2019. Upon closing, the Sellers received from GENH 6,328,948 shares of Series A Convertible Preferred Stock and the Company became a direct subsidiary of GENH.

 

3. Prior to the closing of the transactions contemplated under the Stock Purchase Agreement, the Transferors held 100% the shares of Series C Preferred Stock of the Company (“Series C”) as set forth on Schedule A which converted as of the closing date of the that certain Stock Purchase Agreement, (collectively, the “Converted Company Shares”).

 

4. At the time of the closing of the transactions contemplated under the Stock Purchase Agreement and as more fully disclosed in the Form 8-K filed on December 20, 2019 (the “December 20 8-K”) upon such closing by GENH at the Securities and Exchange Commission (the “SEC”) GENH, the Company, and Sellers Representative agreed to GENH’s desire to acquire all of the Converted Company Shares from the Transferors.

 

 

 

 

5. In fulfillment of the requirement of Section 1.2(b) of the Stock Purchase Agreement, as amended and as set forth in the December 20 8-K, the Transferors have agreed to exchange their Converted Company Shares for shares of Common Stock of GENH (“Common Stock”) for the Exchange Securities (as defined below).

 

NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements herein, and intending to be legally bound hereby, the parties agree as follows:

 

1. Equity Exchange.

 

a. Exchange.

 

i. On the terms and subject to the conditions set forth in this Agreement, at the closing of the Exchange (the “Closing”) (x) the Transferors will assign, transfer, exchange and convey to GENH, free and clear of all liens, pledges, encumbrances, security interests, mortgages, hypothecations, charges, restrictions or known claims of any kind, nature or description (“Liens”), and GENH will accept from the Transferors, the Converted Company Shares in the amounts as set forth on Schedule A, and (y) in exchange for the transfer of such securities by the Transferors, GENH will assign, transfer, exchange and convey to the Transferors , and the Transferors will accept from GENH, the Exchange Securities in the individual amounts as set forth on Schedule B (such exchange, the “Exchange”). For the avoidance of doubt, each Transferor will receive (a) one share of Common Stock (the “Exchange Shares”), (b) one cashless exercise warrants to purchase three shares of Common Stock in accordance with the terms and provisions as set forth in the form of warrant attached hereto as Exhibit A (the “Cashless Warrant”), and (c) one cash exercise warrants to purchase three shares of Common Stock in accordance with the terms and provisions as set forth in the form of warrant attached hereto as Exhibit B (the “Cash Warrant” and together with the Cashless Warrant, the “Warrants”)(the Warrants, together with the Exchange Shares, the “Exchange Securities”).

 

b. The Closing. The Closing shall occur concurrently with the execution and delivery of this Agreement by the parties at the offices of Duane Morris LLP, 1540 Broadway, New York, New York 10036 at 11:00 a.m. (Eastern Time) or in any case at such other location, date and time or by such other means (e.g., e-mail/PDF or facsimile and overnight delivery of original execution documents) as may be agreed by the parties in writing. The date upon which the Closing shall actually occur pursuant hereto is referred to herein as the “Closing Date.”

 

2. Representations and Warranties.

 

a. Representations and Warranties of the Transferors. Each Transferor severally, and not jointly, hereby represents and warrants to the Company and GENH, all of which representations and warranties are true, complete, and correct in all respects as of the date hereof, and will be as of the Closing Date, as follows:

 

i. Authorization; No Restrictions, Consents or Approvals. Such Transferor has the full right, power (and capacity, if the Transferor is an individual) and authority to enter into and perform such Transferor’s obligations under this Agreement; and no approvals or consents are necessary in connection with it. Such Transferor (if the Transferor is not an individual) is duly incorporated, organized or formed, validly existing and in good standing under the laws of its state or country of incorporation, organization or formation (as the case may be). This Agreement, when executed and delivered by such Transferor, will constitute a valid and legally binding obligation of the Transferor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity. The person signing this Agreement to bind such Transferor has been duly authorized by such Transferor to do so.

 

2

 

 

ii. Transfer of Converted Company Shares. All of the Converted Company Shares owned by such Transferor are owned free and clear of all Liens. The Converted Company Shares owned by such Transferor will be validly transferred to GENH free and clear of all Liens and taxes with respect to the transfer thereof. By countersigning below, the undersigned does hereby waive any transfer restrictions, rights of first refusal or any other rights that such party may have under the organizational documents of the Company or otherwise in respect of the transfer of any Transferor’s Converted Company Shares pursuant to this Agreement.

 

iii. Investment Representations.

 

1. Each such Transferor understands that the Exchange Securities have not been, and may never be, registered under the Securities Act of 1933, as amended (the “Securities Act”) or any other applicable securities laws, including those under the Colorado corporations Code or the Delaware Securities Act. Each such Transferor also understands that the Exchange Securities are being issued pursuant to an exemption from the registration requirements of the Securities Act, under Section 4(2) and/or Regulation D of the Securities Act, he Colorado corporate code, and of the Delaware Securities Act. Each such Transferor acknowledges that GENH will rely on such Transferor’s representations, warranties and certifications set forth below for purposes of determining such Transferor’s suitability as an investor in the Exchange Securities and for purposes of confirming the availability of the Section 4(2) and/or Regulation D exemption from the registration requirements of the Securities Act, of the Section 25012(f) exemption under the Colorado corporate code and of the applicable exemption under the Delaware Securities Act. Such Transferor understands that the Exchange Securities will be “restricted securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, such Transferor must hold the Exchange Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Such Transferor acknowledges that GENH has no obligation to register or qualify the Exchange Securities, or any equity interests or other securities into which they may be converted, for resale. Such Transferor further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Exchange Securities, and on requirements relating to GENH which are outside of such Transferor’s control, and which GENH may be under no obligation, and may not be able to, satisfy. Such Transferor understands that GENH is under no obligation to assist such Transferor in complying with any exemption from registration under the securities or similar laws of any jurisdiction whatsoever.

 

2. Each such Transferor has received all the information such Transferor considers necessary or appropriate for deciding whether to acquire and accept the Exchange Securities, including information describing GENH and the risk factors associated with GENH’s business as set forth on Exhibit C hereto, which such exhibit is expressly incorporated herein by reference. Each such Transferor understands the risks involved in an investment in the Exchange Securities. Each such Transferor further represents that such Transferor has had an opportunity to ask questions and receive answers from GENH regarding the terms and conditions of the Exchange, and the business, properties, prospects, and financial condition of GENH and the Company and to obtain such additional information (to the extent that GENH and/or the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to such Transferor or to which such Transferor had access. Each such Transferor further represents that such Transferor is an “accredited investor” within the meaning of Rule 501(a) of the Securities Act and that such Transferor is capable of bearing the high degree of economic risk and burdens of its investment in the Exchange Securities, including, but not limited to, the possibility of the complete loss of all funds invested, the loss of any anticipated tax benefits, the lack of a public market for the Exchange Securities, the unavailability of redemption for the Exchange Securities, which may make the liquidation of this investment impossible for the indefinite future. Such Transferor further understands and acknowledges that no federal or state agency has made any finding or determination as to the fairness of the Exchange Securities for investment or any recommendation or endorsement of the Exchange Securities.

 

3

 

 

3. Each such Transferor is accepting the Exchange Securities for such Transferor’s own account for investment only, not as a nominee or agent, and not with a view to the resale or “distribution” (within the meaning of the Securities Act) of any part thereof, and that such Transferor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Transferor further represents that the Transferor does not presently have any contract or agreement with any person or entity to sell, transfer or grant participations to such person, entity or to any third person, with respect to the Exchange Securities. If other than an individual, such Transferor represents that it has not been formed solely for the purpose of acquiring the Exchange Securities.

 

4. Each such Transferor understands that the Exchange Securities may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act and any other applicable securities laws or pursuant to an exemption therefrom, and in each case in compliance with the conditions set forth in this Agreement.

 

5. Each such Transferor acknowledges and agrees that each certificate representing the Exchange Securities shall bear a legend substantially similar to the following:

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS.”

 

6. Each such Transferor has a pre-existing personal or business relationship with GENH, its subsidiaries, and/or its principal executive officers, or, by reason of such Transferor’s business or financial experience (or the business or financial experience of the Transferor’s professional advisors who are not affiliated with and who are not compensated by GENH or any Affiliate of GENH) has the capacity to protect his, her or its own interests in connection with an investment in the Exchange Securities, and either alone or with the Transferor’s professional advisors (as described above) has such knowledge and experience in financial and business matters that the Transferor is capable of evaluating the merits and risks of an investment in GENH.

 

7. Such Transferor understands and acknowledges that any discussions about GENH’s business, management, financial affairs and the terms and conditions of the offerings of the Exchange Securities with the management and/or other representatives of GENH, as well as any written information issued by GENH, including without limitation, the business plan of GENH: (i) were intended to describe the aspects of GENH’s business and prospects that GENH believes to be material, but were not necessarily an exhaustive description, and (ii) may have contained forward-looking statements involving known and unknown risks and uncertainties that may cause GENH’s actual results in future periods or plans for future periods to differ materially from what was anticipated and that no representations or warranties were or are being made with respect to any such forward-looking statements or the probability of achieving any of the results projected in any of such forward-looking statements.

 

4

 

 

8. Neither the directors, officers, managers, employees nor any agent of GENH, nor any broker dealer or other person has at any time expressly or implicitly represented, guaranteed or warranted to such Transferor: (i) the approximate or exact length of time that such Transferor will be required to hold the Exchange Securities; (ii) that such Transferor may freely transfer the Exchange Securities; (iii) the percentage of profit and/or amount of or type of consideration, profit, benefit or loss to be realized, if any, as a result of an investment in the Exchange Securities; (iv) that past performance of GENH and/or past performance or experience on the part of the directors, officers, managers or employees of GENH or any other person in any way indicates or predicts the economic or other results of the ownership of the Exchange Securities or of the overall GENH business; (v) that any cash or stock distributions from GENH’s operations or otherwise will be made to GENH’s stockholders by any specific date or will be made at all; or (vi) that any specific tax benefits will accrue as a result of an investment in GENH.

 

9. Such Transferor is a sophisticated investor and acknowledges that he, she or it is able to fend for himself, herself or itself, can bear the full economic risk of his, her or its investment in the Exchange Securities and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Exchange Securities, and has in fact evaluated such risks and determined that the Exchange Securities is a suitable investment for such Transferor. Such Transferor is an experienced investor with respect to non-listed, unregistered and restricted securities and speculative and high-risk ventures, and specifically, such Transferor has such investment experience and expertise in cannabis and/or cannabis-related industries.

 

10. Neither such Transferor nor any other person who, within the meaning of Section 506(d) of Regulation D under the Securities Act, would be a “beneficial owner of 20% or more of the issuer’s outstanding voting equity securities” with respect to such Transferor’s interest in GENH, is subject to any Disqualifying Event or is subject to any proceeding or event that could result in any such Disqualifying Event. “Disqualifying Event” means any of the events listed in subsections (i) through (vii) of Section 506(d) of Regulation D.

 

11. If such Transferor is not a United States person (as defined by Section 7701(a)(30) of the Code), such Transferor hereby represents that he, she or it has satisfied himself, herself or itself as to the full observance of the laws of its jurisdiction in connection with any invitation to purchase or accept the Exchange Securities or any use of this Agreement, including: (i) the legal requirements within its jurisdiction for the purchase or acceptance of the Exchange Securities; (ii) any foreign exchange restrictions applicable to such purchase or acceptance; (iii) any governmental or other consents that may need to be obtained; and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Exchange Securities. Such Transferor’s purchase or acceptance of the Exchange Securities will not violate any applicable securities or other laws of such Transferor’s jurisdiction.

 

12. Neither such Transferor, nor any of its directors, officers, managers, employees, agents, stockholders, members or partners has in connection with the offer and sale of the Exchange Securities either directly or indirectly, including, through a broker or finder: (i) engaged in any general solicitation; or (ii) published any advertisement. The offer to sell or convey the Exchange Securities was directly communicated to such Transferor on behalf of GENH by an authorized representative of GENH. At no time was such Transferor presented with or solicited by or through any article, notice or other communication published in any newspaper or other leaflet, public promotional meeting, television, radio or other broadcast or transmittal advertisement or any other form of general advertising.

 

13. Such Transferor is not purchasing the Exchange Securities with funds that constitute, directly or indirectly, the assets of an employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of the Code, nor is such Transferor a “benefit plan investor” within the meaning of 29 C.F.R. Section 2510.3-101(f) issued by the United States Department of Labor.

 

14. The residence or principal place of business, as applicable, of such Transferor is set forth on the signature page to this Agreement.

 

5

 

 

iv. Accuracy of Information and Indemnification by Transferor. All of the representations and warranties of such Transferor contained in this Agreement and all information provided by such Transferor to GENH in this Agreement are true, accurate, complete and correct in all respects on the date hereof.

 

b. Representations and Warranties of the Company. The Company and its Subsidiaries hereby jointly and severally represent and warrant to the Transferors and GENH, all of which representations and warranties are true, complete, and correct in all respects as of the date hereof and will be as of the Closing Date, as follows:

 

i. Organization and Qualification. The Company is a corporation validly existing and in good standing under the laws of Delaware and has all requisite power and authority to own and operate its properties and assets and to carry on its business as presently conducted and is qualified to do business and is in good standing in each jurisdiction where the ownership or operation of its assets or properties or conduct of its business requires such qualification.

 

ii. Authorization; No Restrictions, Consents or Approvals. The Company has full power and authority to enter into and perform its obligations under this Agreement. This Agreement has been duly executed by the Company and constitutes the legal, valid, binding and enforceable obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity. The execution and delivery of this Agreement and the consummation by the Company of the transactions contemplated herein do not and will not on the Closing Date (A) conflict with or violate any of the terms of the articles of incorporation and other organizational documents of the Company, (B) conflict with, or result in a breach of any of the terms of, or result in the acceleration of any indebtedness or obligations under, any material agreement, obligation or instrument by which the Company is bound or to which any property of the Company is subject, or constitute a default thereunder, other than those material agreements, obligations or instruments for which the Company has obtained consent for the transactions contemplated under this Agreement, (C) result in the creation or imposition of any Lien on any of the assets of the Company, (D) constitute an event permitting termination of any material agreement or instrument to which the Company is a party or by which any property or asset of the Company is bound or affected, pursuant to the terms of such agreement or instrument, other than those material agreements or instruments for which the Company has obtained consent for the transactions contemplated under this Agreement, or (E) conflict with, or result in or constitute a default under or breach or violation of or grounds for termination of, any license, permit or other governmental authorization to which the Company is a party or by which the Company may be bound, or result in the violation by the Company of any laws to which the Company may be subject, which would materially adversely affect the transactions contemplated herein.

 

iii. Consents. The execution, delivery and performance by each of the Company and its Subsidiaries of this Agreement and each ancillary agreement to which it is a party does not and will not require any consent, approval, authorization or other order of, action by, filing with or notification to, any Governmental Authority or any other Person.

 

6

 

 

c. Representations and Warranties of GENH. Except as set forth in (i) Annual Report on Form 10-K for the fiscal year ended December 31, 2018, Quarterly Report on Form 10-Q for the period ended September 30, 2019, (the “Covered Parent SEC Disclosure”), GENH hereby represents and warrants to the Transferors, all of which representations and warranties are true, complete, and correct in all respects as of the date hereof and will be as of the Closing Date, as follows:

 

i. Organization and Qualification. GENH is a corporation validly existing and in good standing under the laws of the State of Colorado and has all requisite power and authority to own and operate its properties and assets and to carry on its business as presently conducted and is qualified to do business and is in good standing in each jurisdiction where the ownership or operation of its assets or properties or conduct of its business requires such qualification.

 

ii. Authorization; No Restrictions, Consents or Approvals. GENH has full power and authority to enter into and perform its obligations under this Agreement. This Agreement has been duly executed by GENH and constitutes the legal, valid, binding and enforceable obligation of GENH, enforceable against GENH in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity. The execution and delivery of this Agreement and the consummation by GENH of the transactions contemplated herein (including the issuance of the Exchange Securities in exchange for the Converted Company Shares) do not and will not on the Closing Date (A) conflict with or violate any of the terms of the certificate of incorporation and bylaws of GENH, (B) conflict with, or result in a breach of any of the terms of, or result in the acceleration of any indebtedness or obligations under, any material agreement, obligation or instrument by which GENH is bound or to which any property of GENH is subject, or constitute a default thereunder, other than those material agreements, obligations or instruments for which GENH has obtained consent for the transactions contemplated under this Agreement, (C) result in the creation or imposition of any Lien on any of the assets of GENH, (D) constitute an event permitting termination of any material agreement or instrument to which GENH is a party or by which any property or asset of GENH is bound or affected, pursuant to the terms of such agreement or instrument, other than those material agreements or instruments for which GENH has obtained consent for the transactions contemplated under this Agreement, or (E) conflict with, or result in or constitute a default under or breach or violation of or grounds for termination of, any license, permit or other governmental authorization to which GENH is a party or by which GENH may be bound, or result in the violation by GENH of any laws to which GENH may be subject, which would materially adversely affect the transactions contemplated herein. No authorization, consent or approval of, notice to, or filing with, any public body or Governmental Authority or any other person is necessary or required in connection with the execution and delivery by GENH of this Agreement or the performance by GENH of its obligations hereunder.

 

iii. Issuance of Shares. The Exchange Securities have been duly authorized and, upon issuance in accordance with the terms hereof, shall be validly issued and free from all taxes, Liens and charges with respect to the issue thereof, and the Exchange Securities shall be fully paid and non-assessable with the holder being entitled to all rights accorded to a holder of GENH common stock.

 

iv. Consents. The execution, delivery and performance by GENH of this Agreement and each ancillary agreement to which it is a party does not and will not require any consent, approval, authorization or other order of, action by, filing with or notification to, any Governmental Authority or any other Person.

 

7

 

 

v. Financial Statements. GENH has made available to the Trasnferors (by public filing with the SEC via EDGAR or otherwise) a true and complete copy of each report, schedule, registration statement, other statement (including proxy statements) and information filed by GENH with the SEC since January 1, 2016 (the “GENH SEC Documents”). GENH has made 12b-25 filings with the SEC in connection with being unable to file the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and the Quarterly Report on Form 10-Q for the period ended March 31, 2020 on a timely basis. Such 12b-25 filings disclose the late filings of GENH over the last 12 months. As of the date hereof, such 10-K and 10-Q have not yet been filed and the Trasnferors are aware of GENH’s late filings. As of their respective dates, the GENH SEC Documents which have been filed have complied in all material respects with the requirements of the Securities Act, the Sarbanes-Oxley Act of 2002 and the Exchange Act, as applicable, and the rules and regulations of the SEC thereunder applicable to such GENH SEC Documents, in each case, as in effect at such time, and none of the GENH SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except to the extent such statements have been modified or superseded by later GENH SEC Documents filed and publicly available prior to the date of this Agreement. No Subsidiary of GENH is required (by contract or applicable Law) to make periodic filings with the SEC. The consolidated financial statements of GENH (including the notes thereto) included or incorporated by reference in the GENH SEC Documents (including the audited consolidated balance sheet of GENH as at December 31, 2018 (the “GENH Balance Sheet”) and the unaudited consolidated statements of income for the nine months ended September 30, 2019) complied as to form in all material respects with the applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto, or, in the case of the unaudited statements, as permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present, in accordance with applicable requirements of GAAP and the applicable rules and regulations of the SEC (subject, in the case of the unaudited statements, to normal, recurring adjustments, none of which are material), in each case, as in effect at such time, the assets, Liabilities and the consolidated financial position of GENH and its Subsidiaries, taken as a whole, as of their respective dates and the consolidated results of operations and cash flows of GENH and its Subsidiaries taken as a whole, for the periods presented therein.

 

vi. Brokers. No broker, finder, investment banker or financial advisor is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any Ancillary Agreement based upon arrangements made by or on behalf of GENH or any Subsidiary.

 

vii. No Other Representations and Warranties. Except for the representations and warranties set forth in this Section 2., as modified by the Buyer Parties Disclosure Schedules, the other Ancillary Documents and any certificate delivered pursuant hereto or thereto, neither GENH, Buyer, nor any of their respective Representatives has made nor make any representation or warranty, express or implied, written or oral, with respect to the transactions contemplated by this Agreement and the other Ancillary Documents, and each of Buyer and GENH hereby disclaims any other representations and warranties, whether made orally or in writing, by or on behalf of Buyer or GENH by any Person. The Buyer Parties acknowledge and agree that each has conducted to its satisfaction its own independent investigation of the condition, operations and Liabilities of the Company and, in making its determination to proceed with the transactions contemplated by this Agreement and the other Ancillary Documents, the Buyer Parties have relied solely on the results of their own independent investigation and the express representations and warranties set forth in Section 2., as modified by the Company Disclosure Schedules, the Ancillary Documents and any certificate delivered pursuant hereto or thereto.

 

8

 

 

3.  “Market Stand-Off” Agreement.

 

a. Agreement to Lock-Up. Each Transferor hereby agrees that, in connection with a a Public Offering, initial or otherwise, of GENH (an “Public Offering”), unless not required by the managing underwriter or lead placement agent of the Public Offering, it will enter into a lock-up agreement in customary form and subject to customary exceptions pursuant to which such Transferor will agree that it will not, during the period commencing on the date of the final prospectus or offering circular relating to an Public Offering and ending on the date specified by the managing underwriter or lead placement agent, not to exceed 180 days from the date of the final prospectus or offering circular relating to the Public Offering (unless reasonably requested by the managing underwriter or lead placement agent in order to accommodate regulatory restrictions on (1) the publication or other distribution of research reports, and (2) analyst recommendations and opinions, pursuant to any applicable the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto) (the “Lock-Up Period”): (a) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of GENH held immediately prior to the effectiveness of the registration statement or offering statement for the Public Offering; or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Exchange Securities, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of the Exchange Securities or other securities, in cash or otherwise; provided that each other holder of Equity Interests of GENH is bound by a substantially similar lock-up agreement. The foregoing provisions of this Section 3 shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement. The underwriters, placement agents and selling agents, if any, in connection with the Public Offering are intended third-party beneficiaries of this Section 3 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Transferor agrees to execute such agreements as may be reasonably requested by the underwriters, placement agents or selling agents in the Public Offering that are consistent with this Section 3 or that are necessary to give further effect thereto, provided, however, that the obligation of each Transferor hereunder shall be conditioned on each officer, director and 5% beneficial holder of the Exchange Securities entering into an agreement in substantially the same form in connection with the Public Offering.

 

b. Stop Transfer Instructions. In order to enforce the foregoing covenant, GENH may impose stop transfer instructions with respect to the Exchange Securities of each Transferor (and transferees and assignees thereof) until the end of the Lock-Up Period.

 

4. [RESERVED].

 

5. Closing Deliverables. At the Closing:

 

a. Each Transferor shall deliver to GENH:

 

i. any and all certificates evidencing the Converted Company Shares, together with stock powers duly executed for such certificates to allow such certificates to be registered in the name of GENH; and

 

ii. such other certificates, documents, schedules, agreements, resolutions, consents, approvals, rulings or other instruments as may be reasonably requested by GENH in order to effectuate or evidence the transactions contemplated hereby.

 

b. GENH shall deliver to each Transferor a statement from the company’s transfer agent evidencing the Exchange Securities registered in the name of such Transferor in accordance with Schedule B;

 

9

 

 

6. Indemnification. Each Transferor, severally, and not jointly, will indemnify and hold harmless GENH and its respective directors, officers, managers, members, employees, and representatives (collectively, the “GENH Indemnitees”) who is a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, brought by reason of or arising from any breach or untruth of any of the representations and warranties of such Transferor set forth in this Agreement, against losses, liabilities and expenses for which the GENH Indemnitees have not otherwise been reimbursed (including reasonable attorneys’ fees, judgments, fines and amounts paid in settlement) actually and reasonably incurred by the GENH Indemnitees in connection with that action, suit or proceeding. GENH, will indemnify and hold harmless each Transferor and its respective directors, officers, managers, members, employees, and representatives (collectively, the “Transferor Indemnitees”), who is a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, brought by reason of or arising from any breach or untruth of any of the representations and warranties of GENH set forth in this Agreement, against losses, liabilities and expenses for which the Transferor Indemnitees have not otherwise been reimbursed (including reasonable attorneys’ fees, judgments, fines and amounts paid in settlement) actually and reasonably incurred by the Transferor Indemnitees in connection with that action, suit or proceeding. Notwithstanding the foregoing, (a) the aggregate maximum liability of each Transferor hereunder shall be an amount equal to the value of the equity interests held by such Transferor prior to the Closing as set forth on Schedule A; and (b) the aggregate maximum liability of GENH hereunder shall be an amount equal to the value of the equity interests held by the Transferors collectively prior to the Closing as set forth on Schedule A. From and after the Closing, indemnification under this Section 7 will be the sole and exclusive remedy of the GENH Indemnitees and Transferor Indemnitees, as applicable, for breach of any representation or warranty contained in this Agreement, and the parties shall have no other liability to any other party resulting from any such breach.

 

7. General Provisions.

 

a. Releases and Waivers of the Transferors. Each Transferor on its own behalf hereby acknowledges and agrees that the number of the Converted Company Shares set forth on Schedule A opposite such Transferor’s name represents the total number and type of the Converted Company Shares held by such Transferor as of the date of this Agreement and as of the Closing Date. Each Transferor hereby releases the Company and GENH from all obligations, liabilities and causes of action arising before, on or after the date of this Agreement, out of or in relation to any entitlement which such Transferor may have with respect to any the Converted Company Shares or any other interest in the Company in excess of the number of the Converted Company Shares set forth opposite such Transferor’s name on Schedule A. Each Transferor hereby generally, irrevocably, unconditionally and completely waives any and all rights to receive any anti-dilution protection or other participation rights to which such Transferor may be entitled under the articles of organization, certificate of formation or other organizational documents of the Company or under any other agreement or instrument in connection with the Exchange. Except for the Exchange Securities to be issued in connection with the Exchange, each Transferor hereby generally, irrevocably, unconditionally and completely waives any and all rights existing as of the date hereof to receive options, warrants, or similar rights to acquire or receive securities in the Company or GENH.

 

b. [RESERVED]

 

c. Governing Law. This Agreement shall be construed according to the laws of the State of Delaware in effect as of the date hereof, without giving effect to any principle or doctrine regarding conflicts of law.

 

10

 

 

d. Arbitration and Dispute Resolution. The parties intend that this Section 7(d) will be valid, binding, enforceable, exclusive and irrevocable and that it shall survive any termination of this Agreement.

 

i. Upon any dispute, controversy or claim arising out of or relating to this Agreement or the enforcement, breach, termination or validity thereof (“Dispute”), the party raising the Dispute will give written notice to the other parties to the Dispute describing the nature of the Dispute following which the parties to such Dispute shall attempt for a period of ten (10) business days from receipt by the parties of notice of such Dispute to resolve such Dispute by negotiation between representatives of the parties hereto who have authority to settle such Dispute. All such negotiations shall be confidential and any statements or offers made therein shall be treated as compromise and settlement negotiations for purposes of any applicable rules of evidence and shall not be admissible as evidence in any subsequent proceeding for any purpose. The statute of limitations applicable to the commencement of a lawsuit shall apply to the commencement of an arbitration hereunder, except that no defense based on the running of the statute of limitations will be available based upon the passage of time during any such negotiation. Regardless of the foregoing, a party shall have the right to seek immediate injunctive relief pursuant to Section 8(e)(iii) below without regard to any such ten (10) business day negotiation period.

 

ii. Any Dispute (including the determination of the scope or applicability of this agreement to arbitrate) that is not resolved pursuant to Section 8(e)(i) above shall be submitted to final and binding arbitration in Texas before one neutral and impartial arbitrator, in accordance with the Laws of the State of Texas for agreements made in and to be performed in that State. The arbitration shall be administered by JAMS (“JAMS”) pursuant to its Comprehensive Arbitration Rules and Procedures, as in effect on the date hereof. GENH, on the one hand, and any Transferors, on the other hand, shall appoint a single arbitrator (who shall be a retired judge or justice) within fifteen (15) days of a demand for arbitration. If GENH and the relevant Transferors cannot mutually agree upon an arbitrator within such 15-day period, the arbitrator shall be appointed by JAMS in accordance with its Expedited Arbitration Rules and Procedures, as in effect on the date hereof. The arbitrator shall designate the place and time of the hearing. The hearing shall be scheduled to begin as soon as practicable and no later than thirty (30) days after the appointment of the arbitrator (unless such period is extended by the arbitrator for good cause shown) and shall be conducted as expeditiously as possible. The award, which shall set forth the arbitrator’s findings of fact and conclusions of law, shall be filed with JAMS and mailed to the parties no later than thirty (30) days after the close of the arbitration hearing. The arbitration award shall be final and binding on the parties and not subject to collateral attack. Judgment upon the arbitration award may be entered in any federal or state court having jurisdiction thereof.

 

iii. Notwithstanding the parties’ agreement to submit all Disputes to final and binding arbitration before JAMS, the parties shall have the right to seek and obtain temporary or preliminary injunctive relief in any court having jurisdiction thereof. Such courts shall have authority to, among other things, grant temporary or provisional injunctive relief in order to protect any party’s rights under this Agreement. Without prejudice to such provisional remedies as may be available under the jurisdiction of a court, the arbitral tribunal shall have full authority to grant provisional remedies and to direct the parties to request that any court modify or vacate any temporary or preliminary relief issued by such court, and to award damages for the failure of any party to respect the arbitral tribunal’s orders to that effect.

 

iv. The prevailing party shall be entitled to recover its costs and reasonable attorneys’ fees, and the non-prevailing party shall pay all expenses and fees of JAMS, all costs of the stenographic record, all expenses of witnesses or proofs that may have been produced at the direction of the arbitrator, and the fees, costs, and expenses of the arbitrator. The arbitrator shall allocate such costs and designate the prevailing party or parties for these purposes.

 

e. Severability. If any provision of this Agreement is held by a court or other tribunal of competent jurisdiction to be invalid or unenforceable for any reason, the remaining provisions shall continue in full force and effect without being impaired or invalidated in any way, and the parties agree to replace any invalid provision with a valid provision which most closely approximates the intent and economic effect of the invalid provision.

 

11

 

 

f. Waiver. The waiver by a party of a breach of or default under any provision of this Agreement shall not be effective unless in writing and shall not be construed as a waiver of any subsequent breach of or default under the same or any other provision of this Agreement. Further, any failure or delay on the part of any party to exercise or avail itself of any right or remedy that it has or may have hereunder shall not operate as a waiver of any such right or remedy or preclude other or further exercise thereof or of any other right or remedy.

 

g. Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 8(h):

 

  If to Transferors: Names and Contact Information as set forth on Schedule A
     
  If to Company: Energy Hunter Resources, Inc..
    5128 Horseshoe Trail
    Dallas, Texas 75209
    Attention: Gary C. Evans
    Email: gevans@energyhunter.energy
     
  If to GENH: Generation Hemp, Inc.
    P.O. Box 540308
    Dallas, Texas 75354
    Attention: Gary C. Evans
    Email: gevans@genhempinc.com
     
  with a copy (which copy shall not constitute notice) to:
     
    Duane Morris LLP
    1540 Broadway
    New York, NY 10036
    Attention: Dean M. Colucci
    Email: dmcolucci@duanemorris.com

 

h. No Third Party Beneficiaries. Nothing in this Agreement shall be construed to confer any rights or benefits upon any person other than the parties hereto, and no other person shall have any rights or remedies hereunder.

 

i. Termination. This Agreement may be terminated upon written notice at any time prior to Closing by the written consent of the parties. Termination of this Agreement will terminate all rights and obligations of the parties under this Agreement and this Agreement will become void and have no force or effect.

 

j. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof.

 

12

 

 

k. Advice of Counsel. The parties represent and warrant to each other that, prior to the execution of this Agreement, they sought the advice of independent legal counsel of their own selection regarding the substance of this Agreement, or have had the opportunity to consult with independent legal counsel and have knowingly chosen not to do so.

 

l. Counterparts. This Agreement may be executed in one or more counterparts (including fax or .pdf counterparts) each of which shall be deemed an original and all of which shall be taken together and deemed to be one instrument.

 

m. Definitions. The following terms, as used herein, have the following meanings:

 

“Action” means any claim, charge, action, suit, arbitration, mediation, inquiry, hearing, audit, proceeding or investigation by or before any Governmental Authority, including any audit, claim or assessment for Taxes or otherwise.

 

“Affiliate” means, with respect to any specified Person, any other Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Contract” means any written or oral contract, agreement, indenture, commitment, note, bond, loan, instrument, lease, conditional sale contract, mortgage, license, arrangement or other legally binding agreement or obligation.

 

“Equity Interests” shall mean (i) any capital stock of a corporation, any partnership interest, any limited liability company interest or any other equity interest; (ii) any security or right convertible into, exchangeable for, or evidencing the right to subscribe for, any such stock, equity interest or security referred to in clause (i); (iii) any stock appreciation right, contingent value right or similar security or right that is derivative of any such stock, equity interest or security referred to in clause (i) or (ii); and (iv) any contract to grant, issue, award, convey or sell any of the foregoing.

 

“GAAP” means United States generally accepted accounting principles in effect from time to time applied consistently throughout the periods involved.

 

“Governmental Authority” means any federal, national, foreign, state, provincial, local, or similar government, governmental, regulatory or administrative authority, agency, bureau, department, board, panel or commission or any court, tribunal, or judicial or arbitral body or mediator or any other instrumentality of any kind of any of the foregoing.

 

“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

 

“Liabilities” means with respect to any Person, any and all debts, liabilities or obligations of such Person of any kind or nature whatsoever, whether asserted or unasserted, known or unknown, accrued or unaccrued, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise, and whether or not the same is required to be accrued on the financial statements of such Person, including those arising under any Law, Action or Governmental Order and those arising under any Contract or undertaking.

 

13

 

 

“Lien” means any charge, claim, condition, lien, option, pledge, security interest, mortgage deed of trust, right of way, easement, encroachment, servitude, right of first option, right of first or last negotiation or refusal or similar restriction, including any restriction on use, voting (in the case of any security or equity interest), transfer, receipt of income or exercise of any other attribute of ownership.

 

“Organizational Documents” means, with respect to any Person that is not an individual, (a) such Person’s certificate of incorporation and bylaws, (b) such Person’s certificate of formation, certificate of trust, limited liability company agreement, limited partnership agreement or trust agreement, or (c) any documents comparable to those described in clauses (a) and (b) as may be applicable pursuant to any applicable Law, and (d) any amendment or modification to any of the foregoing.

 

“Person” means an individual, corporation, partnership (including a general partnership, limited partnership or limited liability partnership), limited liability company, association, trust or other entity or organization, whether for-profit, not-for-profit or otherwise, and including a government, domestic or foreign, or political subdivision thereof, or an agency or instrumentality thereof.

 

“Subsidiary” shall mean, with respect to any Person, any entity, whether incorporated or unincorporated, of which (i) voting power to elect a majority of the board of directors or others performing similar functions with respect to such other Person is held by the first mentioned Person and/or by any one or more of its Subsidiaries or (ii) at least 50% of the Equity Interests of such other Person is, directly or indirectly, owned or controlled by such first mentioned Person and/or by any one or more of its Subsidiaries

 

“Tax(es)” means any federal, state, local or non-U.S. tax, charge, fee, levy, custom, duty, deficiency, or other assessment of any kind or nature whatsoever imposed by any Taxing Authority (including, without limitation, any income (net or gross), gross receipts, profits, windfall profit, premium, customs duty, capital stock, sales, use, goods and services, ad valorem, franchise, license, stamp, withholding, employment, social security (or similar), workers compensation, unemployment compensation, disability, employment, payroll, severance, occupation, transfer, excise, import, real property, personal property, intangible property, occupancy, registration, recording, value added, minimum, unclaimed property, escheat payments, alternative minimum, environmental or estimated tax), including any liability therefor as a transferee (including under Section 6901 of the Code or similar provision of applicable Law) or successor, as a result of Treasury Regulation Section 1.1502-6 or similar provision of applicable Law or as a result of any Tax sharing, indemnification or similar agreement, together with any

 

“Taxing Authority” means the Internal Revenue Service and any other Governmental Authority responsible for the collection, assessment or imposition of any Tax or the administration of any Law relating to any Tax.

 

[Signature Pages Follow]

 

14

 

 

IN WITNESS WHEREOF, the undersigned hereby agree to be bound by the terms and provisions of this Securities Exchange Agreement as of the date first above written.

 

  GENH:
  GENERATION HEMP, INC.,
  a Colorado corporation
     
  By: /s/ Gary C. Evans
  Name:  Gary C. Evans
  Title: Chairman and CEO
     
     
  COMPANY:
  ENERGY HUNTER RESOURCES, INC.,
  a Delaware corporation
     
  By: /s/ Gary C. Evans
  Name: Gary C. Evans
  Title: Chairman and CEO

 

 

 

 

  TRANSFERORS:
   
  Coventry Asset Management
     
  By: /s/ Gen Fukunaga
  Name:   
  Title:
     
  By: /s/ Gary Elliston
  Name:  
  Title:  
     
  By: /s/ Jodi Harris
  Name:  
  Title:  
     
  By: /s/ Joe L. McClaugherty
  Name:  
  Title:  
     
  By: /s/ Don McLean
  Name:  
  Title:  
     
  By: /s/ Michael McManus
  Name:  
  Title:  
     
  By: /s/ Julie Silcock
  Name:  
  Title:  

 

 

 

 

SCHEDULE A

 

TRANSFERORS

 

Investor   Dollar Amount of Original Investment For EHR Preferred Shares     Number of GENH Shares (Common) Post conversion     Cash Refund For Fractional Shares  
                   
Coventry Asset Management, Ltd. (Gen Fukunaga)   $ 300,000.00       852,272     $ 0.27  
Julie Silcock   $ 100,000.00       284,090     $ 0.32  
Jodi Harris   $ 25,000.00       71,022     $ 0.26  
Gary Elliston   $ 250,000.00       710,227     $ 0.11  
Don McLean   $ 100,000.00       284,090     $ 0.32  
Joe McClaugherty   $ 25,000.00       71,022     $ 0.26  
Michael McManus   $ 50,000.00       142,045     $ 0.16  
                         
Total   $ 850,000.00       2,414,768          

 

 

 

 

SCHEDULE B

 

GENH SHARES

 

Investor   Number of GENH Shares (Common) Post conversion  
       
Coventry Asset Management, Ltd. (Gen Fukunaga)     852,272  
Julie Silcock     284,090  
Jodi Harris     71,022  
Gary Elliston     710,227  
Don McLean     284,090  
Joe McClaugherty     71,022  
Michael McManus     142,045  
         
Total     2,414,768  

 

Schedule B

 

 

 

 

EXHIBIT A

 

FORM OF CASHLESS WARRANT

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

 

GENERATION HEMP, INC.

 

WARRANT TO PURCHASE COMMON STOCK

(with Cashless Exercise)

 

Warrant No.: ___

Number of Shares of Common Stock: 3

Date of Issuance: November 27, 2019 (“Issuance Date”)

 

Generation Hemp, Inc., a Colorado corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, [ ● ], the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon surrender of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), 3 (three) fully paid non-assessable shares of Common Stock (as defined below) (the “Warrant Shares”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16. This Warrant is the Warrant to purchase Common Stock (this “Warrant”) issued pursuant to Section 1(a) of that certain Securities Exchange Agreement (the “Securities Exchange Agreement”), dated as of this date (the “Exchange Date”), by and between the Company and the Transferors (as defined therein).

 

1.  EXERCISE OF WARRANT.

 

(a) Mechanics of Exercise. Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder on any day on or after the thirtieth (30th) day after the Issuance Date, in whole or in part, by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant and (ii) (A) payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or by wire transfer of immediately available funds or (B) provided the conditions for cashless exercise set forth in Section 1(d) are satisfied, by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. On or before the first (1st ) Business Day following the date on which the Company has received each of the Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless Exercise) (collectively, the “Exercise Delivery Documents”), the Company shall transmit by facsimile or electronic mail an acknowledgment of receipt of the Exercise Delivery Documents to the Holder and Continental Stock Transfer & Trust Company (the Company’s “Transfer Agent”). On or before the third (3rd) Business Day following the date on which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company shall cause the Shares to be issued in the name of and delivered to the Holder (i) written confirmation that the Shares have been issued in the name of the Holder, and (ii) a new warrant of like tenor to purchase all of the Shares that may be purchased pursuant to the portion, if any, of this Warrant not exercised by the Holder. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded down to the nearest whole number.

 

 

 

 

(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $0.352 subject to adjustment as provided herein.

 

(c) Cashless Exercise. Notwithstanding anything contained herein to the contrary, the Holder may exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise”):

 

Net Number = (A x B) - (A x C)  
  B  
     
For purposes of the foregoing formula:

 

A= the total number of shares with respect to which this Warrant is then being exercised.

 

B= the arithmetic average of the Closing Sale Prices of the shares of Common Stock for the five (5) consecutive Trading Days ending on the Trading Day immediately preceding the date of the Exercise Notice.

 

C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

For sake of clarity, regardless of whether an effective registration statement or an exemption from registration is or is not available, there is no circumstance that requires the Company to effect a net cash settlement of the Warrants.

 

(d) Rule 144. For purposes of Rule 144(d) promulgated under the Securities Act, as in effect on the date hereof, it is intended that the Warrant Shares issued in a Cashless Exercise shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Securities Exchange Agreement.

 

 

 

 

(e) Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed, and all such disputes shall be resolved pursuant to Section 13.

 

(f)  Legend. The Holder acknowledges that each certificate evidencing the Warrant Shares acquired upon the exercise of this Warrant will have restrictions upon resale imposed by state and federal securities laws. Each such certificate shall be stamped or imprinted with a legend substantially in the following form:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, WHICH OPINION SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

 

(g) Beneficial Ownership. The Company shall not effect the exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that after giving effect to such exercise, such Person (together with such Person’s affiliates) would beneficially own in excess of 9.99% (the “Maximum Percentage”) of the shares of Common Stock outstanding immediately after giving effect to such exercise (including in connection with any Fundamental Transaction (as defined below)). For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Person and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Person and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person and its affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. To the extent that the limitation contained in this Section 1(f) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of a Holder, and the submission of an Exercise Notice shall be deemed to be each Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. For any reason at any time, upon the written or oral request of the Holder, the Company shall within two (2) Business Days confirm to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, the Holder may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided that (i) any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(g) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.

 

 

 

 

2.  ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:

 

(a) Adjustment upon Subdivision or Combination of Common Stock. If the Company at any time on or after the Exchange Date subdivides (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Exchange Date combines (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(a) shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

(b) Other Events. If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Exercise Price and the number of Warrant Shares so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(b) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2 .

 

3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to all holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:

 

(a) any Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid Price of the shares of Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (ii) the denominator shall be the Closing Bid Price of the shares of Common Stock on the Trading Day immediately preceding such record date; and

 

 

 

 

(b) the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding paragraph (a); provided that in the event that the Distribution is of shares of Common Stock (or common stock) (“Other Shares of Common Stock”) of a company whose shares of common stock are traded on a national securities exchange or a national automated quotation system, then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding paragraph (a) and the number of Warrant Shares calculated in accordance with the first part of this paragraph (b).

 

4.  PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

 

(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

 

 

 

 

(b) Fundamental Transactions. The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes this Warrant in accordance with the provisions of this Section (4)(b), including agreements to deliver to each holder of Warrants in exchange for such Warrants a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, an adjusted exercise price equal to the value for the shares of Common Stock reflected by the terms of such Fundamental Transaction, and exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and satisfactory to the Holder. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property) purchasable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been converted immediately prior to such Fundamental Transaction, as adjusted in accordance with the provisions of this Warrant. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant at any time after the consummation of the Fundamental Transaction but prior to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property) purchasable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had the Warrant been exercised immediately prior to such Fundamental Transaction. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied without regard to any limitations on the exercise of this Warrant.

 

5.  NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as this Warrant is outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of this Warrant, 100% of the number of shares of Common Stock issuable upon exercise of this Warrant then outstanding (without regard to any limitations on exercise).

 

6.  WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.

 

 

 

 

7.  REISSUANCE OF WARRANTS.

 

(a)  Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company together with a written assignment of this Warrant in the form attached hereto as Exhibit B duly executed by the Holder or its agent or attorney, whereupon the Company will forthwith, subject to compliance with any applicable securities laws, issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

 

(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

 

(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no Warrants for fractional shares of Common Stock shall be given.

 

(d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant, which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

 

8. OPTIONAL REDEMPTION. Beginning on October 1, 2020, at any time within 10 days following the occurrence of a Trading Threshold (as defined in Section 16(q)), the Company shall be entitled to redeem the Warrants, or any of them, at a per Warrant Share redemption price of $0.0001 (the “Redemption Price”), upon 30 days’ written notice to the Holder. Hereinafter such 30-day period, as it may be extended pursuant to this Section 8, is referred to as the “Redemption Period.” Upon the expiration of the Redemption Period (the “Redemption Date”), all Warrants noticed for redemption that have not theretofore been exercised by the Holder shall, upon payment of the aggregate Redemption Price therefor, cease to represent the right to purchase any shares of Common Stock and shall be deemed cancelled and void and of no further force or effect without any further act or deed on the part of the Company. The Holder undertakes to return the certificate representing any redeemed Warrants to the Company upon their redemption and to indemnify the Company with respect to any losses, claims, damages or liabilities arising from the Holder’s failure to return such certificate. In the event the certificate so returned represents a number of Warrants in excess of the number being redeemed, the Company shall as promptly as practicable issue to the Holder a new certificate for the number of unredeemed Warrants.

 

 

 

 

9. NOTICES. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in writing, will be mailed (a) if within the domestic United States by first-class registered or certified mail, or nationally recognized overnight express courier, postage prepaid, or by facsimile or (b) if delivered from outside the United States, by International Federal Express or facsimile, and (c) will be deemed given (i) if delivered by first-class registered or certified mail domestic, three business days after so mailed, (ii) if delivered by nationally recognized overnight carrier, one business day after so mailed, (iii) if delivered by International Federal Express, two business days after so mailed and (iv) if delivered by facsimile, upon electronic confirmation of receipt, and will be delivered and addressed as follows:

 

  (a) if to the Company, to:

 

Generation Hemp, Inc.

P.O. Box 540308

Dallas, Texas 75354

Attention: Gary C. Evans

Email: gevans@genhempinc.com

 

with copies to:

 

Duane Morris LLP

1540 Broadway

New York, NY 10036-4086

Attention: Dean M. Colucci

Email: dmcolucci@duanemorris.com

 

  (b) if to the Holder, to:

 

[INSERT NAME AND ADDRESS]

Attn:

Facsimile:

 

with copies to:

 

[ ]

Attn:

Email:

 

or to Holder’s address on any Exercise Notice delivered to the Company in the form attached as Exhibit A hereto, or at such other address or addresses as may have been furnished to the Company in writing.

 

10. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant may be amended only with the written consent of the Company and the Holder, and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only with the written consent of the Holder.

 

11. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of Colorado, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Colorado or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Colorado.

 

 

 

 

12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.

 

13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile or electronic mail within two (2) Business Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two (2) Business Days submit via facsimile or electronic mail (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant.

 

15. TRANSFER. Subject to compliance with any applicable securities laws, this Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company.

 

16.  CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:

 

(a) “Bloomberg” means Bloomberg Financial Markets.

 

(b) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

(c) “Change of Control” means any Fundamental Transaction other than (A) any reorganization, recapitalization or reclassification of the Common Stock, in which holders of the Company’s voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities, or (B) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company.

 

 

 

 

(d) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or the last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as determined by the Board of Directors of the Company in the exercise of its good faith judgment. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

(e) “Common Stock” means (i) the Company’s shares of Common Stock, par value $0.001 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

 

(f) “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., The American Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market or OTC Bulletin Board.

 

(g) “Expiration Date” means the date two (2) years following the Issuance Date or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a “Holiday”), the next date that is not a Holiday.

 

(h) “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than the 67% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 67% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), (v) reorganize, recapitalize or reclassify its Common Stock, or (vi) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 67% of the aggregate ordinary voting power represented by issued and outstanding Common Stock.

 

 

 

 

(i) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

(j) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

 

(k) “Principal Market” means OTC Markets.

 

(l) “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

 

(m) “Trading Day” means any day on which shares of Common Stock are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market or electronic quotations system on which the shares of Common Stock are then traded; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange, market or system for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange, market or system (or if such exchange, market or system does not designate in advance the closing time of trading on such exchange, market or system, then during the hour ending at 4:00 p.m., New York time).

 

(n) A “Trading Threshold” shall be deemed to occur on any date that the reported Weighted Average Price for any five (5) out of seven (7) consecutive Trading Days immediately prior to such date, exceeds $1.00 with a minimum average daily trading volume for such seven (7) day period of at least 25,000 shares of Common Stock as reported by the Principal Market for such period (with such price and volume criteria being appropriately adjusted for any share dividend, share split or other similar transaction that may occur on or after the Issuance Date).

 

(o) “Weighted Average Price” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market or electronic quotations system on which the shares of Common Stock are then traded) during the period beginning at 9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets LLC (or any successor thereto). If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 13 with the term “Weighted Average Price” being substituted for the term “Exercise Price.” All such determinations shall be appropriately adjusted for any share dividend, share split or other similar transaction during such period.

 

[Signature Page Follows]

 

 

 

 

 

IN WITNESS WHEREOF, the parties have caused this Warrant to Purchase Common Stock to be duly executed and delivered as of the Issuance Date set out above.

 

  GENERATION HEMP, INC.
   
 

By:

 
  Name: Gary C. Evans
  Title: Chief Executive Officer

 

  [TRANSFEROR]
   
 

By:

 
  Name:
 

Title:

Date: 11-27-2019

 

 

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

GENERATION HEMP, INC.

 

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of Generation Hemp, Inc, a Colorado corporation (the “Company”), evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1.  Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as:

 

  ____________ a “Cash Exercise” with respect to _________________ Warrant Shares; and/or

 

  ____________ a “Cashless Exercise” with respect to _______________ Warrant Shares (provided the conditions for cashless exercise set forth in Section 1(d) of the Warrant are satisfied).

 

2.  Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

 

3.  Delivery of Warrant Shares. The Company shall deliver __________ Warrant Shares in the name of the undersigned holder or in the name of ______________________ in accordance with the terms of the Warrant or by physical delivery of a certificate to:

 

_______________________________

 

_______________________________

 

_______________________________

 

Date: _______________ __, ______

 

   
Name of Registered Holder

 

By:    
  Name:
  Title:

 

 

 

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Exercise Notice and hereby directs [●] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated [ ], 2020 from the Company and acknowledged and agreed to [●].

 

  GENERATION HEMP, INC
   
 

By: 

    Name:  Gary C. Evans
    Title: Chairman and CEO  

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

 

FOR VALUE RECEIVED, all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

_______________________________________________ whose address is

 

_______________________________________________________________.

 

_______________________________________________________________

 

Dated: ______________, _______

 

  Holder’s Signature:    
       
  Holder’s Address:    
       

 

Signature Guaranteed:    

 

 

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

 

 

 

 

EXHIBIT B

 

FORM OF CASH WARRANT

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

 

GENERATION HEMP, INC.

 

WARRANT TO PURCHASE COMMON STOCK

(Cash Exercise)

 

Warrant No.: ___

Number of Shares of Common Stock: 3

Date of Issuance: November 27, 2019 (“Issuance Date”)

 

Generation Hemp, Inc., a Colorado corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, [ ● ], the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon surrender of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), 3 (three) fully paid non-assessable shares of Common Stock (as defined below) (the “Warrant Shares”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16. This Warrant is the Warrant to purchase Common Stock (this “Warrant”) issued pursuant to Section 1(a) of that certain Securities Exchange Agreement (the “Securities Exchange Agreement”), dated as of this date (the “Exchange Date”), by and between the Company and the Transferors (as defined therein).

 

 

 

 

1.  EXERCISE OF WARRANT.

 

(a) Mechanics of Exercise. Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder on any day on or after the thirtieth (30th) day after the Issuance Date, in whole or in part, by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant and (ii) (A) payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or by wire transfer of immediately available funds or (B) provided the conditions for cashless exercise set forth in Section 1(d) are satisfied, by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. On or before the first (1st ) Business Day following the date on which the Company has received each of the Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless Exercise) (collectively, the “Exercise Delivery Documents”), the Company shall transmit by facsimile or electronic mail an acknowledgment of receipt of the Exercise Delivery Documents to the Holder and Continental Stock Transfer & Trust Company (the Company’s “Transfer Agent”). On or before the third (3rd) Business Day following the date on which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company shall cause the Shares to be issued in the name of and delivered to the Holder (i) written confirmation that the Shares have been issued in the name of the Holder, and (ii) a new warrant of like tenor to purchase all of the Shares that may be purchased pursuant to the portion, if any, of this Warrant not exercised by the Holder. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded down to the nearest whole number.

 

(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $0.352 subject to adjustment as provided herein.

 

(c) Legend. The Holder acknowledges that each certificate evidencing the Warrant Shares acquired upon the exercise of this Warrant will have restrictions upon resale imposed by state and federal securities laws. Each such certificate shall be stamped or imprinted with a legend substantially in the following form:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, WHICH OPINION SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

 

 

 

 

(d) Beneficial Ownership. The Company shall not effect the exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that after giving effect to such exercise, such Person (together with such Person’s affiliates) would beneficially own in excess of 9.99% (the “Maximum Percentage”) of the shares of Common Stock outstanding immediately after giving effect to such exercise (including in connection with any Fundamental Transaction (as defined below)). For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Person and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Person and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person and its affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. To the extent that the limitation contained in this Section 1(f) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of a Holder, and the submission of an Exercise Notice shall be deemed to be each Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. For any reason at any time, upon the written or oral request of the Holder, the Company shall within two (2) Business Days confirm to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, the Holder may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided that (i) any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(g) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.

 

2.  ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:

 

(a) Adjustment upon Subdivision or Combination of Common Stock. If the Company at any time on or after the Exchange Date subdivides (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Exchange Date combines (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(a) shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

(b) Other Events. If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Exercise Price and the number of Warrant Shares so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(b) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2 .

 

 

 

 

3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to all holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:

 

(a) any Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid Price of the shares of Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (ii) the denominator shall be the Closing Bid Price of the shares of Common Stock on the Trading Day immediately preceding such record date; and

 

(b) the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding paragraph (a); provided that in the event that the Distribution is of shares of Common Stock (or common stock) (“Other Shares of Common Stock”) of a company whose shares of common stock are traded on a national securities exchange or a national automated quotation system, then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding paragraph (a) and the number of Warrant Shares calculated in accordance with the first part of this paragraph (b).

 

4.  PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

 

(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

 

 

 

 

(b) Fundamental Transactions. The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes this Warrant in accordance with the provisions of this Section (4)(b), including agreements to deliver to each holder of Warrants in exchange for such Warrants a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, an adjusted exercise price equal to the value for the shares of Common Stock reflected by the terms of such Fundamental Transaction, and exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and satisfactory to the Holder. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property) purchasable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been converted immediately prior to such Fundamental Transaction, as adjusted in accordance with the provisions of this Warrant. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant at any time after the consummation of the Fundamental Transaction but prior to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property) purchasable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had the Warrant been exercised immediately prior to such Fundamental Transaction. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied without regard to any limitations on the exercise of this Warrant.

 

5.  NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as this Warrant is outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of this Warrant, 100% of the number of shares of Common Stock issuable upon exercise of this Warrant then outstanding (without regard to any limitations on exercise).

 

 

 

 

6.  WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.

 

7.  REISSUANCE OF WARRANTS.

 

(a)  Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company together with a written assignment of this Warrant in the form attached hereto as Exhibit B duly executed by the Holder or its agent or attorney, whereupon the Company will forthwith, subject to compliance with any applicable securities laws, issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

 

(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

 

(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no Warrants for fractional shares of Common Stock shall be given.

 

(d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant, which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

 

 

 

 

8. OPTIONAL REDEMPTION. Beginning on October 1, 2020, at any time within 10 days following the occurrence of a Trading Threshold (as defined in Section 16(q)), the Company shall be entitled to redeem the Warrants, or any of them, at a per Warrant Share redemption price of $0.0001 (the “Redemption Price”), upon 30 days’ written notice to the Holder. Hereinafter such 30-day period, as it may be extended pursuant to this Section 8, is referred to as the “Redemption Period.” Upon the expiration of the Redemption Period (the “Redemption Date”), all Warrants noticed for redemption that have not theretofore been exercised by the Holder shall, upon payment of the aggregate Redemption Price therefor, cease to represent the right to purchase any shares of Common Stock and shall be deemed cancelled and void and of no further force or effect without any further act or deed on the part of the Company. The Holder undertakes to return the certificate representing any redeemed Warrants to the Company upon their redemption and to indemnify the Company with respect to any losses, claims, damages or liabilities arising from the Holder’s failure to return such certificate. In the event the certificate so returned represents a number of Warrants in excess of the number being redeemed, the Company shall as promptly as practicable issue to the Holder a new certificate for the number of unredeemed Warrants.

 

9. NOTICES. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in writing, will be mailed (a) if within the domestic United States by first-class registered or certified mail, or nationally recognized overnight express courier, postage prepaid, or by facsimile or (b) if delivered from outside the United States, by International Federal Express or facsimile, and (c) will be deemed given (i) if delivered by first-class registered or certified mail domestic, three business days after so mailed, (ii) if delivered by nationally recognized overnight carrier, one business day after so mailed, (iii) if delivered by International Federal Express, two business days after so mailed and (iv) if delivered by facsimile, upon electronic confirmation of receipt, and will be delivered and addressed as follows:

 

  (a) if to the Company, to:

 

Generation Hemp, Inc.

P.O. Box 540308

Dallas, Texas 75354

Attention: Gary C. Evans

Email: gevans@genhempinc.com

 

with copies to:

 

Duane Morris LLP

1540 Broadway

New York, NY 10036-4086

Attention: Dean M. Colucci

Email: dmcolucci@duanemorris.com

 

  (b) if to the Holder, to:

 

[INSERT NAME AND ADDRESS]

Attn:

Facsimile:

 

with copies to:

 

[ ]

Attn:

Email:

 

or to Holder’s address on any Exercise Notice delivered to the Company in the form attached as Exhibit A hereto, or at such other address or addresses as may have been furnished to the Company in writing.

 

10. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant may be amended only with the written consent of the Company and the Holder, and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only with the written consent of the Holder.

 

11. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of Colorado, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Colorado or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Colorado.

 

 

 

 

12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.

 

13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile or electronic mail within two (2) Business Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two (2) Business Days submit via facsimile or electronic mail (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant.

 

15. TRANSFER. Subject to compliance with any applicable securities laws, this Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company.

 

16.  CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:

 

(a) “Bloomberg” means Bloomberg Financial Markets.

 

(b) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

(c) “Change of Control” means any Fundamental Transaction other than (A) any reorganization, recapitalization or reclassification of the Common Stock, in which holders of the Company’s voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities, or (B) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company.

 

 

 

 

(d) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or the last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as determined by the Board of Directors of the Company in the exercise of its good faith judgment. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

(e) “Common Stock” means (i) the Company’s shares of Common Stock, par value $0.001 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

 

(f) “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., The American Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market or OTC Bulletin Board.

 

(g) “Expiration Date” means the date two (2) years following the Issuance Date or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a “Holiday”), the next date that is not a Holiday.

 

(h) “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than the 67% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 67% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), (v) reorganize, recapitalize or reclassify its Common Stock, or (vi) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 67% of the aggregate ordinary voting power represented by issued and outstanding Common Stock.

 

 

 

 

(i) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

(j) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

 

(k) “Principal Market” means OTC Markets.

 

(l) “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

 

(m) “Trading Day” means any day on which shares of Common Stock are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market or electronic quotations system on which the shares of Common Stock are then traded; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange, market or system for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange, market or system (or if such exchange, market or system does not designate in advance the closing time of trading on such exchange, market or system, then during the hour ending at 4:00 p.m., New York time).

 

(n) A “Trading Threshold” shall be deemed to occur on any date that the reported Weighted Average Price for any five (5) out of seven (7) consecutive Trading Days immediately prior to such date, exceeds $1.00 with a minimum average daily trading volume for such seven (7) day period of at least 25,000 shares of Common Stock as reported by the Principal Market for such period (with such price and volume criteria being appropriately adjusted for any share dividend, share split or other similar transaction that may occur on or after the Issuance Date).

 

(o) “Weighted Average Price” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market or electronic quotations system on which the shares of Common Stock are then traded) during the period beginning at 9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets LLC (or any successor thereto). If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 13 with the term “Weighted Average Price” being substituted for the term “Exercise Price.” All such determinations shall be appropriately adjusted for any share dividend, share split or other similar transaction during such period.

 

[Signature Page Follows]

 

 

 

 

 

IN WITNESS WHEREOF, the parties have caused this Warrant to Purchase Common Stock to be duly executed and delivered as of the Issuance Date set out above.

 

  GENERATION HEMP, INC.
   
 

By:

 
  Name: Gary C. Evans
  Title: Chief Executive Officer

 

  [TRANSFEROR]
   
 

By:

 
  Name:
 

Title:

Date:

 

 

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

GENERATION HEMP, INC.

 

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of Generation Hemp, Inc, a Colorado corporation (the “Company”), evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1.  Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

 

2.  Delivery of Warrant Shares. The Company shall deliver __________ Warrant Shares in the name of the undersigned holder or in the name of ______________________ in accordance with the terms of the Warrant or by physical delivery of a certificate to:

 

_______________________________

 

_______________________________

 

_______________________________

 

Date: _______________ __, ______

 

   
Name of Registered Holder

 

By:    
  Name:
  Title:

 

 

 

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Exercise Notice and hereby directs [●] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated [ ], 2020 from the Company and acknowledged and agreed to [●].

 

  GENERATION HEMP, INC
   
 

By:

 
    Name:
    Title:

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

 

FOR VALUE RECEIVED, all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

_______________________________________________ whose address is

 

_______________________________________________________________.

 

_______________________________________________________________

 

Dated: ______________, _______

 

  Holder’s Signature:    
       
  Holder’s Address:    
       

 

Signature Guaranteed:    

 

 

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

 

 

 

 

EXHIBIT C

 

RISK FACTORS

 
[See attached.]

 

 

 

 

This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below. If any of the following risk factors actually occur, our business, operating results and financial condition could be seriously harmed, and the value of our stock could go down. This means you could lose all or part of your investment.

 

Risks Related to our Activities in the Legal Hemp Industry 

 

This investment has a high degree of risk.  Before you invest you should carefully consider the risks and uncertainties described below.  If any of the following risks actually occur, our business, operating results and financial condition could be harmed, and the value of our stock could go down.  This means you could lose all or part of your investment.

 

The Hemp space is a completely new and developing sector with many uncertainties.  The recent legal designation of hemp that distinguishes its plant properties from marijuana has required ongoing acceptance and the establishment of protocols by certain institutions in which affiliation is required to conduct business; i.e. banking, insurance, transport.  The lack of established protocols, the continuous changes in developing protocols, and the effects on businesses operating within the Hemp sector can potentially result in a disruption of workflow, in sales processing, in freely shipping and receiving of hemp plant material and/or products and receiving the necessary protections/coverages by insurance.  These evolving elements also potentially create a volatile landscape which can encumber a business’s ability to make sound decisions, execute on previously planned strategies, or make reliable projections.  Hemp is federally legal and as of March 2020, is legal in all but two states, Idaho and Mississippi.  Idaho passed the hemp bill in its Senate in February 2020, but the bill was defeated in its House in March 2020. Each state has the ability to determine its hemp legality, although broader oversight power is held by the United States Department of Agriculture (USDA) and the Food and Drug Administration (FDA).  On April 6, 2020, the Drug Enforcement Agency (DEA) descheduled cannabidiol (CBD), one of the cannabinoids that can be extracted from hemp which has gained widespread attention among consumers and businesses across several markets.  However, hemp has several other cannabinoids and while there is still limited data and clinical studies on the most popular cannabinoid, CBD, even less data and fewer clinical studies are available for other cannabinoids.  This lack of data therefore presents many unknowns that have potential to create an uncertain future pathway for hemp. 

 

Guidelines, standard practices, and regulations have not been thoroughly established and have undergone several changes in a short amount of time.  This represents one of the greatest risks that hemp faces for the future.  Companies that create models, build and formulate product lines, and construct systems and equipment to operate and produce certain outputs based on current guidelines have the potential for those systems, product lines, etc. to be non-compliant or unusable if regulations and guidelines change to their detriment.

 

The nascency of the Hemp space and a relatively low barrier to entry for CBD consumer products through white label companies and ecommerce platforms has attracted a wide range of individuals and professionals to the space.  The potentially high margins for successful hemp crops in comparison to traditional crops like corn or wheat have also attracted a large number of growers/farmers to the space.  Given the limited amount of time for individuals and entities to have developed expertise in their efforts within their respective hemp markets, each segment of the hemp supply chain is potentially susceptible to less than optimal success, quality, and/or performance.  More time will be necessary to optimize all processes and standards.  This influx of individuals and entities that may not be using best practices or producing quality crops or products present a potential risk of negatively influencing consumer experience with hemp and its derivative products or influencing commodity prices of crops with a possible surplus of potentially low-quality biomass.  These elements could potentially have a negative impact on the consumers’ and investment community’s perception and embracing of the hemp and CBD market as a whole.

 

 

 

 

We will be subject to a myriad of different laws and regulations governing hemp and our inability to comply with such laws in a cost-effective manner may have an adverse effect on our business and result of operations.

 

Laws and regulations governing the use of hemp in the United States are broad in scope; subject to evolving interpretations; and subject to enforcement by a myriad of regulatory agencies and law enforcement entities. Under the Agriculture Improvement Act of 2018, also known as the 2018 Farm Bill, a state or Indian tribe that desires to have primary regulatory authority over the production of hemp in the state or territory of the Indian tribe must submit a plan to monitor and regulate hemp production to the Secretary of the USDA. The Secretary must then approve the state or tribal plan after determining if the plan complies with the requirements set forth in the Agriculture Improvement Act of 2018. The Secretary may also audit the state or Indian tribe’s compliance with the federally-approved plan. If the Secretary does not approve the state or Indian tribe’s plan, then the production of hemp in that state or territory of that Indian tribe will be subject to a plan established by USDA. USDA has not yet established such a plan. We anticipate that many states will seek to have primary regulatory authority over the production of hemp. States that seek such authority may create new laws and regulations that limit or restrict the use of hemp.

 

Federal and state laws and regulations on hemp may address production, monitoring, manufacturing, distribution, and laboratory testing to ensure that that the hemp has a delta-9 tetrahydrocannabinol concentration of not more than 0.3% on a dry weight basis. Federal laws and regulations may also address the transportation or shipment of hemp or hemp products, as the Agriculture Improvement Act of 2018 prohibits states and Indian tribes from prohibiting the transportation or shipment of hemp or hemp products produced in accordance with that law through the state or territory of the Indian tribe, as applicable. We may be subject to many different state-based regulatory regimens for hemp, all of which could require us to incur substantial costs associated with compliance requirements. Our operations will be restricted to only where such operations are legal on the local, state and federal levels.

 

In addition, it is possible that additional regulations may be enacted in the future in the United States and globally that will be directly applicable to research and development operations.

 

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 have no operating history in the legal hemp or cannabis industry, which makes it difficult to accurately assess our future growth prospects.

 

The legal hemp and cannabis industry is an evolving industry that may not develop as expected. Furthermore, our operations will continue to evolve as we continually assess new strategic opportunities for our business within this industry. Assessing the future prospects of this industry is challenging in light of both known and unknown risks and difficulties we may encounter.

 

 

 

 

Growth prospects in the legal hemp and cannabis industry can be affected by a wide variety of factors including:

 

● Competition from other similar companies;

 

● Fluctuations in the market price of CBD oil;

 

● Regulatory limitations on the types of research and development with respect to cannabis;

 

● Other changes in the regulation of cannabis and legal hemp use; and

 

● Changes in underlying consumer behavior, which may affect the demand of our legal hemp and cannabis traits.

 

We may not be able to successfully address the above factors, which could negatively impact our intended business plans.

 

Because we have only recently begun our legal hemp operations, we anticipate our operating expenses will increase prior to earning revenue from these operations.

 

As we identify and develop strategic opportunities, conduct any necessary research and development with respect to legal hemp, and expand our operations, we anticipate significant increases in our operating expenses, and we may not realize significant revenues from such operations. As a result, the Company may incur significant financial losses with respect to such operations in the foreseeable future. There is no history upon which to base any assumption as to the likelihood that these operations will prove successful.

 

Negative press from being in the hemp/cannabis space could have a material adverse effect on our business, financial condition, and results of operations.

 

The hemp plant and the cannabis/marijuana plant are both part of the same cannabis sativa genus/species of plant, except that hemp, by definition, has less than 0.3% THC content, but the same plant with a higher THC content is cannabis/marijuana, which is legal under certain state laws, but which is not legal under federal law. The similarities between these plants can cause confusion, and our activities with legal hemp may be incorrectly perceived as us being involved in federally illegal cannabis. Also, despite growing support for the cannabis industry and legalization of cannabis in certain U.S. states, many individuals and businesses remain opposed to the cannabis industry. Any negative press resulting from any incorrect perception that we have entered into the cannabis space could result in a loss of current or future business. It could also adversely affect the public’s perception of us and lead to reluctance by new parties to do business with us or to own our common stock. We cannot assure you that additional business partners, including but not limited to financial institutions and customers, will not attempt to end or curtail their relationships with us. Any such negative press or cessation of business could have a material adverse effect on our business, financial condition, and results of operations.

 

 

 

 

Risks Related to Our Business

 

Unfavorable global economic or political conditions could adversely affect our business, financial condition or results of operations.

 

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. A global financial crisis or a global or regional political disruption could cause extreme volatility in the capital and credit markets. For example, outbreaks of epidemic, pandemic, or contagious diseases, such as the recent COVID-19 outbreak, could disrupt our business. Business disruptions could include disruptions to the productivity of our employees working remotely and restrictions on their travel may hinder their ability to meet with potential customers and close transactions, as well as temporary closures of the facilities of suppliers or contract growers as we try to develop our supply chain. In addition, the COVID-19 outbreak may result in a severe economic downturn and has already significantly affected the financial markets of many countries. A severe or prolonged economic downturn or political disruption could result in a variety of risks to our business, including our ability to raise capital when needed on acceptable terms, if at all. A weak or declining economy or political disruption could also strain our operations, possibly resulting in a future supply disruption, or cause our future customers to delay making payments for our services. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the political or economic climate and financial market conditions could adversely impact our business.

 

Our Auditor’s report states that there is substantial doubt that we will be able to continue as a going concern

 

We have had substantial losses since inception and as of December 31, 2019, and have minimal cash reserves. While we are beginning to generate increasing revenue and a positive cash flow, our ability to build significant cash reserves and continue as a going concern over the long term remains unproven. In the event that we are forced to reduce operations or seriously curtail our business, an investor will lose all money invested.

 

A significant portion of our previous monthly cash flow was derived from rental revenue received from our industrial warehouse, which may prove uncollectable.

 

We carefully vet prospective tenants, and we obtain their personal guarantees as to payment and performance under the lease terms, when deemed necessary.

 

In the event the cultivation business of one or more grower tenants fails, or for any reason our tenant fails to pay rent in a timely fashion and we do not receive the rent payments as such payments become due under lease terms, thereafter, if satisfactory payment arrangements as acceptable to us are not made, we may be forced to evict.

 

Under terms of the leases now in effect, if we do not receive rent payments as such payments become due and payable under lease terms, we may first utilize the sums we hold as tenant security deposits to collect the late rent payments with penalty. Under the terms of the leases in place, tenants then are required, within five days, to replace such security deposit sums such that the full tenant security deposit is restored. There is no assurance that such replacements of deposit sums will actually occur.

 

In any event, if tenants do not comply with lease terms, and no workable arrangement can be achieved, we may be forced to evict one or more tenants. This has occurred in the past and could occur again. Unfavorable developments of this nature could contribute to or cause us to fall behind on our obligations to make monthly mortgage payments as such payments become due.

 

 

 

 

During the past, the Company has experienced disagreements with certain previous warehouse tenants.  One tenant abandoned his unit and was subsequently evicted. The other tenant ultimately amended his lease to include the abandoned space but only after considerable argument over various lease terms had been settled.  As of the date of this report, a single tenant is leasing our entire Garfield Street warehouse and that tenant has remained current on its lease obligations. 

 

If we pursue an action for eviction, one or more tenants might cause physical damage to our real estate and/or fight an action for eviction, and/or refuse to vacate or otherwise undertake to block and/or slow our efforts to regain proper possession of our warehouse or to locate a suitable alternative tenant to re-lease our warehouse.

 

We believe that we have acted legally and in good faith with respect to our warehouse tenant(s). We further believe that our real estate is adequately insured. We plan to defend our property and related contractual rights to the fullest extent of the law.  In the past we were assisted by counsel to negotiate a suitable remedy to various disputes.  There is no present way to predict the final outcome of any new issues that may arise.

 

A tenant, present or former, may claim to have suffered damages and in connection with that belief, may elect to initiate and thereafter pursue one or more regulatory complaints or lawsuits against the Company, its management and subsidiaries.

 

We believe we have acted properly in all of our dealings with tenants at our warehouse and properties we manage for third parties and otherwise. We have requested counsel to confirm the legality of our past and present agreements and actions and to advise us accordingly. In any case, we have prevailed in various prior matters of this nature and we plan to vigorously defend any suit or regulatory complaint brought against the Company, its employees or agents.

 

We have a limited operating history and operate under the professional guidance of our Chairman and CEO

 

Our ability to achieve consistent cash flow and profitability depends upon the continued service of Gary C. Evans. Mr. Evans is our Chairman and CEO, largest shareholder, and one of two management level executives.

 

Our business plan provides that we will grow the Company’s asset base and revenues rapidly and ultimately deliver a positive cash flow generating company.

 

We may not be able to generate predictable and continuous revenue in the future. Further, there is no assurance that we will ever grow operations in the manner contemplated.

 

We may incur significant operating losses in the future, due to the expansion of our operations or other factors. There is no assurance that we can expand under terms that permit profitable operations over the long term. Failure to generate sufficient revenue to pay expenses as they come due may make us unable to continue as a going concern and result in the failure of our company and the complete loss of any money invested to purchase our shares.

 

We may be unable to manage our growth or implement our expansion strategy.

 

As a public company, our expenses include, but are not limited to, annual audits, legal costs, SEC reporting costs, costs of a transfer agent and the costs associated with fees and compliance. Further, our management will need to invest significant time and energy to stay current with the public company responsibilities of our business and may from time to time have diminished time available to apply to other tasks necessary to our survival and growth.

 

 

 

 

It is therefore possible that the financial and time burdens of operating as a public company will cause us to fail to achieve profitability. If we exhaust our funds, our business will fail and our investors will lose all money invested in our stock.

 

If we fail to pay public company costs, as such costs are incurred; we could become delinquent in our reporting obligations and face the delisting of our shares.

 

It is essential that we grow our overall business, achieve significant profits and maintain adequate cash flow in order to pay the cost of remaining a public entity which includes but is not limited the costs of remaining current with SEC reporting obligations.

 

The issuance of additional shares of our common stock may be necessary for the implementation of our growth strategy.

 

A limited private placement of restricted shares of our common stock has been completed when deemed necessary. Cash generated in prior years was used to acquire cannabis zoned real property, finance our office space and provide working capital.  Issuance of any additional securities pursuant to future fundraising activities undertaken may significantly dilute the ownership of existing shareholders and may reduce the price of our common stock.

 

We acquired, improved and leased our Denver warehouse to a licensed third party Hemp seed grower. Rental payments are current and the warehouse is presently reflecting positive cash flow.

 

While we have been able to acquire a warehouse in Denver Colorado with owner financing, future acquisitions may require financial resources well in excess of our present balance sheet. Failure to successfully obtain additional funding would likely jeopardize our ability to expand our hemp business and related operations. 

 

The loss of our current executive officer or key management personnel or inability to attract and retain the necessary personnel could have a material adverse effect upon our business, financial condition or results of operations

 

Our success is heavily dependent on the continued active participation of our current executive officer, largest shareholder, and sole director listed under "Management." Loss of the services of Mr. Gary C. Evans, would have a material adverse effect upon our business, financial condition or results of operations. Further, our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain other highly qualified technical, professional, clerical, administrative and managerial personnel. Inability to attract and retain the necessary personnel, consultants and advisors could have a material adverse effect on our business, financial condition or results of operations. 

 

We are controlled by our current officer and director.

 

Gary C. Evans, our Chairman and Chief Executive Officer, who, as of December 31, 2019, beneficially owns approximately 40% of our outstanding shares of Common Stock. Mr. Evans consequently controls the election of our Board of Directors and the outcome of issues submitted to our stockholders.

 

 

 

 

Since we have only one director who serves as our Chairman, President, Chief Executive Officer, and Chief Financial Officer, decisions which affect the company will be made by only one individual. It is likely that conflicts of interest will arise in the day-to- day operations of our business. Such conflicts, if not properly resolved, could have a material negative impact on our business. 

 

In the past, the Company has issued shares for cash and services at prices which were solely determined by prior management. At that time, management made a determination of both the value of the exchange for our shares, and, as well, the price per share used in the capital raising effort.  Transactions of this nature were not made at arm's length and were made without input from a knowledgeable and non-interested third party.  Future transactions of a like nature could dilute the percentage ownership of the company owned by a given investor. While the company believes its past transactions were appropriate, and plans to act in good faith in the future, an investor in our shares will have no ability to alter such transactions as they may occur in the future and, further, will not be consulted by the company in advance of any such transactions. An investor who is unwilling to endure such potential dilution should not purchase our shares.

 

Adverse outcomes in future legal proceedings could subject us to substantial damages and adversely affect our results of operations and profitability.

 

We may become party to legal proceedings, including matters involving personnel and employment issues, personal injury, environmental matters, and other proceedings. Some of these potential proceedings could result in substantial damages or payment awards that exceed our insurance coverage. We will estimate our exposure to any future legal proceedings and establish provisions for the estimated liabilities where it is reasonably possible to estimate and where an adverse outcome is probable. Assessing and predicting the outcome of these matters will involve substantial uncertainties. Furthermore, even if the outcome is ultimately in our favor, our costs associated with such litigation may be material. Adverse outcomes in future legal proceedings or the costs and expenses associated therewith could have an adverse effect on our results of operations.

 

We will seek to expand through acquisitions of and investments in various brands, businesses, and assets in the Hemp sector. These acquisition activities may be unsuccessful or divert management’s attention.

 

We will consider strategic and complementary acquisitions of and investments in other brands, businesses or other assets in the Hemp sector, and such acquisitions or investments are subject to risks that could affect our business, including risks related to:

 

● the necessity of coordinating geographically disparate organizations;

 

● implementing common systems and controls;

 

● integrating personnel with diverse business and cultural backgrounds;

 

● integrating acquired manufacturing and production facilities, technology and products;

 

● unanticipated expenses related to integration, including technical and operational integration;

 

 

 

 

● increased costs and unanticipated liabilities, including with respect to registration, environmental, health and safety matters, that may affect sales and operating results;

 

● retaining key employees;

 

● obtaining required government and third-party approvals;

 

● legal limitations in new jurisdictions;

 

● installing effective internal controls and audit procedures;

 

● issuing common stock that could dilute the interests of our existing stockholders;

 

● spending cash and incurring debt;

 

● assuming contingent liabilities; and

 

● creating additional expenses.

 

We may not be able to identify opportunities or complete transactions on commercially reasonable terms, or at all, or actually realize any anticipated benefits from such acquisitions or investments. Similarly, we may not be able to obtain financing for acquisitions or investments on attractive terms. In addition, the success of any acquisitions or investments also will depend, in part, on our ability to integrate the acquisition or investment with our then existing operations.

 

We risk insolvency if revenues decline sharply and we are unable pay our bills and unable to timely locate and negotiate a suitable business combination or capital injection.

 

Management is always concerned over potentially unfavorable events and related sharp reductions in revenues. If such problems occur, we will first reduce expenses, conserve cash and endeavor to replace lost revenue. In anticipation of possible problems of this nature, and alternatively to grow our business when opportunity presents, management has continued its negotiations in connection with potential business combinations and continues to explore other means of raising cash. Our goal is to develop cash reserves, either for expansion, or to cover shortfalls in revenue. Management believes that ultimately, consummation of one or more such transactions would serve the best interests of shareholders; however, there is no assurance that we can locate or consummate a suitable business combination or otherwise provide for liquidity, expanded working capital and a stronger balance sheet.

 

 

 

 

We are subject to corporate governance and internal control reporting requirements, and our costs related to compliance with, or our failure to comply with existing and future requirements, could adversely affect our business.

 

We face corporate governance requirements under the Sarbanes-Oxley Act of 2002, as well as new rules and regulations subsequently adopted by the SEC and the Public Company Accounting Oversight Board. These laws, rules and regulations continue to evolve and may become increasingly stringent in the future. In particular, under new SEC rules we will be required to include management's report on internal controls as part of our annual report pursuant to Section 404 of the Sarbanes-Oxley Act. Furthermore, under the proposed rules, an attestation report on our internal controls from our independent registered public accounting firm will be required as part of our annual report. We are in the process of evaluating our control structure to help ensure that we will be able to comply with Section 404 of the Sarbanes-Oxley Act. The financial cost of compliance with these laws, rules and regulations is expected to be substantial. We cannot assure you that we will be able to fully comply with these laws, rules and regulations that address corporate governance, internal control reporting and similar matters. Failure to comply with these laws, rules and regulations could materially adversely affect our reputation, financial condition and the value of our securities. 

 

Risks Related to Ownership of Our Common Stock

 

Our stock price has been and may continue to be volatile, and you could lose all or part of your investment.

 

The market price of our common stock is subject to wide fluctuations in response to various risk factors, some of which are beyond our control and may not be related to our operating performance, including:

 

● addition or loss of significant customers, suppliers, or distributors;

 

● changes in laws or regulations applicable to our industry ;

 

● additions or departures of key personnel;

 

● the failure of securities analysts to cover our common stock after an offering;

 

● actual or anticipated changes in expectations regarding our performance by investors or securities analysts;

 

● price and volume fluctuations in the overall stock market;

 

● volatility in the market price and trading volume of companies in our industry or companies that investors consider comparable;

 

● share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

● our ability to protect our intellectual property and other proprietary rights;

 

● sales of our common stock by us or our stockholders;

 

● the expiration of contractual lock-up agreements;

 

● litigation involving us, our industry, or both;

 

● major catastrophic events; and

 

● general economic and market conditions and trends.

 

 

 

 

Further, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. In addition, the stock prices of many cannabis-related companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions such as recessions, interest rate changes, or international currency fluctuations, may cause the market price of our common stock to decline. If the market price of our common stock fluctuates or declines, you may not realize any return on your investment and may lose some or all of your investment.

 

Our operating results will be subject to fluctuations and our stock price may decline significantly.

 

Our quarterly revenue and operating results will be difficult to predict from quarter to quarter. We derive relatively stable revenue from our property leased industrial warehouse. Nonetheless, it is possible that our net operating results in some quarters will fall below our expectations. Our quarterly operating results will be affected by a number of factors, including:

 

● Timing, availability and changes in government incentive programs;

 

● Unplanned additional expenses and/or shortfalls in anticipated rental income at our warehouse property;

 

● Logistical costs;

 

● The timing of new technology announcements or introductions by our competitors and other developments in the competitive environment;

 

● Increases or decreases in real estate appreciation rates due to changes in economic growth;

 

● Travel costs and other factors; and

 

● State and federal government regulations

 

If revenue for a particular quarter is lower than we expect, we may not be unable to proportionately reduce our operating expenses for that quarter, which would harm our operating results for that quarter. If we fail to meet investor expectations or our own future guidance, even by a small amount, our stock price could decline, perhaps substantially.

 

There are restrictions on the transferability of the securities.

 

Until registered for resale, investors must bear the economic risk of an investment in the Shares for an indefinite period of time. Rule 144 promulgated under the Securities Act ("Rule 144"), which provides for an exemption from the registration requirements under the Securities Act under certain conditions, requires, among other conditions,a six month holding period prior to the resale (in limited amounts) of securities acquired in a non-public offering without having to satisfy the registration requirements under the Securities Act. There can be no assurance that we will fulfill any reporting requirements in the future under the Exchange Act or disseminate to the public any current financial or other information concerning us.

 

 

 

 

A substantial number of our issued shares are or are being made available for sale on the open market. The resale of these securities might adversely affect our stock price.

 

The sale of a substantial number of shares of our common stock, or the market's anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise obtain.

 

Availability of these shares for sale in the public market could also impair our ability to raise capital by selling equity securities.

 

There is presently a limited trading market for our shares. An investment in our shares may be or become totally illiquid and any investor purchasing our shares may be unable to resell their shares. There can be no assurance that market interest in our shares will develop or continue. Therefore, investors who purchase our shares could lose their entire investment.

 

Even if significant trading activity involving our shares continues, the volume of trading may be small and on some days the volume may be zero. Our share price will likely be volatile and will likely fall rapidly should an investor attempt to liquidate a significant number of shares. These conditions are likely to persist and could prevent resale of our shares on desirable terms.

 

If the Company uses its stock in acquisitions of other entities there may be substantial dilution at the time of a transaction.

 

The offering price of the common stock we sold under our prospectus, and more recently as a private placement of restricted shares of our common stock to raise working capital, was arbitrarily set. The price did not bear any relationship to our assets, book value, earnings or net worth and it is not an indication of actual value. You may also suffer additional dilution in the future from the sale of additional shares of common stock or other securities or if the Company's shares are issued to purchase other assets or to raise additional working capital.

 

There is presently a very limited market for our common stock. Failure to maintain a trading market could negatively effect the value of our shares and make it difficult or impossible for you to sell your shares.

 

Our common stock has been assigned a trading symbol, "GENH." As of December 31, 2109, our common shares are quoted on OTC Pinks Current. There is no cost of such quotation and related services from OTC Markets, Inc.

 

Trading activity in our shares remains sporadic and there can be no assurance as to the liquidity of any markets for our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock. Failure to maintain an active trading market could negatively affect the value of our shares and make it difficult for you to sell your shares or recover any part of your investment in our shares. The market price of our common stock may be highly volatile. In addition to the uncertainties relating to our future operating performance and the profitability of our operations, factors such as variations in our interim financial results, or various, and as yet unpredictable factors, many of which are beyond our control, may have a negative effect on the market price of our common stock..

 

 

 

 

As an emerging growth company within the meaning of the Securities Act, we utilize certain modified disclosure requirements, and we cannot be certain if these reduced requirements will make our common stock less attractive to investors.

 

We are an emerging growth company within the meaning of the rules under the Securities Act and we utilize the modified disclosure requirements available to emerging growth companies, including reduced disclosure about our executive compensation and omission of compensation discussion and analysis, and an exemption from the requirement of holding a nonbinding advisory vote on executive compensation. In addition, we are not subject to certain requirements of Section 404 of the Sarbanes-Oxley Act, including the additional testing of our internal control over financial reporting as may occur when outside auditors attest as to our internal control over financial reporting. As a result, our stockholders may not have access to certain information they may deem important. We cannot predict if investors will find our common stock less attractive because we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

Because we do not expect to pay any dividends for the foreseeable future, investors may be forced to sell their stock to realize a return on their investment.

 

We do not anticipate that we will pay any dividends to holders of our common stock for the foreseeable future. Any payment of cash dividends will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions including compliance with covenants under our debt agreements, and other factors that our board of directors may deem relevant. Our ability to pay dividends might be restricted by the terms of any indebtedness that we incur in the future. In addition, certain of our current outstanding debt agreements prohibit us from paying cash dividends on our common stock. Consequently, you should not rely on dividends to receive a return on your investment.

 

Our common stock is still presently subject to the "Penny Stock" rules of the SEC.

 

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

 

● that a broker or dealer approve a person's account for transactions in penny stocks; and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

 

● obtain financial information and investment experience objectives of the person; and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

 

● sets forth the basis on which the broker or dealer made the suitability determination; and

 

● that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

 

 

 

 

Exhibit 10.10

 

GENERATION HEMP, INC.

COMMON STOCK AND WARRANT

SUBSCRIPTION AGREEMENT

 

Unit at $0.40 for One Share of Common Stock and Warrant

 

Date:  ______ __, 2020 Full Subscription Commitment: $___________

 

1. Subscription:

 

(a) The undersigned (individually and/or collectively, the “Participant”) hereby applies to purchase Units composed of (i) one share of Common Stock (the “Common Stock” or the “Shares”) of Generation Hemp, Inc., a Colorado corporation (the “Company”), and (ii) one warrant exercisable for one share of Common Stock (the “Warrant(s)”), in accordance with the terms and conditions of this Subscription Agreement (this “Subscription”) and form of Warrant which is attached as Exhibit A hereto, at a purchase price (the “Offering Price”) of $0.40 per Unit (collectively the “Units”). This Subscription is one of several Subscriptions to be entered into by and between the Company and Participants, pursuant to which the Company will raise up to $10,000,000 or such greater amount as the Company’s Board of Directors may so determine without notice or consent by any prior or future Participants (the “Offering”). The Participant acknowledges and understands that the Offering of the Units is being made without registration of the Units, the Common Stock, the Warrant or the Common Stock for which the Warrant is exercisable, under the Securities Act of 1933, as amended (the “Securities Act”), or any securities “blue sky” or other similar laws of any state.

 

(b) Before this Subscription is considered, the Participant must complete, execute and deliver to the Company the following:

 

(i) This Subscription;

 

(ii) The Form of Warrant attached hereto as Exhibit A;

 

(iii) The Certificate of Accredited Investor Status, attached hereto as Exhibit B; and

 

(iv) The Participant’s check in the amount of $__________ in exchange for _________ Units purchased, or wire transfer sent to the Company in accordance with wire transfer instructions which the Company will provide at the request of the Participant.

 

(c) This Subscription is irrevocable by the Participant.

 

(d) This Subscription is not transferable or assignable by the Participant.

 

(e) This Subscription may be rejected in whole or in part by the Company in its sole discretion prior to the applicable Closing (as defined in Section 1(g) hereof), regardless of whether Participant’s funds have theretofore been deposited by the Company,. Participant’s execution and delivery of this Subscription will not constitute an agreement between the undersigned and the Company until this Agreement has been accepted and executed by the Company. In the event this Subscription is rejected by the Company, all funds and documents tendered by the Participant shall be returned and the parties' obligations hereunder, shall terminate.

 

        Subscription Agreement
Participant’s Initials 1 Generation Hemp, Inc.

 

 

 

(f) Each Participant shall be issued at Closing a two-year Warrant in substantially the form attached hereto as Exhibit A to acquire up to that number of additional shares of Common Stock equal to one hundred percent (100%) of the number of Shares purchased by such Participant and exercisable only for a cash Purchase Price of $0.40 per share (the shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrant collectively are referred to herein as the “Warrant Shares”). The Shares, the Warrant and the Warrant Shares collectively are referred to herein as the “Securities”.

 

(g) The sale of Units will take place in one or more closings (the “Closing” or “Closing Date”), the first of which is scheduled to close on or about February 18, 2020, subject to the satisfaction of all parties hereto of their obligations herein. The minimum investment amount shall be $50,000 by each Participant in the Offering, although the Company may waive this minimum in its sole discretion and accept lesser investment amounts from Participants. The minimum Offering size shall be for 1,000,000 Units (the “Minimum Offering Amount”), and the maximum Offering size shall be for 25,000,000 Units. The Closing will not occur until the Minimum Offering Amount has been raised. All amounts paid by Participant shall be deposited prior to the Closing in the escrow account maintained by the Escrow Agent, and may be immediately drawn upon at each Closing. Participant acknowledges and agrees that their subscription is irrevocable and binding on the part of the Participant and that once the funds have been tendered, the Company may conduct a Closing without any consent or notice to the Participant. Once a Closing has occurred, the subscribed funds will become assets of the Company and will be available for use by the Company as described herein. Notwithstanding any other term or provision hereof, in the event the Closing does not occur by March 31, 2020, the Company shall have the right in its sole discretion to terminate the Offering and return all funds provided by the Participant in connection with its subscription hereunder to the Participant.

 

(h) The Company plans to use the proceeds from the Offering for acquisitions, capital expenditures, and general working capital purposes.

 

(i) Participant hereby agrees not to, and will cause its affiliates not to, enter into any “put equivalent position” as such term is defined in Rule 16a-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or Short Sale (as defined below) position (a) with respect to the Securities; or (b) with respect to the Company’s Common Stock, prior to the exercise in full of the Warrants by the Participant, or expiration of the Warrants held by the Participant.

 

(j) Registration Procedures and Expenses.

 

(i) The Company shall prepare and file with the SEC, as promptly as reasonably practicable following Closing, but in no event later than 120 days following Closing (the “Filing Date”), a registration statement on Form S-1, covering the resale of the Shares and Warrant Shares (the “Registrable Securities” and the “Registration Statement”) and shall use its commercially reasonable efforts to have the Registration Statement declared effective within 180 days after the Closing.

 

        Subscription Agreement
Participant’s Initials 2 Generation Hemp, Inc.

 

 

 

(ii) The Company shall use its commercially reasonable best efforts to:

 

(a) prepare and file with SEC such amendments and supplements to the Registration Statement and the prospectus forming part thereof (the “Prospectus”) used in connection therewith as may be necessary or advisable to keep the Registration Statement current and effective for the Registrable Securities held by a Participant for a period ending on the earliest of (i) the second anniversary of the Closing Date, (ii) the date on which all Registrable Securities may be sold pursuant to Rule 144 under the Securities Act or any successor rule (“Rule 144”) during any three-month period without the requirement for the Company to be in compliance with the current public information required under Rule 144(c)(1) or (iii) such time as all Registrable Securities have been sold pursuant to a registration statement or Rule 144. The Company shall notify each Participant promptly upon the Registration Statement and each post-effective amendment thereto, being declared effective by the SEC and advise each Participant that the form of Prospectus contained in the Registration Statement or post-effective amendment thereto, as the case may be, at the time of effectiveness meets the requirements of Section 10(a) of the Securities Act or that it intends to file a Prospectus pursuant to Rule 424(b) under the Securities Act that meets the requirements of Section 10(a) of the Securities Act;

 

(b) furnish to the Participant with respect to the Registrable Securities registered under the Registration Statement such number of copies of the Registration Statement and the Prospectus (including supplemental prospectuses) filed with the SEC in conformance with the requirements of the Securities Act and other such documents as the Participant may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Registrable Securities by the Participant;

 

(c) pay the expenses incurred by the Company in complying with this Section, including, all registration and filing fees, FINRA fees, exchange listing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding attorneys’ fees of any Participant and any and all underwriting discounts and selling commissions applicable to the sale of Registrable Securities by the Participants);

 

(d) advise the Participants, promptly after it shall receive notice or obtain knowledge of the issuance of any stop order by the SEC delaying or suspending the effectiveness of the Registration Statement or of the initiation of any proceeding for that purpose; and it will promptly use its commercially reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued; and

 

(e) with a view to making available to the Participant the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit the Participant to sell Registrable Securities to the public without registration, the Company covenants and agrees to use its commercially reasonable efforts to: (i) make and keep public information available, as those terms are understood and defined in Rule 144, until the earlier of (A) such date as all of the Registrable Securities qualify to be resold immediately pursuant to Rule 144 or any other rule of similar effect during any three-month period without the requirement for the Company to be in compliance with the current public information required under Rule 144(c)(1) or (B) such date as all of the Registrable Securities shall have been resold pursuant to Rule 144 (and may be further resold without restriction); (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and under the Exchange Act; and (iii) furnish to the Participant upon request, as long as the Participant owns any Registrable Securities, (A) a written statement by the Company as to whether it has complied with the reporting requirements of the Securities Act and the Exchange Act, (B) a copy of the Company’s most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such other information as may be reasonably requested in order to avail the Participant of any rule or regulation of the SEC that permits the selling of any such Registrable Securities without registration.

 

        Subscription Agreement
Participant’s Initials 3 Generation Hemp, Inc.

 

 

 

(iii) The Participant agrees and confirms that a requirement to the Company including such Participant’s Registrable Securities in the Registration Statement is that the Participant will work in good faith with the Company to supply the Company with any and all information the Company may reasonably request from the Participant from time to time in connection with the preparation of the Registration Statement, including, customary and reasonable representations and confirmations regarding the Shares and Warrant Shares held by the Participants, information relating to the beneficial ownership of other securities of the Company held by such Participant and its affiliates, information regarding the persons with voting and dispositive control over the Participant and such other information as the Company or its legal counsel may reasonably request (which requirement may be waived by the Company).

 

(iv) The Participants acknowledge and understand that the Filing Date shall be extended in the event the Company is currently in the process of undertaking and/or is currently contemplating an offering by the Company of securities for its own account if the managing underwriter or placement agent shall have advised the Company in writing that such Registration Statement or the inclusion of such Registrable Securities in such registration statement will have a material adverse effect upon the ability of the Company to sell securities for its own account, and provided further that the Participants are not treated less favorably than others seeking to have their securities included in such registration statement. Notwithstanding the obligations set forth above, if any SEC guidance sets forth a limitation on the number of securities permitted to be registered on the Registration Statement (including any other securities included by the Company in such Registration Statement; provided further that the Company shall not be prohibited from including other securities on such Registration Statement), the number of Registrable Securities to be included on such Registration Statement for the benefit of the Participants will be reduced pro rata between the Participants (or other parties) whose securities are included in such Registration Statement and the Company; provided further that the Company shall take action to file additional registration statements at the written request of the holders of a majority in interest of the Shares sold in the Offering after the effectiveness of the Registration Statement, subject to SEC rules and guidance and the requirements set forth above, provided, however, that the Company shall not be required to file more than one additional Registration Statement in any rolling six (6) month period. Notwithstanding the above, the Participants agree that the Company shall not be required to register securities totaling more than 1/3rd of its then public float on the Registration Statement. Further notwithstanding the above, the Company may at any time take action to register the Warrant Shares under the Securities Act and the Participants agree to take reasonable actions and provide the Company reasonable information to facilitate any such registration.

 

(k) Expenses. The Company will be responsible for all of its own expenses (e.g., legal, accounting, printing) in connection with the Offering as well as, whether the Offering is consummated or not.

 

        Subscription Agreement
Participant’s Initials 4 Generation Hemp, Inc.

 

 

 

2. Representations by Participant. In consideration of the Company’s potential acceptance of the Subscription, Participant makes the following representations and warranties to the Company and to its principals, jointly and severally, which warranties and representations shall survive any acceptance of the Subscription by the Company:

 

(a) Prior to the time of purchase of any Securities, Participant has had an opportunity to review the Company’s reports, schedules, forms, statements and other documents filed by it with the United States Securities and Exchange Commission (the “SEC Reports”) (which filings can be accessed by going to http://www.sec.gov/edgar/searchedgar/companysearch.html, typing “Generation Hemp” in the “Company name” field, and clicking the “Search” button), including (A) the Form 10-K for the year ended December 31, 2018, as amended; (B) the Forms 10-Q for the quarters ended March 31, 2019, June 30, 2019, and September 30, 2019; and (C) the Forms 8-K filed with the SEC on August 19, 2019, October 3, 2019, December 4, 2019, December 26, 2019, Janaury 13, 2020, and any other Form 8-K filed after January 13, 2020 and prior to the date of this Subscription.

 

(b) Participant has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Units and the merits and risks of investing in the Units; (ii) access to information about the Company and its respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Participant acknowledges that no officer, director, broker-dealer, placement agent, finder or other person affiliated with the Company has given Participant any information or made any representations, oral or written, other than as provided in the SEC Reports and herein, on which Participant has relied upon in deciding to invest in the Securities, including without limitation, any information with respect to future acquisitions, mergers or operations of the Company or the economic returns which may accrue as a result of the purchase of the Securities.

 

(c) Participant recognizes that the total amount of funds tendered to purchase the Units is placed at the risk of the business and may be completely lost. The Participant confirms and represents that it is able (i) to bear the economic risk of its investment, (ii) to hold the securities for an indefinite period of time, and (iii) to afford a complete loss of its investment.

 

(d) Participant acknowledges that Participant has not seen, received, been presented with, or been solicited by any leaflet, public promotional meeting, newspaper or magazine article or advertisement, radio or television advertisement, or any other form of advertising or general solicitation with respect to the Securities.

 

(e) The Securities are being purchased for Participant’s own account for long-term investment and not with a view to immediately resale the Securities. No other person or entity will have any direct or indirect beneficial interest in, or right to, the Securities. No person has made to the Participant any written or oral representations: (x) that any person will resell or repurchase any of the Securities; (y) that any person will refund the purchase price of any of the Securities, or (z) as to the future price or value of any of the Securities. The Participant does not presently have any contract, agreement, undertaking, arrangement or understanding, directly or indirectly, with any person to sell, transfer, pledge, assign or otherwise effect any distribution of any of the Securities, and Participant is not a registered broker-dealer under Section 15 of the Exchange Act or an entity engaged in a business that would require it to be so registered as a broker-dealer.

 

(f) Participant acknowledges that the Securities have not been registered under the Securities Act, or qualified under any state securities laws, or any other applicable blue sky laws, in reliance, in part, on Participant’s representations, warranties and agreements made herein.

 

(g) Other than the rights specifically set forth in this Subscription and disclosed in the SEC Reports, Participant represents, warrants and agrees that the Company and the officers of the Company (the “Company’s Officers”) are under no obligation to register or qualify the Securities under the Securities Act or under any state securities law, or to assist the undersigned in complying with any exemption from registration and qualification.

 

        Subscription Agreement
Participant’s Initials 5 Generation Hemp, Inc.

 

 

 

(h) Participant represents that Participant meets the criteria for participation because: (i) Participant has a pre-existing personal or business relationship with the Company or one or more of its partners, officers, directors or controlling persons; or (ii) by reason of Participant’s business or financial experience, or by reason of the business or financial experience of its financial advisors who are unaffiliated with, and are not compensated, directly or indirectly, by the Company or any affiliate or selling agent of the Company, Participant is capable of evaluating the risk and merits of an investment in the Securities and of protecting its own interests.

 

(i) Participant represents that Participant is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act and Participant has executed the Certificate of Accredited Investor Status, attached hereto as Exhibit B.

 

(j) Participant understands that the Units are illiquid and must be held indefinitely unless such Units are registered under the Securities Act or an exemption from registration is available. Participant acknowledges that Participant is familiar with Rule 144 of the rules and regulations of the SEC, as amended, promulgated pursuant to the Securities Act (“Rule 144”), and that such Participant has been advised that Rule 144 permits resales only under certain circumstances. Such Participant understands that to the extent that Rule 144 is not available, such Participant will be unable to sell any Securities without either registration under the Securities Act or the existence of another exemption from such registration requirement. Participant may not sell or dispose of the Units or utilize the Securities as collateral for a loan. Participant must not purchase the Securities unless Participant has liquid assets sufficient to assure Participant that such purchase will cause it no undue financial difficulties, and that Participant can still provide for current and possible personal contingencies, and that the commitment herein for the Units, combined with other investments of Participant, is reasonable in relation to its net worth.

 

(k) Other than with respect to the transactions contemplated herein, since the time that such Participant was first contacted by the Company or any other person regarding the transactions contemplated hereby, neither the Participant nor, to the knowledge of such Participant, any affiliate of such Participant which (i) had knowledge of the transactions contemplated hereby, (ii) has or shares discretion relating to such Participant’s investments or trading or information concerning such Participant’s investments, including in respect of the Units and (iii) is subject to such Participant’s review or input concerning such affiliate’s investments or trading (collectively, “Trading Affiliates”) has directly or indirectly, nor has any person acting on behalf of or pursuant to any understanding with such Participant or Trading Affiliate, effected or agreed to effect any transactions in the securities of the Company (including, without limitation, any short sales involving the Company’s securities). Notwithstanding the foregoing, in the case of a Participant and/or Trading Affiliate that is, individually or collectively, a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Participant’s or Trading Affiliate’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Participant’s or Trading Affiliate’s assets, the representation set forth above shall apply only with respect to the portion of assets managed by the portfolio manager(s) that have knowledge about the financing transaction contemplated by this Subscription. Other than to other persons party to this Subscription, such Participant has maintained the confidentiality of all disclosures made to it in connection with the transactions contemplated hereby (including the existence and terms of such transactions).

 

        Subscription Agreement
Participant’s Initials 6 Generation Hemp, Inc.

 

 

 

(l) No person will have, as a result of the transactions contemplated by this Subscription, any valid right, interest or claim against or upon the Company or any Participant for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of such Participant.

 

(m) Participant has independently evaluated the merits of its decision to purchase Units, and hereby confirms that it has not relied on the advice of any other Participant’s business and/or legal counsel in making such decision. Participant understands that nothing in this Subscription or any other materials presented by or on behalf of the Company to the Participant in connection with the purchase of the Units constitutes legal, tax or investment advice. Such Participant has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Units.

 

(n) Participant understands that the right to transfer the Securities will be restricted unless the transfer is not in violation of the Securities Act or any other applicable state or foreign securities laws (including investment suitability standards), that the Company will not consent to a transfer of the Securities unless the transferee represents that such transferee meets the financial suitability standards required of an initial participant, and that the Company has the right, in its absolute discretion, to refuse to consent to such transfer.

 

(o) Participant has been advised to consult with its own attorney or attorneys regarding all legal matters concerning an investment in the Company and the tax consequences of purchasing the Securities, and have done so, to the extent Participant considers necessary.

 

(p) Participant acknowledges that the tax consequences of investing in the Company will depend on particular circumstances, and neither the Company, the Company’s officers, any other investors, nor the partners, shareholders, members, directors, agents, officers, directors, employees, affiliates or consultants of any of them, will be responsible or liable for the tax consequences to Participant of an investment in the Company. Participant will look solely to and rely upon its own advisers with respect to the tax consequences of this investment.

 

(q) The Participant: (i) if a natural person, represents that the Participant has reached the age of 21 and has full authority, legal capacity and competence to enter into, execute and deliver this Agreement and all other related agreements or certificates and to take all actions required pursuant hereto and thereto and to carry out the provisions hereof and thereof, or (ii) if a corporation, partnership, or limited liability company or partnership, or association, joint stock company, trust, unincorporated organization or other entity, represents that such entity was not formed for the specific purpose of acquiring the Securities and such entity is duly organized, validly existing and in good standing under the laws of the state of its organization. Participant is a bona fide resident and domiciliary of the state set forth on the signature page of this Subscription and has no present intention to become a resident of any other state or jurisdiction.

 

(r) The Participant agrees to sell all Registrable Securities registered under the Registration Statement and sold in connection therewith, in compliance with the plan of distribution set forth in such Registration Statement and any and all applicable prospectus delivery requirements.

 

(s) All information which Participant has provided to the Company concerning Participant, its financial position and its knowledge of financial and business matters, and any information found in the Certificate of Accredited Investor Status, is truthful, accurate, correct, and complete as of the date set forth herein.

 

        Subscription Agreement
Participant’s Initials 7 Generation Hemp, Inc.

 

 

 

(t) Each Participant shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, to the extent arising out of or based solely upon: (x) such Participant’s failure to comply with any applicable prospectus delivery requirements of the Securities Act through no fault of the Company or (y) any untrue or alleged untrue statement of a material fact contained in any registration statement, any prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Participant to the Company expressly for inclusion in such registration statement or such prospectus or (ii) to the extent, but only to the extent, that such information relates to such Participant’s proposed method of distribution of registrable securities and was reviewed and expressly approved in writing by such Participant expressly for use in a registration statement, such prospectus or in any amendment or supplement thereto or (iii) in the case such Participant uses an outdated, defective or otherwise unavailable prospectus after the Company has notified such Participant in writing that the prospectus is outdated, defective or otherwise unavailable for use by such Participant. In no event shall the liability of any selling Participant under this Section be greater in amount than the dollar amount of the net proceeds received by such Participant upon the sale of the registrable securities giving rise to such indemnification obligation.

 

(u) Each certificate or instrument representing securities issuable pursuant to this Agreement will be endorsed with the following legend (or a substantially similar legend):

 

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES WHICH IS REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

 

(v) Participant understands that the Units are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Participant’s compliance with, the representations, warranties, agreements, acknowledgements and understandings of such Participant set forth herein in order to determine the availability of such exemptions and the eligibility of such Participant to acquire the Units.

 

        Subscription Agreement
Participant’s Initials 8 Generation Hemp, Inc.

 

 

 

(w) Participant understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Units or the fairness or suitability of the investment in the Units nor have such authorities passed upon or endorsed the merits of the offering of the Units.

 

(x) Participant is aware that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of Common Stock and other activities with respect to the Common Stock by the Participant.

 

(y) Participant confirms and acknowledges that this is a “best efforts” offering, and that the initial Closing will not occur until the Minimum Offering Amount has been raised.

 

3. Representations and Warranties by the Company. The Company represents and warrants that:

 

(a) Due Formation. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign entity to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a material adverse effect on the business, operations or financial condition of the Company.

 

(b) Authority; Enforceability. This Subscription and the Warrants delivered together with this Subscription or in connection herewith have been duly authorized, executed, and delivered by the Company and are valid and binding agreements, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity; and the Company has full corporate power and authority necessary to enter into this Subscription and the Warrants, and to perform its obligations hereunder and under all other agreements entered into by the Company relating hereto.

 

(c) No General Solicitation. Neither the Company, nor any of its affiliates, nor to its knowledge, any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Securities.

 

(d) Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Subscription, except for filings pursuant to applicable state securities laws, and Regulation D of the Securities Act.

 

(e) Litigation. There is no action, suit, proceeding or investigation pending or, to the Company’s knowledge, currently threatened against the Company or any of its majority-owned or any controlled subsidiaries that questions the validity of this Subscription or the right of the Company to enter into it, or to consummate the transactions contemplated hereby or thereby. Neither the Company nor any of its majority-owned or any controlled subsidiaries is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company or any of its majority-owned or any controlled subsidiaries currently pending or which the Company or any of its majority-owned or any controlled subsidiaries intends to initiate. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened in writing (or any basis therefor known to the Company) involving the prior employment of any of the Company’s employees, their use in connection with the Company’s business, or any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers.

 

        Subscription Agreement
Participant’s Initials 9 Generation Hemp, Inc.

 

 

 

(f) Permits. The Company and each of its majority-owned or any controlled subsidiaries has all franchises, permits, licenses and any similar authority necessary for the conduct of its business, the lack of which could materially and adversely affect the business, properties, prospects, or financial condition of the Company. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.

 

(g) No Conflicts. The execution, delivery and performance by the Company of the Subscription and the consummation by the Company of the transactions contemplated hereby (including, without limitation, the issuance of the Securities) do not and will not (i) conflict with or violate any provisions of the Company’s certificate of incorporation or bylaws or otherwise result in a violation of the organizational documents of the Company, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any lien upon any of the properties or assets of the Company or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any contract or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations and the rules and regulations, assuming the correctness of the representations and warranties made by the Participants herein, of any self-regulatory organization to which the Company or its securities are subject, including OTC Markets LLC, or by which any property or asset of the Company is bound or affected).

 

(h) Issuance of the Securities. The Securities have been duly authorized and, when issued and paid for in accordance with the terms of the Subscription, will be duly and validly issued, fully paid and nonassessable and free and clear of all liens suffered or permitted by the Company, other than restrictions on transfer provided for in the Subscription or imposed by applicable securities laws, and shall not be subject to preemptive or similar rights. Assuming the accuracy of the representations and warranties of the Participants in this Subscription, the Securities will be issued in compliance with all applicable federal and state securities laws.

 

(i) Capitalization. The number of shares and type of all authorized, issued and outstanding capital stock, options and other securities of the Company (whether or not presently convertible into or exercisable or exchangeable for shares of capital stock of the Company) has been set forth in the SEC Reports and may change thereafter to reflect stock issuances, convertible debt conversions, stock option exercises and grants and warrant exercises which will not, individually or in the aggregate, have a material effect on the issued and outstanding capital stock, options and other securities of the Company. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and non-assessable, have been issued in compliance in all material respects with all applicable federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase any capital stock of the Company. Except as set forth in the SEC Reports: (i) no shares of the Company’s capital stock are subject to preemptive rights or any other similar rights or any liens suffered or permitted by the Company; (ii) except for the Subscription or as a result of the performance by the Company of the Subscription, there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional shares of capital stock of the Company or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company; (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing indebtedness of the Company or by which the Company is or may become bound in any material amounts; (iv) there are no financing statements securing obligations in any material amounts, either singly or in the aggregate, filed in connection with the Company; (v) there are no agreements or arrangements under which the Company is obligated to register the sale of any of their securities under the Securities Act; (vi) there are no outstanding securities or instruments of the Company or which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company is or may become bound to redeem a security of the Company; (vii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; (viii) the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (ix) the Company has no liabilities or obligations required to be disclosed in the SEC Reports (including, for purposes hereof, any liabilities that are required to be disclosed in a Form 10) but not so disclosed in the SEC Reports.

 

        Subscription Agreement
Participant’s Initials 10 Generation Hemp, Inc.

 

 

 

(j) SEC Reports. Other than the filing of Form 8-K/A that was due on February 13, 2020 under Item 9.01 relating to the purchase of Energy Hunter Resources, Inc., the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for twelve (12) months preceding and including the date hereof. As of the date hereof, other than as stated in the preceding sentence, the Company has no knowledge of any event occurring on or prior to the Closing Date (other than the transactions contemplated by the Subscription) that requires the filing of a Current Report on Form 8-K after the Closing.

 

(k) Financial Statements. Subject to the filing of Form 8-K/A that was due on February 13, 2020 under Item 9.01 relating to the purchase of Energy Hunter Resources, Inc., the financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the SEC with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company taken as a whole as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, year-end audit adjustments.

 

(l) Tax Matters. The Company (i) has prepared and filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, with respect to which adequate reserves have been set aside on the books of the Company and (iii) has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.

 

        Subscription Agreement
Participant’s Initials 11 Generation Hemp, Inc.

 

 

 

(m) Material Changes. Since the date of the latest financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there have been no events, occurrences or developments that have had or would reasonably be expected to have a material adverse effect on the Company, (ii) the Company has not incurred any material liabilities (contingent or otherwise) other than (A) trade payables, accrued expenses and other liabilities incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or to be disclosed in filings made with the Commission, (iii) the Company has not materially altered its method of accounting or the manner in which it keeps its accounting books and records, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock (other than in connection with repurchases of unvested stock issued to employees of the Company), (v) the Company has not issued any equity securities to any officer, director or affiliate, except stock options and restricted stock issued to newly hired and promoted officers in the ordinary course pursuant to Company stock option or stock purchase plans or executive and director corporate arrangements disclosed in the SEC Reports and (vi) there has not been any material change or amendment to, or any waiver of any material right under, any contract under which the Company or any of its assets is bound or subject. Except for the issuance of the Securities contemplated by this Agreement, no event, liability or development has occurred or exists with respect to the Company or its business, properties, operations or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made that has not been publicly disclosed in the SEC Reports.

 

(n) Environmental Matters. The Company (i) is not in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”) which would have a material adverse effect on the business, operations or financial condition of the Company, (ii) does not own or operate any real property contaminated with any substance that is in violation of any Environmental Laws, (iii) is not liable for any off-site disposal or contamination pursuant to any Environmental Laws, and (iv) is not subject to any claim relating to any Environmental Laws; and there is no pending or, to the Company’s knowledge, threatened investigation that might lead to such a claim.

 

(o) Litigation. There is no action which adversely affects or challenges the legality, validity or enforceability of any of the Subscription or the Securities. Except as disclosed in the SEC Reports, there are no pending actions, suits or proceedings against or affecting the Company or any of its properties; and to the Company’s knowledge, no such actions, suits or proceedings are threatened or contemplated against the Company.

 

(p) Employment Matters. No material labor dispute exists or, to the Company’s knowledge, is imminent with respect to any of the employees of the Company. None of the Company’s employees is a member of a union that relates to such employee’s relationship with the Company, and the Company is not a party to a collective bargaining agreement, and the Company believes that its relationship with its employees is good.

 

        Subscription Agreement
Participant’s Initials 12 Generation Hemp, Inc.

 

 

 

(q) Compliance. Except as disclosed in the SEC Reports, the Company (i) is not in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company), nor has the Company received written notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other significant contract (whether or not such default or violation has been waived), (ii) is not in violation of any order of any court, arbitrator or governmental body having jurisdiction over the Company or its properties or assets.

 

(r) Title to Assets. The Company has good and marketable title to all tangible personal property owned by it which is material to the business of the Company. The Company does not own any real property in fee simple, except for interests in oil or gas properties that may be deemed real property under state law. Except as disclosed in the SEC Reports, the Company holds defensible title to the leasehold and other real property interests held by it (the “Real Property”), in each case, free and clear of all liens other than the Encumbrances. “Encumbrances” means: (a) statutory liens of landlords, banks (and rights of set off), carriers, warehousemen, mechanics, repairmen, workmen, materialmen, vendors and other similar liens arising in the ordinary course of business for amounts not yet overdue or for amounts that are overdue and that are being contested in good faith by appropriate proceedings; (b) liens for taxes, assessments, or other governmental charges or levies and other liens imposed by law, in each case incurred in the ordinary course of business consistent with past practice for amounts not yet overdue or being contested in good faith by appropriate proceedings; (c) the terms and conditions of all liens created by oil and gas leases, easements, rights of way, restrictions, encroachments, and all other burdens recorded in the real property records of the county in which the real property is located; (d) liens to operators and non-operators under model form operating agreements arising in the ordinary course of the business; (e) liens arising from precautionary UCC filings; (f) lease burdens existing as of the date of this agreement constituting monetary obligations payable to third parties, including, without limitation, any royalty, overriding royalty, net profits interest, production payment, carried interest or reversionary working interest; (g) liens arising under unitization and pooling agreements and orders, farmout agreements, gas balancing agreements and other customary agreements in the energy industry; and (h) the lien under Deed of Trust filed in Texas in connection with the SOHL Note, as defined below. Any real property and facilities held under lease by the Company are held by it under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made of such property and buildings by the Company.

 

(s) Intellectual Property. To the Company’s knowledge, the Company owns, possesses, licenses or has other rights to use all foreign and domestic patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, licenses, inventions, trade secrets, technology and other proprietary rights and processes (collectively, the “Intellectual Property”) necessary for the conduct of its businesses as now conducted. To the Company’s knowledge (i) the Company’s use of any such Intellectual Property in the conduct of its business as presently conducted does not infringe upon the rights of any third parties; (ii) there is no infringement by third parties of any such Intellectual Property; (iii) there is no pending or threatened action challenging the Company’s rights in or to any such Intellectual Property; (iv) there is no pending or threatened action challenging the validity or scope of any such Intellectual Property; and (v) there is no pending or threatened action that the Company infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of others.

 

(t) Insurance. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Company believes to be prudent in the businesses and locations in which the Company is engaged. The Company has not received any notice of cancellation of any such insurance, nor does the Company have any knowledge that it will be unable to renew its existing insurance coverage for the Company as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 

        Subscription Agreement
Participant’s Initials 13 Generation Hemp, Inc.

 

 

 

(u) Transactions With Officers, Directors and Employees. Other than (i) an unsecured promissory note made by Energy Hunter Resources, Inc. in favor of Gary C. Evans for approximately $350,000 and (ii) a secured note made by Energy Hunter Resources, Inc. in favor of Satellite Overseas Holding (Limited), whose trustee is a geater than 20% shareholder, for approximately $1,500,000, as amended (the “SOHL Note”), each of which pre-dated the Company’s acquisition of approximately 91% of the issued and outstanding stock of Energy Hunter Resources, Inc, none of the officers or directors of the Company and, to the Company’s knowledge, none of the employees of the Company, is presently a party to any transaction with the Company or to a presently contemplated transaction (other than for services as employees, officers and directors) that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated under the Securities Act, except as contemplated by the Subscription or set forth in the SEC Reports.

 

(v) Certain Fees. No person or entity will have, as a result of the transactions contemplated by this Agreement, any valid right, interest or claim against or upon the Company or a Participant for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company. The Company shall indemnify, pay, and hold each Participant harmless against, any liability, loss or expense (including, without limitation, attorneys’ fees and out-of-pocket expenses) arising in connection with any such right, interest or claim.

 

(w) Private Placement. Assuming the accuracy of the Participants’ representations and warranties set forth this Subscription (without giving effect to any materiality qualifiers therein) and the accuracy of the information disclosed by each Participant’s Certificate of Accredited Investor Status, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Participants under the Subscription.

 

(x) Registration Rights. Other than each of the Participants, no person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.

 

(y) No Directed Selling Efforts or General Solicitation. Neither the Company nor, to its knowledge, any person acting on its behalf has conducted any “general solicitation” or “general advertising” (as those terms are used in Regulation D) in connection with the offer or sale of any of the Securities.

 

(z) No Integrated Offering. Assuming the accuracy of the Participants’ representations and warranties set forth in the Subscription (without giving effect to any materiality qualifiers therein), except as disclosed in the SEC Reports, neither the Company nor any Person acting on its behalf has, directly or indirectly, at any time within the past six (6) months, made any offers or sales of any Company security or solicited any offers to buy any security under circumstances that would (i) eliminate the availability of the exemption from registration under Regulation D under the Securities Act in connection with the offer and sale by the Company of the Securities as contemplated hereby or (ii) cause the offering of the Securities pursuant to the Subscription to be integrated with prior offerings by the Company for purposes of any applicable law, regulation or shareholder approval provisions, including, without limitation, under the rules and regulations of the NYSE MKT.

 

        Subscription Agreement
Participant’s Initials 14 Generation Hemp, Inc.

 

 

 

(aa) Investment Company. The Company is not required to be registered as, and is not an affiliate of, and immediately following the Closing will not be required to register as, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

(bb) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its SEC Reports and is not so disclosed.

 

(cc) Acknowledgment Regarding the Participants’ Purchase of Securities. The Company acknowledges and agrees that each of the Participants is acting solely in the capacity of an arm’s length Participant with respect to the Subscription and the transactions contemplated thereby. The Company further acknowledges that no Participant is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Subscription and the transactions contemplated thereby and any advice given by any Participant or any of their respective representatives or agents in connection with the Subscription and the transactions contemplated thereby is merely incidental to the Participants’ purchase of the Securities.

 

(dd) Foreign Corrupt Practices. Neither the Company, nor to the Company’s knowledge, any agent or other person acting on behalf of the Company, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

 

(ee) No Additional Agreements. The Company does not have any agreement or understanding with any Participant with respect to the transactions contemplated by the Subscription other than as specified in the Subscription.

 

4. Other Agreements.

 

(a) Transfer Restrictions.

 

(i) Compliance with Laws. Notwithstanding any other provision of the Subscription, each Participant acknowledges and covenants that the Securities may be disposed of only pursuant to an effective registration statement under, and in compliance with the requirements of, the Securities Act, or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and in compliance with any applicable state and federal securities laws. In connection with any transfer of the Securities other than (i) pursuant to an effective registration statement, (ii) to the Company, (iii) to an affiliate of a Participant, (iv) pursuant to Rule 144 (provided that the Participant provides the Company with reasonable assurances (in the form of seller and broker representation letters if required) that the securities may be sold pursuant to such rule) or Rule 144A, (v) pursuant to Rule 144 without the requirement that the Company be in compliance with the current public information requirements of Rule 144 and without other restriction following the applicable holding period or (vi) in connection with a bona fide pledge, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Subscription and shall have the rights of a Participant under this Subscription.

 

        Subscription Agreement
Participant’s Initials 15 Generation Hemp, Inc.

 

 

 

(ii) Removal of Legends. Subject to the Company’s right to request an opinion of counsel as set forth in Section 4(a)(i), the legend set forth in Section 2(u) above shall be removable and the Company shall issue or cause to be issued a certificate without such legend or any other legend to the holder of the applicable Shares upon which it is stamped or issue or cause to be issued to such holder by electronic delivery at the applicable balance account at The Depository Trust Company (“DTC”) as provided in this Section 4(a)(ii), if (i) such Securities are registered for resale under the Securities Act (provided that, if the Participant is selling pursuant to the effective registration statement registering the Securities for resale, the Participant agrees to only sell such Securities during such time that such registration statement is effective and not withdrawn or suspended, and only as permitted by such registration statement), (ii) such Securities are sold or transferred in compliance with Rule 144, including without limitation in compliance with the current public information requirements of Rule 144 if applicable to the Company at the time of such sale or transfer, and the holder and its broker have delivered customary documents reasonably requested by the Company Counsel in connection with such sale or transfer, or (iii) such Securities are eligible for sale under Rule 144 without the requirement that the Company be in compliance with the current public information requirements of Rule 144 and without other restriction and Company Counsel has provided written confirmation of such eligibility to the Company’s transfer agent, (the “Transfer Agent”). Any fees (with respect to the Transfer Agent, Company Counsel or otherwise) associated with the removal of such legend shall be borne by the Company. Following the effective date of the applicable registration statement, or at such other time as a legend is no longer required for certain Securities, the Company will no later than three (3) Trading Days following the delivery by a Participant to the Company or the Transfer Agent (with concurrent notice and delivery of copies to the Company) of a legended certificate representing such Shares (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer, and together with such other customary documents as the Transfer Agent and/or Company Counsel shall reasonably request), deliver or cause to be delivered to the transferee of such Participant or such Participant, as applicable, a certificate representing such Securities that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4(a). Certificates for Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Participants, as applicable, by crediting the account of the transferee’s Participant’s prime broker with DTC.

 

(iii) Irrevocable Transfer Agent Instructions. The Company shall issue irrevocable instructions to its Transfer Agent, and any subsequent Transfer Agent, in the form of Exhibit C attached hereto (the “Irrevocable Transfer Agent Instructions”). The Company represents and warrants that no instruction other than the Irrevocable Transfer Agent Instructions or instructions consistent therewith or otherwise contemplated hereby or thereby or by the Subscription or such other documents as the Transfer Agent may request in connection with any such instructions will be given by the Company to its Transfer Agent in connection with this Subscription, and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in and subject to the terms of this Subscription and applicable law.

 

        Subscription Agreement
Participant’s Initials 16 Generation Hemp, Inc.

 

 

 

(iv) Acknowledgement. Each Participant hereunder acknowledges its primary responsibilities under the Securities Act and accordingly will not sell or otherwise transfer the Shares or any interest therein without complying with the requirements of the Securities Act. While the applicable Registration Statement remains effective, each Participant hereunder may sell the Shares in accordance with the plan of distribution contained in the applicable Registration Statement and, if it does so, it will comply therewith and with the related prospectus delivery requirements unless an exemption therefrom is available. Each Participant, severally and not jointly with the other Participants, agrees that if it is notified by the Company in writing at any time that the Registration Statement registering the resale of the Shares is not effective or that the prospectus included in such Registration Statement no longer complies with the requirements of Section 10 of the Securities Act, the Participant will refrain from selling such Shares until such time as the Participant is notified by the Company that such Registration Statement is effective or such prospectus is compliant with Section 10 of the Securities Act, unless such Participant is able to, and does, sell such Shares pursuant to an available exemption from the registration requirements of Section 5 of the Securities Act. Each Participant acknowledges that the delivery of the Irrevocable Transfer Agent Instructions and any removal of any legends from certificates representing the Shares as set forth in this Section 4(a) is predicated on the Company’s reliance upon the Participant’s acknowledgement in this Section 4(a).

 

(b) Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock. The Company specifically acknowledges that its obligation to issue the Warrant Shares upon exercise of the Warrants, in accordance with its terms, is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interest of other stockholders of the Company or parties entitled to receive equity of the Company.

 

(c) Furnishing of Information. In order to enable the Participants to sell the Securities under Rule 144 of the Securities Act, for a period of one year from the Closing Date, the Company shall use its commercially reasonable efforts to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. During such one year period, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Participants and make publicly available in accordance with Rule 144(c) such information as is required for the Participants to sell the Shares under Rule 144.

 

(d) Form D and Blue Sky. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Participant who requests a copy in writing promptly after such filing. The Company shall take such action as the Company shall reasonably determine is necessary in order to qualify the Securities for sale to the Participants at the Closing pursuant to this Subscription under applicable securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from such qualification), which, subject to the accuracy of the Company’s and the Participant’s representations and warranties set forth herein, shall consist of the submission of all filings and reports relating to the offer and sale of the Securities pursuant to Rule 506 of Regulation D required under applicable securities or “Blue Sky” laws of the states of the United States following the Closing Date, and shall provide evidence of any such action so taken to the Participants who request in writing such evidence.

 

        Subscription Agreement
Participant’s Initials 17 Generation Hemp, Inc.

 

 

 

(e) Securities Laws Disclosure; Publicity. Within the time required by the Exchange Act, the Company will file a Current Report on Form 8-K with the SEC describing the terms of the Subscription (and including as exhibits to such Current Report on Form 8-K the Subscription). Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Participant, or include the name of any Participant in any press release or filing with the SEC (other than the Registration Statement) or any regulatory agency or OTC Markets, LLC, without the prior written consent of such Participant, except (i) as required by federal securities law in connection with (A) any registration statement contemplated by the Subscription and (B) the filing of final Subscription (including signature pages thereto) with the SEC or (ii) to the extent such disclosure is required by law, request of the Staff of the SEC or OTC Markets, LLC regulations, in which case the Company shall provide the Participants with prior written notice of such disclosure permitted under this subclause (ii). From and after the issuance of the Form 8-K, no Participant shall be in possession of any material, non-public information received from the Company or any of its respective officers, directors, employees or agents, that is not disclosed in the Form 8-K unless a Participant shall have executed a written agreement regarding the confidentiality and use of such information. Each Participant, severally and not jointly with the other Participants, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company as described in this Section 4(f) such Participant will maintain the confidentiality of all disclosures made to it in connection with such transactions (including the existence and terms of such transactions).

 

(f) Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Subscription, the Company shall not and shall cause each of its officers, directors, employees and agents, not to, provide any Participant with any information the Company believes is material, non-public information regarding the Company without the express written consent of such Participant, unless prior thereto such Participant shall have executed a written agreement regarding the confidentiality and use of such information.

 

(g) Indemnification.

 

(i) Indemnification of the Participants. Subject to this Section 4(h), the Company will indemnify and hold each Participant and its directors, officers, shareholders, members, partners, employees and agents (and any other persons with a functionally equivalent role of a person holding such titles notwithstanding a lack of such title or any other title), each person who controls such Participant (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling Person (each, a “Participant Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Participant Party may suffer or incur, as a result of or relating to third party claims against such Participant relating to any breach of any of the representations, warranties, covenants or agreements made by the Company in this Subscription, provided that such a claim for indemnification relating to any breach of any of the representations or warranties made by the Company in this Agreement is made within one (1) year from the Closing. The Company will not be liable to any Participant Party under this Agreement to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Participant Party’s breach of any of the representations, warranties, covenants or agreements made by such Participant Party in this Agreement or in the other Subscription or such Participant Party’s bad faith, fraud or willful misconduct.

 

        Subscription Agreement
Participant’s Initials 18 Generation Hemp, Inc.

 

 

 

(ii) Conduct of Indemnification Proceedings. Promptly after receipt by any Person (the “Indemnified Person”) of notice of any demand, claim or circumstances which would or might give rise to a claim or the commencement of any action, proceeding or investigation in respect of which indemnity may be sought pursuant to Section 4(h)(i), such Indemnified Person shall promptly notify the Company in writing and the Company shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person and the assumption of the payment of all fees and expenses; provided, however, that the failure of any Indemnified Person so to notify the Company shall not relieve the Company of its obligations hereunder except to the extent that the Company is actually and materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the Company and the Indemnified Person shall have mutually agreed to the retention of such counsel; (ii) the Company shall have failed promptly to assume the defense of such proceeding and to employ counsel reasonably satisfactory to such Indemnified Person in such proceeding; or (iii) in the reasonable judgment of counsel to such Indemnified Person and counsel to the Company, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, delayed or conditioned. Without the prior written consent of the Indemnified Person, which consent shall not be unreasonably withheld, delayed or conditioned, the Company shall not effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is a party, unless such settlement includes an unconditional release of such Indemnified Person from all liability arising out of such Proceeding.

 

(h) Dispositions and Confidentiality After The Date Hereof. Each Participant shall not, and shall cause its Trading Affiliates not to, prior to the effectiveness of the Registration Statement: (a) sell, offer to sell, solicit offers to buy, dispose of, loan, pledge or grant any right with respect to (collectively, a “Disposition”) the Securities; or (b) engage in any hedging or other transaction which is designed or could reasonably be expected to lead to or result in a Disposition of the Securities by such Participant or an affiliate of the Participant, except, in each case, for Dispositions pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and in compliance with any applicable state and federal securities laws. In addition, the Participant agrees that for so long as it owns any Common Stock, it will not enter into any Short Sale (as such term is defined in Rule 200 of Regulation SHO) of Shares executed at a time when the Participant has no equivalent offsetting long position in the Common Stock. For purposes of determining whether the Participant has an equivalent offsetting long position in the Common Stock, shares that the Participant is entitled to receive within sixty (60) days (whether pursuant to contract or upon conversion or exercise of convertible securities) will be included as if held long by the Participant. Notwithstanding the foregoing, in the case of a Participant that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Participant’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Participant’s assets, the representation set forth above shall apply only with respect to the portion of assets managed by the portfolio manager that have knowledge about the financing transaction contemplated by this Agreement. Each Participant understands and acknowledges, severally and not jointly with any other Participant, that the SEC currently takes the position that covering a short position established prior to effectiveness of a resale registration statement with shares included in such registration statement would be a violation of Section 5 of the Securities Act, as set forth in Division of Corporation Financing Compliance and Disclosure Interpretation 239.10 regarding short selling.

 

5. Adjustment in Share Numbers and Prices. In the event of any stock split, subdivision, dividend or distribution payable in shares of Common Stock (or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly shares of Common Stock), combination or other similar recapitalization or event occurring after the date hereof and prior to the Closing Date, each reference in the Subscription to a number of shares or price per share shall be deemed to be amended to appropriately account for such event.

 

        Subscription Agreement
Participant’s Initials 19 Generation Hemp, Inc.

 

 

 

6. Subscription Binding on Heirs, etc. This Subscription, upon acceptance by the Company, shall be binding upon the heirs, executors, administrators, successors and assigns of the Participant. If the undersigned is more than one person, the obligations of the undersigned shall be joint and several and the representations and warranties shall be deemed to be made by and be binding on each such person and his or her heirs, executors, administrators, successors, and assigns.

 

7. Execution Authorized. If this Subscription is executed on behalf of a corporation, partnership, trust or other entity, the undersigned has been duly authorized and empowered to legally represent such entity and to execute this Subscription and all other instruments in connection with the Shares and the signature of the person is binding upon such entity.

 

8. Adoption of Terms and Provisions. The Participant hereby adopts, accepts and agrees to be bound by all the terms and provisions hereof.

 

9. Governing Law. This Subscription shall be construed in accordance with the laws of the State of New York.

 

10. Dispute Resolution. In the event of any dispute arising out of or relating to this Subscription, then such dispute shall be submitted to binding arbitration with the New York, New York branch of the American Arbitration Association (“AAA”) to be governed by AAA’s Commercial Rules of Arbitration (the “AAA Rules”) and heard before one arbitrator. The parties shall attempt to mutually select the arbitrator. In the event they are unable to mutually agree, the arbitrator shall be selected by the procedures prescribed by the AAA Rules. Notwithstanding anything in the AAA Rules to the contrary, discovery shall be limited exclusively to the mutual production of documents, and written submissions to the arbitrator shall be limited to one brief from each party and one responsive brief from each party.

 

11. Construction. When used in this Subscription and the Warrants, unless a contrary intention appears: (i) a term has the meaning assigned to it; (ii) “or” is not exclusive; (iii) “including” means including without limitation; (iv) words in the singular include the plural and words in the plural include the singular, and words importing the masculine gender include the feminine and neuter genders; (v) any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; (vi) the words “hereof”, “herein” and “hereunder” and words of similar import when used in this Subscription shall refer to this Subscription as a whole and not to any particular provision hereof; (vii) references contained herein to Article, Section, Schedule and Exhibit, as applicable, are references to Articles, Sections, Schedules and Exhibits in this Subscription unless otherwise specified; (viii) references to “writing” include printing, typing, lithography and other means of reproducing words in a visible form, including, but not limited to email; (ix) references to “dollars”, “Dollars” or “$” in this Subscription shall mean United States dollars; (x) reference to a particular statute, regulation or Law means such statute, regulation or Law as amended or otherwise modified from time to time; (xi) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein); (xii) unless otherwise stated in this Subscription, in the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”; (xiii) references to “days” shall mean calendar days; and (xiv) the paragraph headings contained in this Subscription are for convenience only, and shall in no manner be construed as part of this Subscription.

 

        Subscription Agreement
Participant’s Initials 20 Generation Hemp, Inc.

 

 

 

12. Review of Document; Arm’s Length Transaction. Each party herein expressly represents and warrants to all other parties hereto that (a) before executing this Subscription, said party has fully informed itself of the terms, contents, conditions and effects of this Subscription; (b) said party has relied solely and completely upon its own judgment in executing this Subscription; (c) said party has had the opportunity to seek and has obtained the advice of its own legal, tax and business advisors before executing this Subscription; (d) said party has acted voluntarily and of its own free will in executing this Subscription; and (e) this Subscription is the result of arm’s length negotiations conducted by and among the parties and their respective counsel.

 

13. Counterparts. This Subscription and any signed agreement or instrument entered into in connection with this Subscription, and any amendments hereto or thereto, may be executed in one or more counterparts, all of which shall constitute one and the same instrument. Any such counterpart, to the extent delivered by means of a facsimile machine or by .pdf, .tif, .gif, .peg or similar attachment to electronic mail (any such delivery, an “Electronic Delivery”) shall be treated in all manner and respects as an original executed counterpart and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party, each other party shall re execute the original form of this Subscription and deliver such form to all other parties. No party shall raise the use of Electronic Delivery to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of Electronic Delivery as a defense to the formation of a contract, and each such party forever waives any such defense, except to the extent such defense relates to lack of authenticity.

 

        Subscription Agreement
Participant’s Initials 21 Generation Hemp, Inc.

 

 

 

14. Investor Information: (This must be consistent with the form of ownership selected below and the information provided in the Certificate of Accredited Investor Status (Exhibit B, included herewith.)

 

Name (please print): _________________________________________________________________________

 

If entity named above, By: ____________________________________________________________________

  Its: ____________________________________________________________________

 

Social Security or Taxpayer I.D. Number: __________________________________________________________

 

Business Address (including zip code): ___________________________________________________________

 

_________________________________________________________________________________________

 

Business Phone: ____________________________________________________________________________

 

Residence Address (including zip code): __________________________________________________________

 

_________________________________________________________________________________________

 

Email Address: _____________________________________________________________________________

 

Residence Phone: ___________________________________________________________________________

 

All communications to be sent to:

  

_______ Business or ________ Residence Address ________ Email

 

        Subscription Agreement
Participant’s Initials 22 Generation Hemp, Inc.

 

 

 

Please indicate below the form in which you will hold title to your interest in the Units. PLEASE CONSIDER CAREFULLY. ONCE YOUR SUBSCRIPTION IS ACCEPTED, A CHANGE IN THE FORM OF TITLE CONSTITUTES A TRANSFER OF THE INTEREST IN THE SHARES AND/OR WARRANTS AND MAY THEREFORE BE RESTRICTED BY THE TERMS OF THIS SUBSCRIPTION OR APPLICABLE LAW, AND MAY RESULT IN ADDITIONAL COSTS TO YOU. Participants should seek the advice of their attorneys in deciding in which of the forms they should take ownership of the interest in the Units, because different forms of ownership can have varying gift tax, estate tax, income tax, and other consequences, depending on the state of the investor's domicile and his or her particular personal circumstances.

 

_______ INDIVIDUAL OWNERSHIP (one signature required)

 

_______ JOINT TENANTS WITH RIGHT OF SURVIVORSHIP AND NOT AS TENANTS IN COMMON (both or all parties must sign)

 

_______ COMMUNITY PROPERTY (one signature required if interest held in one name, i.e., managing spouse; two signatures required if interest held in both names)

 

_______ TENANTS IN COMMON (both or all parties must sign)

 

_______ GENERAL PARTNERSHIP (fill out all documents in the name of the PARTNERSHIP, by a PARTNER authorized to sign)

 

_______ LIMITED PARTNERSHIP (fill out all documents in the name of the LIMITED PARTNERSHIP, by a GENERAL PARTNER authorized to sign)

 

_______ LIMITED LIABILITY COMPANY (fill out all documents in the name of the LIMITED LIABILITY COMPANY, by a member authorized to sign)

 

_______ CORPORATION (fill out all documents in the name of the CORPORATION, by the President or other officer authorized to sign)

 

_______ TRUST (fill out all documents in the name of the TRUST, by the Trustee, and include a copy of the instrument creating the trust and any other documents necessary to show the investment by the Trustee is authorized. The date of the trust must appear on the Notarial where indicated.)

 

        Subscription Agreement
Participant’s Initials 23 Generation Hemp, Inc.

 

 

 

Subject to acceptance by the Company, the undersigned has completed this Subscription Agreement to evidence his/her/its subscription for the purchase of Securities of the Company, this _______ day of _____, 2020.

 

 

  PARTICIPANT
   
   
  (Signature
   
  By:                               
   
  If Entity, Entity Name:  ____________________
   
  Its:  

 

The Company has accepted this subscription this ____ day of __________ 2020

 

  “COMPANY”
   
  GENERATION HEMP, INC.,
  a Colorado corporation
   
  By:             
    Gary C. Evans
    Chairman and CEO

 

  Address for notice:
   
  Generation Hemp, Inc.
  P.O. Box 540308
  Dallas, Texas 75354
  Attn: gevans@genhempinc.com

 

        Subscription Agreement
Participant’s Initials 24 Generation Hemp, Inc.

 

 

 

Exhibit A

 

Form of Warrant

 

        Subscription Agreement
Participant’s Initials 25 Generation Hemp, Inc.

 

 

 

Exhibit B

CERTIFICATE OF ACCREDITED INVESTOR STATUS

 

Except as may be indicated by the undersigned below, the undersigned is an “accredited investor,” as that term is defined in Regulation D under the Securities Act of 1933, as amended (the “Securities Act”). The undersigned has initialed the box below indicating the basis on which he is representing his status as an “accredited investor”:

 

______ a bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”); an insurance company as defined in Section 2(13) of the Securities Act; an investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; a small business investment company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, and such plan has total assets in excess of $5,000,000; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are “accredited investors”;

 

____ a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;

 

____ an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

 

____ a natural person whose individual net worth, or joint net worth with the undersigned’s spouse, at the time of this purchase exceeds $1,000,000. For purposes of this item, "net worth" means the excess of total assets at fair market value (including personal and real property, but excluding the estimated fair market value of a person's primary home) over total liabilities. Total liabilities excludes any mortgage on the primary home in an amount of up to the home's estimated fair market value as long as the mortgage was incurred more than 60 days before the Securities are purchased, but includes (i) any mortgage amount in excess of the home's fair market value and (ii) any mortgage amount that was borrowed during the 60-day period before the closing date for the sale of Securities for the purpose of investing in the Securities;

 

____ a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with the undersigned’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

 

____ a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment;

 

____ an entity in which all of the equity holders are “accredited investors” by virtue of their meeting one or more of the above standards; or

 

____ an individual who is a director or executive officer of Generation Hemp, Inc.

 

 

 

 

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Accredited Investor Status effective as of __________________, 2020.

 

  Name: _____________________________________
   
  By: ________________________________________
  Signature
   
  Printed Name of Signatory (if entity): _____________
   
  Title: _______________________________________
  (required for any stockholder that is a corporation, partnership, trust or other entity)

 

 

 

 

Exhibit C

 

FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

 

As of _____________, 2020

 

 __________________________

 

Attn: _____________

 

Ladies and Gentlemen:

 

Reference is made to those certain Subscription Agreements, dated as of _____________, 2020 (collectively, the “Agreement”), by and among Generation Hemp, Inc., a Colorado corporation (the “Company”), and the purchasers named on the signature pages thereto (collectively, and including permitted transferees, the “Holders”), pursuant to which the Company is issuing to the Holders units (the “Units”) comprised of (i) one share (the “Shares”) of its common stock, (the “Common Stock”) and (ii) warrants (the “Warrants”) to purchase one share of Common Stock at an exercise price of $0.40 per share (the “Warrant Shares”).

 

This letter shall serve as our irrevocable authorization and direction to you (provided that you are the transfer agent of the Company at such time and the conditions set forth in this letter are satisfied), subject to any stop transfer instructions that we may issue to you from time to time, if any, to (i) issue, promptly following the date hereof, certificates representing the Shares (or the Warrant Shares upon exercise of the Warrants) bearing the legend set forth herein below, in the names of the Holders and the number of Shares (or Warrant Shares, if applicable) as set forth in the attachments delivered herewith, and to deliver such certificates within six (6) business days after the date hereof to the address for each such Holder as set forth on such attachments delivered herewith, and (ii) issue certificates representing shares of Common Stock upon transfer or resale of the Shares (or Warrant Shares, if applicable), which certificates shall or shall not bear the legend set forth herein below as described below.

 

You acknowledge and agree that so long as you have received (a) written confirmation from the Company’s legal counsel that a registration statement covering resales of the Shares (or Warrant Shares, if applicable) has been declared effective by the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”), a copy of such registration statement and any other documents reasonably requested by you from the applicable Holder (and provided that you have not received written instruction from the Company or its legal counsel that such registration statement has been suspended or is no longer effective), (b) written confirmation from the Company’s legal counsel that the Shares (or Warrant Shares, if applicable) are eligible for sale in conformity with Rule 144 under the Securities Act (“Rule 144”) and customary documentation from a Holder and its broker with respect to a sale pursuant to Rule 144, or (c) written confirmation from the Company’s legal counsel that the Shares (or Warrant Shares, if applicable) are eligible for sale without the requirement that the Company be in compliance with the current public information requirements of Rule 144 and without other restriction in conformity with Rule 144, then, unless otherwise required by law, within three (3) business days of your receipt of certificate of Common Stock and documentation required pursuant to clause (a) or (b) above, as applicable, or a request from a Holder for the issuance of an unlegended certificate in the event that you have received the written confirmation set forth in clause (c) above, you shall issue the certificates representing the Shares (or Warrant Shares, if applicable) registered in the names of the purchaser of such Shares or the Holder, as the case may be, and such certificates shall not bear any legend restricting transfer of the Shares (or Warrant Shares, if applicable) thereby and should not be subject to any stop-transfer restriction.

 

 

 

 

All certificates representing the Shares (or Warrant Shares, if applicable) issued pursuant to the instruction set forth in clause (i) of the second paragraph of this letter shall bear the following legend (and, solely to the extent instructed to you by the Company or its legal counsel, a customary “affiliates” legend), and, in the event that you have not received the documentation required pursuant to clause (a), (b) or (c) of the immediately preceding paragraph, then the certificates representing any shares of Common Stock issued pursuant to the instruction set forth in clause (ii) of the second paragraph of this letter shall bear the following legend:

 

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES WHICH IS REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

  

Please be advised that the Holders are relying upon this letter as an inducement to enter into the Agreement and, accordingly, each Holder is a third party beneficiary to these instructions.

 

Please execute this letter in the space indicated to acknowledge your agreement to act in accordance with these instructions.

 

  Very truly yours,
   
  GENERATION HEMP, INC.
   
  By:    
  Name:    Gary C. Evans
  Title:     Chairman and CEO

 

Acknowledged and Agreed:  
   
By:                  
Name:    
Title:    
Date:    

 

 

 

 

 

Exhibit 10.11

 

SUBORDINATED PROMISSORY NOTE

 

September 30, 2020

$340,000.00

 

FOR VALUE, Generation Hemp, Inc., a Colorado corporation (“Borrower”), whose mailing address is P.O. Box 540308, Dallas, Texas 75354, promises and agrees to pay to the order of Gary C. Evans, a Texas resident (“Lender”), whose address 5128 Horseshoe Trail, Dallas, Texas 75209, or at such other location as the holder of this Note may designate by written notice to Borrower, the sum of Three Hundred Forty Thousand and No/100 Dollars ($340,000.00) in the lawful currency of the United States (see advances outlined on “Exhibit A”) with interest at a rate of 10% per annum, but in no event higher than the Highest Lawful Rate (as hereinafter defined).

 

“Highest Lawful Rate” means the maximum nonusurious rate of interest permitted by applicable federal or Texas law from time to time.

 

Interest on this Note shall be computed for the actual number of days elapsed and on the basis of a year consisting of 365 days, and a month consisting of 30 days, unless the Highest Lawful Rate would thereby be exceeded, in which event, to the extent necessary to avoid exceeding the Highest Lawful Rate, interest shall be computed on the basis of the actual number of days elapsed in the applicable calendar year in which accrued.

 

The principal amount of this Note and all accrued, unpaid interest thereon is due and payable in full on the 31st day of December 2020 hereof (the “Payment Date”). This Note may be prepaid in whole or in part at any time prior to the payment date stated in the preceding sentence without penalty as to principal, and any partial payments shall be applied to the principal due on this Note in inverse order of maturity with interest being adjusted accordingly.

 

If one of the following events occurs, Maker shall be in default (“Default”) and this Note shall, at Lender’s option, become immediately due and payable without demand or notice:

 

i. the failure of Borrower to pay the principal and any accrued interest in full on or before the Payment Date;

 

ii. the filing of bankruptcy proceedings involving the Borrower as a debtor;

 

iii. the making of a general assignment for the benefit of the Borrower’s creditors; or

 

iv. the uncured breach by Borrower under any of the security documents executed in conformity with this Note, which remains uncured following any applicable cure period.

 

1

 

 

If any payment date falls on a Saturday, Sunday, or a federal holiday, then payment will be due on the next business day and such extension of time shall in such case be included in the computation or payment of interest hereunder. All past due principal and interest on this Note shall bear interest at the Highest Lawful Rate.

 

To the extent that waiver of notice is permitted by applicable law, the Borrower and any and all co-makers, endorsers, guarantors, and sureties jointly and severally waive notice (including, but not limited to, notice of intent to accelerate and notice of acceleration), demand, presentment for payment, protest and the filing of suit for the purpose of fixing liability and consent that the time of payment hereof may be extended and re-extended from time to time without notice to them or any of them, and each agree that his, her, or its liability on or with respect to this Note shall not be affected by any release of or change in any security at any time existing or by any failure to perfect or to maintain perfection of any lien on or security interest in any such security.

 

This Note has been executed and delivered in Dallas, Dallas County, Texas, and shall be governed by and construed in accordance with the laws of the State of Texas and the United States of America from time to time in effect without regard to the choice of law provisions thereof, and shall be enforceable in Dallas County, Texas.

 

Regardless of any provision contained in this Note, the Payee shall never be deemed to have contracted for or be entitled to receive, collect or apply as interest on the Note, any amount in excess of the maximum rate of interest permitted to be charged by applicable law and, in the event Payee ever receives, collects or applies as interest any such excess, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance of this Note; and, if the principal balance of this Note is paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable under any specific contingency exceeds the highest lawful rate, Maker and Payee shall, to the maximum extent permitted under applicable law, (i) exclude voluntary prepayments and the effect thereof, and (ii) spread the total amount of interest throughout the entire contemplated term of this Note so that the interest rate is uniform throughout such term.

 

This Promissory Note is intended to be an obligation of Borrower and, by the execution of this Promissory Note, Borrower agrees that Borrower shall not be entitled to sell, transfer, assign, or convey in any manner whatsoever, this Promissory Note and Borrower shall remain obligated under this Promissory Note until the obligation set forth herein is paid in full.

 

If this Note is placed in the hands of any attorney for collection, or if it is collected through any legal proceedings at law or in equity or in bankruptcy, receivership or other court proceedings, Maker joint and severally agrees to pay all costs of collection, including but not limited to court costs and reasonable attorney’s fees.

 

2

 

 

IN WITNESS WHEREOF, the undersigned Borrower has duly executed this Note effective as of the day and year above first written.

 

  GENERATION HEMP, INC.
     
  By: /s/ Joe M. McClaugherty
    Joe M. McClaugherty
    Lead Director

 

3

 

 

EXHIBIT “A”

 

Date   Company   Check Number   Amount  
1/23/20   EHR   1339   $ 50,000.00  
1/31/20   GENH   1342   $ 100,000.00  
4/28/20   GENH   1367   $ 30,000.00  
6/12/20   GENH   1561   $ 25,000.00  
7/9/20   GENH   1567   $ 15,000.00  
7/16/20   GENH   1532   $ 5,000.00  
8/31/20   GENH   1578   $ 50,000.00  
9/30/20   GENH       $ 65,000.00  
        Total   $ 340,000.00  

 

 

 

 

 

 

 

Exhibit 10.12

 

ASSET PURCHASE AGREEMENT

 

BY AND AMONG

 

GENERATION HEMP, INC.,

a Colorado corporation,

 

GENH HALCYON ACQUISITION, LLC,

a Texas limited liability company,

 

OZ CAPITAL, LLC,

a Texas limited liability company,

 

OZC AGRICULTURE KY, LP,

a Texas limited partnership,

 

HALCYON THRUPUT, LLC,

a Texas limited liability company,

 

AND

 

THE OWNERS SET FORTH ON THE SIGNATURE PAGES HERETO

 

DATED: March 7, 2020

 

 

 

 

TABLE OF CONTENTS

 

  Page No.
1. Purchase and Sale of Assets. 1
1.1 Transfer of Assets at Closing. 1
1.2 Excluded Assets. 3
1.3 Consents. 3
1.4 Real Property. 4
2. Liabilities. 4
2.1 Assumed Liabilities at the Closing. 4
2.2 Retained Liabilities. 4
3. Purchase Price. 6
3.1 Purchase Price. 6
3.2 Earn-Out. 8
3.3 Definitions. 8
3.4 Earn-Out Procedures. 9
3.5 Working Capital Adjustment. 10
3.6 Allocation of Purchase Price. 12
4. Representations and Warranties. 12
4.1 Representations and Warranties of Seller. 12
4.2 Representations and Warranties of Owners. 21
4.3 Representations and Warranties of Buyer. 22
5. Additional Covenants of Buyer and Seller. 23
5.1 Labor and Employment Matters. 23
5.2 Operation of the Business Prior to Closing. 24
5.3 Restrictive Covenants. 24
5.4 Press Releases and Announcements. 25
5.5 Litigation Support. 25
5.6 Further Assurance. 26
5.7 Payment of Sales or Transfer Taxes. 26
5.8 Consents; Permits. 26
5.9 Name Change. 26
5.10 Information Regarding Buyer. 26
5.11 Website. 26
5.12 Rights. 27
5.13 Pro Formas. 27
5.14 Personal Guaranty. 27
6. Closing. 28
6.1 Closing. 28
6.2 Deliveries at Closing. 28
7. Condition Precedent to Buyer’s and GENH’s Obligations Hereunder. 30
7.1 Covenants and Deliverables. 30
7.2 Representations and Warranties. 30
7.3 Material Adverse Change. 30
7.4 Certificates. 30

 

i 

 

 

7.5 Permits. 30
7.6 No Liens. 30
7.7 No Actions. 30
7.8 Due Diligence. 31
7.9 Required Consents Obtained. 31
7.10 Sufficiency of Employees. 31
7.11 Exhibits and Schedules. 31
7.12 Insurance Claim. 31
7.13 Real Property. 31
7.14 SEC Waiver. 31
7.15 Equity. 31
8. Conditions Precedent to Seller’s, Parent’s and Owners’ Obligations Hereunder. 32
8.1 Covenants and Deliverables. 32
8.2 Representations and Warranties. 32
8.3 Certificates. 32
8.4 No Actions. 32
9. Termination of Agreement. 32
10. Indemnification. 33
10.1 Survival of Representations, Warranties, Covenants, and Indemnifications. 33
10.2 Indemnification by Seller, Parent, Oz Capital and Owners. 33
10.3 Indemnification by Buyer. 34
10.4 Claims. 34
10.5 Limitation of Liability. 35
10.6 Offset. 35
10.7 Limitations. 35
11. General Provisions. 36
11.1 Recitals. 36
11.2 Exclusivity. 36
11.3 Notices. 36
11.4 Complete Agreement; Burden and Benefit; Assignment. 37
11.5 Modification and Waiver. 37
11.6 Governing Law; Venue. 37
11.7 Arbitration. 38
11.8 Waiver of Jury Trial. 38
11.9 Severability. 38
11.10 Counterparts. 38
11.11 Exhibits and Schedules. 38
11.12 Section and Subsection Headings. 38
11.13 No Strict Construction. 38
11.14 Expenses. 38
11.15 Independent Counsel. 38
11.16 Attorneys’ Fees. 38

 

ASSET PURCHASE AGREEMENT – Page ii

 

 

ASSET PURCHASE AGREEMENT

 

THIS ASSET PURCHASE AGREEMENT (this “Agreement”) is effective as of March 7, 2020 (the “Effective Date”), by and among GENERATION HEMP, INC., a Colorado corporation (“GENH”), GENH HALCYON ACQUISITION, LLC, a Texas limited liability company and a wholly-owned subsidiary of GENH (“Buyer”), OZ CAPITAL, LLC, a Texas limited liability company (“Oz Capital”), OZC AGRICULTURE KY, LP, a Texas limited partnership (“Parent”), HALCYON THRUPUT, LLC, a Texas limited liability company and a wholly-owned subsidiary of Parent (“Seller”), and Owners set forth on the signature pages hereto (individually, “Owner” and collectively, “Owners.”) If an Owner is not a natural person, “Owner” shall refer to the individual owners of such Owner set forth on the signature pages hereto). Buyer, GENH, Seller, Parent and Owners are sometimes hereinafter referred to as the “Parties” or individually as a “Party.” All capitalized terms used herein that are not defined below shall have the meanings ascribed to them in Exhibit “A” attached hereto.

 

WITNESSETH:

 

WHEREAS, Seller operates an agricultural processing facility that dries, cleans and stores hemp biomass for both in-network and out-of-network farms (the “Business”);

 

WHEREAS, Oz Capital owns the real estate and improvements thereon that are used by the Business (the “Real Property”);

 

WHEREAS, GENH focuses on all aspects of the hemp industry and intends to acquire businesses that enable it to be vertically integrated within the hemp industry; and

 

WHEREAS, Seller and Oz Capital desire to sell to Buyer, and Buyer desires to purchase from Seller, substantially all of the assets of Seller and the Real Property utilized in connection with the ownership and operation of the Business;

 

NOW, THEREFORE, in consideration of the foregoing, and of the mutual promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

 

1. Purchase and Sale of Assets.

 

1.1 Transfer of Assets at Closing. At the Closing, subject to and upon the terms and conditions provided herein, and in reliance upon the representations, warranties and covenants set forth herein, Seller will sell, assign, transfer, convey, and deliver to Buyer, and Buyer will acquire, purchase and accept from Seller, free and clear of all Liens, except for Permitted Liens, all of the assets, property and rights, tangible and intangible, of every kind and description, wherever located (excluding the Excluded Assets), owned or used by, or licensed to, Seller (the “Assets”), including, without limitation, the following Assets relating to the Business:

 

(a) all current customer Contracts, licenses, agreements, leases, customer lists, files and commitments relating to the Business, including, without limitation, the Contracts, licenses, agreements and commitments that are set forth on Schedule 1.1(a), and all rights, guarantees, warranties, and indemnities thereon (the “Business Agreements”);

 

ASSET PURCHASE AGREEMENT – Page 1

 

 

(b) all furniture, computers, equipment, fixtures, personal property and other tangible assets used or usable by the Business, including, without limitation, those tangible assets that are identified on Schedule 1.1(b);

 

(c) all billed and unbilled accounts receivable of the Business, including, but not limited to, those that are identified on Schedule 1.1(c);

 

(d) all inventory, work in progress, parts, materials and related items of the Business, including, but not limited to, those listed on the Seller’s accounts receivable aging report attached to Schedule 1.1(d);

 

(e) all intellectual property owned or licensed by Seller, or to which Seller has any rights, and used by Seller in the operation of the Business (excluding intellectual property belonging to third parties that is not transferrable or assignable to Buyer), including, without limitation, all of the following worldwide intangible legal rights, whether or not filed, perfected, registered or recorded and whether now or hereafter existing, filed, issued or acquired: (i) all patents, patent applications, and patent rights, including any and all continuations, divisions, reissues, reexaminations or extensions thereof; (ii) all rights associated with works of authorship, including, but not limited to, copyrights, copyright applications and copyright registrations; (iii) all registered and unregistered state and federal trademarks and servicemarks, trademark applications and registrations and all goodwill associated therewith; (iv) all rights relating to the protection of trade secrets, know-how and other confidential information, including, but not limited to, rights in industrial property and all associated information and other confidential or proprietary information; (v) all industrial design rights; (vi) all rights to inventions, discoveries, and ideas, whether patentable or not, including the right to seek patent protection for inventions and discoveries; (vii) the right to obtain an assignment of any of the rights set forth in the preceding clauses under employment agreements and otherwise; (viii) to the extent transferrable or assignable, Seller’s right to use any licensed software or other licensed intellectual property; and (ix) any rights analogous to those set forth in the preceding clauses and any other proprietary rights relating to intangible property together with all rights corresponding thereto throughout the world, including all income, royalties, damages and payments for past and future infringements thereof, together with full right to sue for and recover all damages and profits recoverable for infringements of such rights, and all intellectual property rights and all other proprietary information, including, but not limited to, trade secrets (collectively, “Intellectual Property”);

 

(f) all licenses and permits used in the Business, including those that are identified on Schedule 1.1(f), to the extent they are legally transferable or assignable (the “Permits”);

 

(g) all telephone numbers, facsimile numbers, websites, internet domain names and social media rights (e.g. Facebook, Twitter and Instagram accounts) and related or similar assets used in the Business, including, without limitation, the assets identified on Schedule 1.1(g);

 

(h) all data, files and records related to the operations of the Business, including, without limitation, all books, customer lists and records, client lists and files, supplier lists, billing information, mailing lists, referral sources, personnel records (other than personnel records not subject to transfer or disclosure by applicable law), files related to employees and independent contractors, production reports and records, service and warranty records, equipment logs, operating guides and manuals, reports, correspondence and other similar documents and records (the “Records”);

 

ASSET PURCHASE AGREEMENT – Page 2

 

 

(i) all rights accruing under any confidentiality or non-compete agreements or provisions relating to the Business, including, without limitation, (i) those agreements and provisions described on Schedule 1.1(i), (ii) all agreements or provisions with current and former employees and current and former independent contractors of Seller, and (iii) all rights to enforce the foregoing agreements and to obtain remedies for breaches thereof;

 

(j) all rights of recovery, causes of action, choses in action, insurance claims and insurance proceeds, and all other claims of Seller against third parties relating to any of the foregoing assets of the Business, whether choate or inchoate, known or unknown, contingent or noncontingent; and the Insurance Claim, the WCA Claim and the Settlement Amount; and

 

(k) the Business as a going concern and all goodwill of the Business, including, without limitation, all of Seller’s right, title and interest in and to all trade names used or usable in connection with the Business, including, without limitation, the names “Halcyon,” “Halcyon Thruput,” including any variations thereof.

 

1.2 Excluded Assets. The Assets shall not include the following properties, assets and other rights (the “Excluded Assets”), which shall be retained by Seller:

 

(a) all bank accounts of the Business;

 

(b) limited liability company minute books, membership interest transfer records, and tax records of Seller; and

 

(c) any other assets set forth in Schedule 1.2(c).

 

1.3 Consents. Except as set forth in Schedule 1.3, to the extent that Seller’s rights under any Contract or Permit that constitutes an Asset, or any other Asset, may not be assigned to Buyer without the consent of another Person or Governmental Entity and such consent has not been obtained prior to the Closing (the “Restricted Agreements”), and Buyer has waived in writing the delivery of such necessary consents and not terminated this Agreement pursuant to Section 9, Seller shall continue, for as long as Buyer shall reasonably request, but not less than three (3) months following the Closing, to use its commercially reasonable efforts to obtain such consents as quickly as practicable. Buyer shall provide reasonable cooperation to Seller with respect to obtaining such consents. Notwithstanding Section 1.1 and Section 2.1 hereof, neither this Agreement nor any other document or agreement to be entered into hereunder (the “Ancillary Documents”) shall constitute a sale, assignment, assumption, transfer, conveyance or delivery, or an attempted sale, assignment, assumption, transfer, conveyance or delivery, of the Restricted Agreements. Pending receipt of such consent relating to any Restricted Agreement, the Parties shall cooperate with each other, in a reasonable and lawful manner, to provide to Buyer, to the extent practicable without violating the terms of such Restricted Agreement, the benefits of the Restricted Agreement for the remainder of its term (or any right or benefit arising thereunder, including, without limitation, the enforcement for the benefit of Buyer of any and all rights of Seller against a third party thereunder). Once the necessary consent for the sale, assignment, assumption, transfer, conveyance and delivery of a Restricted Agreement is received, Seller shall, for no additional consideration, promptly assign, transfer, convey and deliver such Restricted Agreement to Buyer, and Buyer shall assume the express obligations under such Restricted Agreement assigned to Buyer effective as of the Closing pursuant to a special-purpose assignment and assumption agreement substantially similar in terms to those of the Bill of Sale - Assignment and Assumption Agreement attached hereto as Exhibit “B” to be executed at the Closing (which special-purpose agreement the parties shall prepare, execute and deliver in good faith at the time of such transfer, for no additional consideration; provided, that each Party shall pay its respective costs incurred in connection with such special purpose agreement).

 

ASSET PURCHASE AGREEMENT – Page 3

 

 

1.4 Real Property. Buyer or its Affiliates shall acquire the Real Property from Oz Capital pursuant to the Real Property Purchase Agreement attached hereto as Exhibit “C” (the “Real Property Purchase Agreement”), which Buyer and Oz Capital shall execute simultaneously with the execution of this Agreement and close simultaneously with the Closing. A portion of the Purchase Price shall be allocated to the Real Property pursuant to and in accordance with Section 3.6.

 

1.5 DaysOS Software. Buyer or its Affiliates shall acquire 100% of Oz Capital’s membership interest (the “DaysOS Interest”) in DaysOS, LLC, a Texas limited liability company (“DaysOS”), pursuant to a membership interest purchase agreement in form and substance reasonably satisfactory to Buyer, which Buyer, Oz Capital and SixOneFive Ventures LLC, a Tennessee limited liability company, shall execute simultaneously with the Closing (“DaysOS Membership Interest Purchase Agreement”). Additionally, Buyer or its Affiliates shall enter into a perpetual, royalty-free, worldwide software license agreement, in form and substance reasonably satisfactory to Buyer, with DaysOS in connection with the DaysOS software program used by Seller in connection with the Business (the “DaysOS Software License”). A portion of the Purchase Price shall be allocated to the DaysOS Interest and the DaysOS Software License pursuant to and in accordance with Section 3.6.

 

2. Liabilities.

 

2.1 Assumed Liabilities at the Closing. Upon the terms and subject to the conditions of this Agreement, as of the Closing, Buyer shall assume, discharge and perform when lawfully due only the liabilities, obligations and commitments of Seller relating exclusively to (i) the Business Agreements, based upon events occurring on or after the Closing Date, but expressly excluding any obligations, liabilities, or commitments of Seller for any breach of or default under any Business Agreement occurring or accruing on or prior to the Closing Date; (ii) accounts payable reflected on the Seller’s accounts payable aging report attached to Schedule 2.1(ii); and (iii) the indebtedness for borrowed money reflected on Schedule 2.1(iii) (collectively, the “Assumed Liabilities”).

 

2.2 Retained Liabilities. Notwithstanding any other provision of this Agreement, except for the Assumed Liabilities, Buyer shall not assume, pay, honor, discharge or otherwise be responsible for, any Losses, injuries, damages, deficiencies, obligations, liabilities, liens or encumbrances of Seller directly or indirectly resulting from Seller’s ownership of the Assets or the condition thereof on the Closing Date, or from Seller’s operation of the Business prior to the Closing Date, whether or not reflected in the Records, whether actual or contingent, matured or unmatured, liquidated or unliquidated, or known or unknown, whether arising or accruing out of occurrences or omissions prior to, at or after the Closing Date (collectively, the “Retained Liabilities”), which Retained Liabilities shall include, without limitation:

 

ASSET PURCHASE AGREEMENT – Page 4

 

 

(a) any Liability arising out of or relating to services or products of Seller to the extent designed (provided that such design has not been modified by Buyer after the Closing Date and such modification is the cause of such Liability), manufactured, provided or sold on or prior to the Closing Date, including any (i) invoice credits or client refunds due to a client from Seller; or (ii) penalties imposed on Seller or its clients, pertaining to periods prior to Closing;

 

(b) all outstanding payables relating to the Business, not expressly assumed by Buyer, that arise out of or relate to events occurring on or prior to the Closing Date;

 

(c) any Liability of Seller or Owners in respect of any Tax that accrues or relates to the time period preceding the Closing with respect to the Business (including, without limitation, (i) any Liability of Seller for the Taxes of any other Person (A) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign law); (B) as a transferee or successor, (C) by contract; or (D) otherwise; and (ii) any Liability of Seller or Owners for Taxes arising in connection with the consummation of the transactions contemplated by this Agreement);

 

(d) any Liability under any Contract, agreement, lease or other document not expressly or specifically assumed by Buyer under this Agreement;

 

(e) any Liability to or in respect of the employees or former employees of Seller arising out of such employees’ employment with Seller, including, without limitation, (i) any Liability under any employee plan at any time maintained, contributed to, or required to be contributed to by, or with respect to, Seller or under which Seller may incur Liability, or any contributions, benefits or Liabilities therefor, or any Liability with respect to Seller’s withdrawal or partial withdrawal from or termination of any employee plan, including, without limitation, any supplemental executive retirement employee plan; (ii) any Liability or obligation for the current funding obligations under any employee plan in existence, or arising out of the period, on or prior to the Closing Date; and (iii) any claim of an unfair labor practice, or any claim under any state unemployment compensation or worker’s compensation law or regulation or under any federal or state employment discrimination law or regulation or any other basis for similar claims, which shall have been asserted on or prior to the Closing Date or is based on acts or omissions which occurred on or prior to the Closing Date;

 

(f) any Liability under any employment, severance, retention, incentive or bonus compensation, or termination agreement, whether or not written, between Seller and any employee, consultant or agent of Seller that arises out of or relates to events occurring on or prior to the Closing Date;

 

(g) any Liability arising out of or relating to any grievance of any employee, agent or contactor of Seller, whether or not the affected persons are hired by Buyer, that arises out of facts or events occurring on or prior to the Closing Date;

 

(h) any Liability of Seller to any Affiliate of Seller;

 

(i) any Liability of Seller to indemnify, reimburse or advance amounts to any officer, director, manager, employee, agent, contractor or other representative of Seller;

 

ASSET PURCHASE AGREEMENT – Page 5

 

 

(j) any Liability of Seller to distribute to any members or creditors of Seller or otherwise apply all or any part of the consideration received by Seller hereunder;

 

(k) any Liability of Seller arising out of or resulting from Seller’s compliance or noncompliance with any Legal Requirement or court order of any Governmental Entity;

 

(l) any Liability of Seller to any licensor, including, without limitation, any commissions and royalties accrued or owed to any licensor on or prior to the Closing Date, or based on acts or omissions that occurred on or prior to the Closing Date;

 

(m) any Liability of Seller in connection with this Agreement or any Ancillary Document;

 

(n) any obligation of Seller or any of its Affiliates or members to pay any finder’s fee, brokerage fees or commission or similar payment in connection with the transaction contemplated in this Agreement;

 

(o) any Liabilities relating to any insurance policy of Seller;

 

(p) any Liability of Seller based upon Seller’s acts or omissions occurring prior to the Closing Date with respect to its operation of the Business, unless otherwise assumed herein;

 

(q) any litigation related to the Business, whether currently ongoing, or brought after Closing related to acts, events or circumstances occurring prior to the Closing, unless otherwise assumed herein; and

 

(r) any other Liability of Seller not expressly assumed by Buyer.

 

3. Purchase Price.

 

3.1 Purchase Price.

 

(a) Amount of Purchase Price. As full consideration for the sale of the Business and the Real Property, consisting of the transfer and conveyance of the Assets by Seller free and clear of all Liens, except for Permitted Liens, to Buyer hereunder, Buyer shall pay to Seller an aggregate purchase price (the “Purchase Price”) which will be payable as follows: (i) $2,600,000.00 will be paid in cash at the Closing, subject to adjustment pursuant to Section 3.1(c), Section 3.1(d), Section 3.1(e), and Section 3.5 below (the “Cash Payment”); (ii) 1,250,000 shares of Common Stock, no par value per share of GENH (“GENH Common Stock”), which number is equal to the quotient of $2,500,000.00 divided by $.50, will be issued to the Holders (hereinafter defined) (the “Stock Consideration”); and (iii) certain potential payments in either cash or GENH Common Stock pursuant to the Earn-Out, shall be paid at such times and in such amounts as provided in Sections 3.2, 3.3, and 3.4 below. The Purchase Price is subject to adjustment pursuant to Sections 3.1(c) and 3.5 below. The Cash Payment shall be made in cash by wire transfer of immediately available funds to the account of Seller. Seller shall specify such account to Buyer in writing at least three (3) days prior to the Closing Date.

 

ASSET PURCHASE AGREEMENT – Page 6

 

 

(b) GENH Common Stock. Seller and Owners acknowledge and agree that the shares of GENH Common Stock issuable to Owners pursuant to this Agreement shall constitute “restricted securities” within the meaning of Rule 144 of the Securities Act for the earlier to occur of one year from the date of issuance (the “Restricted Period”) or the registration of the GENH Common Stock under the Securities Act. The certificates evidencing the shares of GENH Common Stock to be issued to the individuals and entities set forth on Schedule 3.1(b) (the “Holders”) pursuant to this Agreement shall bear appropriate legends to identify such privately placed shares as being “restricted securities” under the Securities Act to comply with state and federal securities laws and, if applicable, to notice the restrictions on transfer of such shares; provided, however, that each Holder must be an accredited investor. In connection with a registered public offering of the Company’s securities and upon request of the Company or the underwriters managing such offering of the Company’s securities, each Holder shall execute a market standoff agreement in the form requested by such underwriters in which they agree not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose (a “Transfer”) of any GENH Common Stock held immediately prior to the Company’s offering (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time from the effective date of such registration as may be requested by the Company or such managing underwriters (such period not to exceed the Restricted Period) and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company’s offering.

 

(c) Insurance Claim Adjustment. Seller and Buyer both agree and acknowledge that Seller is in the process of settling with Global Indemnity Group (the “Insurance Company”) an insurance claim number 19005172 or any related and supplemental claims on behalf of the Business relating to a dryer fire occurring in the Real Property (the “Insurance Claim”). Seller has determined in good faith that the settlement of the Insurance Claim will result in a payment to Seller of not less than $583,000.00 (the “Estimated Insurance Floor”) and not more than $1,150,000.00 (the “Estimated Insurance Ceiling”). If the final, binding settlement amount of the Insurance Claim received by Seller (the “Settlement Amount”) is less than the Estimated Insurance Floor, the Cash Payment shall be decreased on a dollar-for-dollar basis by the amount the Settlement Amount is less than the Estimated Insurance Floor. If the Settlement Amount received by Seller is greater than the Estimated Insurance Ceiling, the Cash Payment shall be increased on a dollar-for-dollar basis by the amount of Settlement Amount exceeds the Estimated Insurance Ceiling.

 

(d) Mechanics and Materialman’s Liens. Seller and Buyer both agree and acknowledge that Seller and Oz Capital are in the process of removing certain mechanics’ and materialman’s liens filed against the Real Property as a result of West Coast Agricultural Construction Company’s failure to pay its subcontractors for work performed on the Real Property (the “WCA Liens”). If Buyer or its Affiliates incur any costs, including reasonable attorneys’ fees, in releasing the WCA Liens at or before Closing, the Cash Payment shall be decreased on a dollar-for-dollar basis by the amount of such costs.

 

(e) WCA Claim. Seller and Buyer both agreed and acknowledge that Seller is in the process of settling the WCA Claim, and that Buyer is not assuming any liability with respect to the WCA Claim. However, if Buyer recovers any amounts in connection with the WCA Claim, such amounts will be used to offset any costs incurred by Seller in defending, prosecuting or settling the WCA Claim; provided that Seller has obtained Buyer’s written consent to incur such costs in defending, prosecuting or settling the WCA Claim.

 

ASSET PURCHASE AGREEMENT – Page 7

 

 

3.2 Earn-Out. For purposes of this Agreement, the term “Earn-Out” shall include the sum of the Earn-Out Payments under this Section 3.2. Buyer shall pay on behalf of Seller directly to Owners in equal amounts the sum of the earn-out payments specified herein, payable at Buyer’s election, exercised at any time prior to the date each Earn-Out Payment is made, either in cash or in GENH Common Stock (each, an “Earn-Out Payment”) calculated as follows:

 

(a) For Year One, Seller shall be entitled to an Earn-Out Payment in the amount of $1,000,000.00 of cash or GENH Common Stock if (and only if) the Net Cash Flow derived from the Business during Year One is equal to or in excess of $2,500,000.00.

 

(b) For Year Two, Seller shall be entitled to an Earn-Out Payment in the amount of $2,000,000.00 of cash or GENH Common Stock if (and only if) the Net Cash Flow derived from the Business during Year Two is equal to or in excess of $5,000,000.00.

 

(c) For Year Three, Seller shall be entitled to an Earn-Out Payment in the amount of $3,000,000.00 of cash or GENH Common Stock if (and only if) the Net Cash Flow derived from the Business during Year Three is equal to or in excess of $7,500,000.00.

 

(d) If Buyer elects to pay any Earn-Out Payment in GENH Common Stock, the number of shares of GENH Common Stock to be issued to Seller for an Earn-Out Payment shall equal the value of the Earn-Out Payment divided by $.50.

 

3.3 Definitions.

 

(a) “Gross Receipts” means, for any period, all cash revenue and funds received by Buyer from operations derived from the Business (excluding receipts for capital contributions, Taxes, insurance proceeds, transportation, reimbursables and revenue or receipts from extraordinary events).

 

(b) “Net Cash Flow” means, for any period, the Gross Receipts for that period less (i) the sum of all payments of Operating Expenses (A) during that period; or (B) due at the end of that period; (ii) commercially reasonable  reserves for contingencies, working capital for current operations and projected growth, and the making of future loans and investments; (iii) all sums paid to lenders in such period in accordance with the scheduled payment obligations; and (iv) commercially reasonable capital expenditures. The amount of reserves and capital expenditures shall be deemed commercially reasonable if approved by Jack Sibley and Watt Stephens in connection with the Buyer’s budgeting process, which approval shall not be unreasonably withheld, delayed or conditioned. Net Cash Flow shall not be increased or reduced by depreciation, amortization, cost recovery deductions, or similar allowances.

 

(c) “Operating Expenses” means, for any period, all the expenditures of any kind made or to be made with respect to the Business, including, without limitation, the compensation of Jack and Watt.

 

ASSET PURCHASE AGREEMENT – Page 8

 

 

3.4 Earn-Out Procedures.

 

(a) Within one hundred twenty (120) days after the annual filing of Buyer’s Form 10-K with the U.S. Securities and Exchange Commissions (“SEC”) after Year One, Year Two, and Year Three (each such one hundred twenty (120)-day period, an “Earn-Out Calculation Period”), Buyer shall prepare and deliver to Owners a certificate showing Buyer’s audited calculation of (i) the Net Cash Flow of the Business for such period; and (ii) the Earn-Out payable for such period .

 

(b) Owners may reasonably request to review all books and records of Buyer related to the preparation of the Earn-Out calculations. Owners shall have a period of thirty (30) days after its receipt of each of the Earn-Out calculations (each, an “Earn-Out Objection Period”) in which to provide written notice to Buyer of any objections thereto (each, an “Earn-Out Objection Notice”), setting forth the specific item or items to which each such objection relates and the specific basis for each such objection. The Earn-Out calculations shall be deemed to be accepted by Owners and shall become final and binding on the later of (i) the expiration of the Earn-Out Objection Period; or (ii) the date on which all objections have been resolved by the Parties; provided, however, that the Earn-Out calculations shall become final and binding prior to the end of such Earn-Out Objection Period if Owners inform Buyer by written notice of its waiver of the Earn-Out Objection Period with respect to such Earn-Out calculations and acceptance of the Earn-Out payable for such period. Any Earn-Out Payment shall be paid by Buyer to Owners within thirty (30) days of the Earn-Out calculation becoming final as set forth in this Section 3.4(b).

 

(c) If Owners give any Earn-Out Objection Notice and the Parties are unable to resolve a dispute with respect thereto within thirty (30) days after its date of delivery (which thirty (30) day period may be extended by written agreement of the Parties), such dispute shall be resolved fully, finally and exclusively in Dallas, Texas through the use of the Dallas, Texas office of RSM USA LLP (the “Accounting Firm”). In connection with the engagement of the Accounting Firm, each Party shall represent and warrant to the other Party that the Accounting Firm is not then performing or engaged to perform any material services for such Party (including any services for which the aggregate fees exceed $10,000.00) and shall promptly execute reasonable engagement letters and promptly supply such other documents and information as the Accounting Firm reasonably requires and such additional documents and information as such Party deems appropriate. None of Buyer, Owners or any of their respective Affiliates shall engage, or agree to engage, or discuss with the Accounting Firm the potential engagement of, the Accounting Firm to perform any services other than as described in this Section 3.4(c) until after the Accounting Firm completes its resolution of the dispute. The fees and expenses of the Accounting Firm incurred in the resolution of such dispute shall be borne by the Parties in such proportion as is appropriate to reflect the relative benefits received by the Parties from the resolution of the dispute. For example, if Owners challenge the calculation of the payment by an amount of $10,000.00, but the Accounting Firm determines that Owners have a valid claim for only $4,000.00, Owners shall bear sixty percent (60%) of the fees and expenses of the Accounting Firm, and Buyer shall bear the other forty percent (40%) of such fees and expenses. Any such arbitration Proceeding shall be commenced within sixty (60) days of the date of delivery of the Earn-Out Objection Notice, or such period of time as is otherwise agreed to by the Parties, and the Parties shall submit to the Accounting Firm written submissions detailing the disputed items within twenty (20) days after the commencement of such Proceeding. The Accounting Firm shall make its determination (and provide written notice thereof to the Parties) as promptly as practicable, but in all events within thirty (30) days of the date on which written submissions detailing the disputed items have been forwarded to it. The Accounting Firm’s decision shall be based solely on the written submissions of the Parties (including any documents or other information submitted by the Parties) and any oral presentations requested or approved by the Accounting Firm. 

 

ASSET PURCHASE AGREEMENT – Page 9

 

 

3.5 Working Capital Adjustment.

 

(a) In connection with the Closing, Seller shall provide Buyer with an estimated consolidated balance sheet of Seller as of the Closing Date (the “Estimated Balance Sheet”) and the computation of Working Capital (hereinafter defined) prepared therefrom (“Estimated Working Capital”). The Estimated Balance Sheet and the calculation of the Estimated Working Capital shall be in form and substance reasonably satisfactory to Buyer and shall be prepared consistent with the methodologies set forth on Schedule 3.5(a) (the “Working Capital Methodologies”). For purposes of this Section 3.5(a), “Working Capital” shall generally mean the excess of current assets (excluding cash and cash equivalents and accounts receivable past due by more than one-hundred eighty (180) days and the WCA Claim and the Insurance Claim and the Settlement Amount) of Seller over current liabilities of Seller, including any allowance for doubtful accounts.

 

(b) The target Working Capital on the Closing Date is required to be $300,000.00 (the “Working Capital Target”). If Estimated Working Capital is less than the Working Capital Target, then the Cash Payment and the Purchase Price will be reduced by an amount equal to such deficiency. If Estimated Working Capital is more than the Working Capital Target, then the Cash Payment and the Purchase Price will be increased by an amount equal to such excess.

 

(c) Within sixty (60) days following the Closing Date, Buyer shall prepare and deliver to Seller (i) a balance sheet of Seller as of the Closing Date prepared in accordance with the Working Capital Methodologies and in a manner consistent with the Estimated Balance Sheet (the “Closing Balance Sheet”); and (ii) a calculation of “Adjusted Working Capital,” which shall be defined as the Working Capital of Seller as of the Closing Date finally determined pursuant to this Section 3.5.

 

(d) During the time period beginning from date of the delivery to Seller of the Closing Balance Sheet and calculation of the Adjusted Working Capital and ending on the date of the final resolution of the Closing Balance Sheet and calculation of Adjusted Working Capital in accordance with this Section 3.5, Buyer shall cooperate with and make available to Seller all information, records, data, working papers (including those working papers of Buyer’s accountants), supporting schedules, calculations and other documentation that relate to Buyer’s preparation of the applicable Working Capital calculation and related Working Capital payment, and shall permit reasonable access to Buyer’s facilities, personnel and accountants, as may be reasonably required in connection with the review or analysis of the Working Capital calculation and the related Working Capital payment and the resolution of any disputes in connection therewith. Seller shall have a period of thirty (30) days after its receipt of the Closing Balance Sheet (the “Objection Period”), in which to provide written notice to Buyer of any objections thereto (the “Objection Notice”), setting forth in reasonable detail the item(s) to which such objection relates and the basis for each such objection. The Closing Balance Sheet and the resulting Adjusted Working Capital shall be deemed to be accepted by Seller and shall become final and binding on the later of (i) the expiration of the Objection Period; or (ii) the date on which all objections have been resolved by Seller and Buyer; provided, however, that the Closing Balance Sheet and the resulting Adjusted Working Capital shall become final and binding prior to the end of the Objection Period if Seller informs Buyer by written notice of its waiver of the Objection Period and acceptance of the Closing Balance Sheet.

 

ASSET PURCHASE AGREEMENT – Page 10

 

 

(e) If Seller timely provides any Objection Notice and the Parties are unable to resolve a dispute with respect thereto within thirty (30) days after the date of delivery of the Objection Notice (which thirty (30)-day period may be extended by written agreement of Seller and Buyer), such dispute shall be resolved fully, finally and exclusively in Dallas, Texas by the Accounting Firm, and the determination of the Accounting Firm shall be final and binding on the Parties. In connection with the engagement of the Accounting Firm, Seller and Buyer shall represent and warrant to the other that the Accounting Firm is not then performing or engaged to perform any material services for any party or its Affiliates (including any services for which the aggregate fees exceed $25,000.00) and shall promptly execute reasonable engagement letters and promptly supply such other documents and information as the Accounting Firm reasonably requires or as such party deems appropriate. None of Buyer, Seller, Parent, Oz Capital or the Owners nor any of their respective Affiliates shall engage, or agree to engage, the Accounting Firm to perform any services other than as described in this Section 3.5(e) until after the Accounting Firm completes its resolution of the dispute. The fees and expenses of the Accounting Firm incurred in the resolution of such dispute shall be borne by the parties in such proportion as is appropriate to reflect the relative benefits received by the parties from the resolution of the dispute. For example, if an Owner challenges the calculation of the payment by an amount of $10,000.00, but the Accounting Firm determines that such Owner has a valid claim for only $4,000.00, such Owner shall bear 60% of the fees and expenses of the Accounting Firm, and Buyer shall collectively bear the other 40% of such fees and expenses. Any resolution proceeding shall be commenced within sixty (60) days of the date of delivery of the Objection Notice, or such period of time otherwise agreed to by Seller and Buyer, and Seller and Buyer shall submit to the Accounting Firm written information and documents as such party chooses to submit in connection with such dispute within twenty (20) days after the commencement of such proceeding. The Accounting Firm shall make its determination of the final Working Capital amount and related Working Capital payment that is the subject of the dispute (and which determination shall be set forth in a written report shall be given to Seller and Buyer) as promptly as practicable, but in all events within thirty (30) days of the date on which written submission materials detailing the disputed items have been forwarded to it. The Accounting Firm’s decision shall be based solely on the written submission materials of the Owners and Buyer and any oral presentations requested or approved by the Accounting Firm. The Accounting Firm shall resolve the dispute and calculate the Working Capital amount and related Working Capital payment only in accordance with the terms of this Agreement, and the Accounting Firm shall not assign a greater value for any item related to such calculation than the greatest value claimed by either Buyer or Seller for such item or a smaller value than the smallest value for such item claim by either Buyer or Seller.

 

(f) If the Adjusted Working Capital is greater than the Estimated Working Capital, such excess will be paid by Buyer to Seller. If the Adjusted Working Capital is less than the Estimated Working Capital, then Seller shall pay such deficiency to Buyer. All payments required to be made pursuant to this Section 3.5(f) must be paid by wire transfer of immediately available funds within ten (10) Business Days after the Closing Balance Sheet and the calculation of the Adjusted Working Capital become final and binding.

 

ASSET PURCHASE AGREEMENT – Page 11

 

 

3.6 Allocation of Purchase Price. The amount of the aggregate Purchase Price allocated to the noncompetition provisions contained in Section 5.3(a) shall be $500,000.00, which shall be allocated $100,000.00 to Seller and $200,000.00 to each Owner and the remainder of the aggregate Purchase Price shall be allocated by the Parties prior to Closing among the Assets, the Real Property, and the DaysOS Interest for all purposes (including all tax and financial accounting purposes) in accordance with the applicable provisions of Section 1060 of the Internal Revenue Code of 1986, (the “Purchase Price Allocation”). Each Party shall file all Tax Returns (including amended returns and claims for refund) in a manner reflecting the Purchase Price Allocation. The Parties shall each execute and timely file a Form 8594 consistent with the Purchase Price Allocation, after exchanging mutually acceptable drafts of such form (and any equivalent state, municipal, county, local, foreign or other Tax forms) within sixty (60) days after determination of the Adjusted Working Capital.

 

4. Representations and Warranties.

 

4.1 Representations and Warranties of Seller. Seller, Parent, Oz Capital and Owners, jointly and severally, represent and warrant to Buyer and GENH that the following shall be true and correct as of the Effective Date hereof and as of the Closing:

 

(a) Organization and Existence of Seller. Each of Seller, Parent and Oz Capital is a limited liability company or limited partnership that is duly organized, validly existing and in good standing under the laws of the State of Texas. Seller is duly and properly qualified to do business in the State of Kentucky, which is every jurisdiction in which the Business requires it to be so qualified. Seller has all requisite power and authority to (i) consummate the terms of this Agreement and the Ancillary Documents; (ii) own the Assets; and (iii) carry on the Business as heretofore conducted.

 

(b) Authority. Each of Seller, Parent and Oz Capital has taken all necessary action to approve this Agreement and the Ancillary Documents to which they are a party, to authorize its officers to execute and deliver this Agreement and such Ancillary Documents to which they are a party, and to execute and deliver such further documents as are necessary and proper to consummate the terms and provisions of this Agreement and the Ancillary Documents to which they are a party. Upon the execution of this Agreement and those Ancillary Documents to which Seller, Parent and Oz Capital are a party, this Agreement and such Ancillary Documents will constitute the valid and legally binding obligation of each of such Parties, enforceable in accordance with their respective terms.

 

(c) No Violation or Conflicts. Neither the execution and delivery of this Agreement or any Ancillary Document nor the consummation of the transactions herein and therein contemplated and compliance with the terms and provisions hereof and thereof will, except as referenced on Schedule 4.1(c), (i) conflict with or result in any breach or default of any of the terms or conditions of or constitute a default under or result in the creation of any Lien under: (A) the organizational documents, if and as amended, of Seller, Parent or Oz Capital; (B) any note, agreement, indenture, mortgage, deed of trust, lease, Contract, agreement, license or other instrument or obligation to which Seller, Parent or Oz Capital is a party; or (C) any judgment, order, decree, ruling, injunction, license, permit, law, rule or regulation of any court, governmental body or arbitrator in Proceedings to which Seller, Parent or Oz Capital are a party or subject; or (ii) require a consent or waiver to be obtained by Seller, Parent and Oz Capital.

 

(d) Title to Assets; Sufficiency. (i) Seller has good, insurable and marketable title to all of the Assets; and (ii) none of the Assets, at the time of the Closing, is subject to any Lien, except for Permitted Liens. Upon the sale, assignment, transfer and conveyance of the Assets to Buyer as contemplated under this Agreement, there will be vested in Buyer good and marketable title to all of the Assets, free and clear of all Liens, except for Permitted Liens. Except as described on Schedule 4.1(d), the Assets (i) constitute all of the assets, tangible and intangible, of any nature whatsoever, necessary or used to operate the Business in the manner presently operated by Seller; and (ii) include all of the operating assets of the Business.

 

ASSET PURCHASE AGREEMENT – Page 12

 

 

(e) Financial Statements. Complete copies of the unaudited financial statements consisting of the balance sheets of the Business December 31, 2019, and the related statements of income and retained earnings, stockholders’ equity and cash flow for the year then ended (the “Yearly Financial Statements”) and unaudited financial statements consisting of the balance sheet of the Business at January 31, 2020 (and February 29, 2020 if the Closing is after such date) and the related statements of income and retained earnings, stockholders’ equity and cash flow for the period then ended (together with the Yearly Financial Statements, the “Financial Statements”) are included in Schedule 4.1(e). A discussion of the accounting principles, policies and procedures used in the preparation of the Financial Statements is set forth on Schedule 4.1(e). The Financial Statements are based on the books and records of the Business, and fairly present the financial condition of the Business as of the respective dates they were prepared and the results of the operations of the Business for the periods indicated. Except as set forth on Schedule 4.1(e), the Financial Statements have been prepared on a consistent basis with the accounting principles, policies and procedures set forth in Schedule 4.1(e). The 2020 pro forma financial statements prepared by Seller (the “Pro Formas”) were prepared in good faith and based upon commercially reasonable assumptions and objectives and reliable information.

 

(f) No Undisclosed Liabilities; Contracts to be Assigned. Schedule 4.1(f) attached hereto and the Financial Statements contain all the Liabilities of the Business. Except as specified in Schedule 4.1(f), to Seller’s Knowledge, no event has occurred or circumstance exists that (with or without notice or lapse of time) is likely to contravene, conflict with or result in a breach of, or give Seller or any other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or payment under, or to cancel, terminate or modify, any lease, loan agreement or Contract evidencing any Liability of the Business, including any of the Assumed Liabilities.

 

(g) Certain Developments. Except for actions set forth on Schedule 4.1(g), during the period beginning on December 1, 2019 and ending on the Closing Date, Seller has not:

 

(i) conducted the Business outside the Ordinary Course;

 

(ii) made any distributions, other than distributions to Parent or the Owners for Taxes;

 

(iii) sold, leased, transferred, or assigned any assets, tangible or intangible, having a value in excess of $25,000.00, other than inventory sold in the Ordinary Course;

 

(iv) entered into any single Contract (or series of related Contracts), either (A) other than client Contracts, involving more than $10,000.00 (individually or in the aggregate); (B) outside the Ordinary Course; or (C) that adversely affects the Assets or the right, title and interest therein of the owner of such Assets, which would be binding upon any subsequent owner of any Assets or which would run with the respective Assets;

 

ASSET PURCHASE AGREEMENT – Page 13

 

 

(v) entered into any Government Contracts or accelerated, terminated, modified, or cancelled any Government Contract to which Seller is a party or by which it is bound either involving more than $10,000.00 (individually or in the aggregate) or outside the Ordinary Course;

 

(vi) entered into any agreement, Contract, lease or license (or series of related agreements, Contracts, leases or licenses) with any other individual, partnership, limited liability company, corporation, association, joint stock company, trust, joint venture, unincorporated organization, Governmental Entity or similar entity that, directly or indirectly, Controls, is Controlled by or is under common Control with Seller;

 

(vii) waived any right of material value;

 

(viii) accelerated, terminated, modified, or cancelled any Contract (or series of related Contracts), involving more than $10,000.00 (individually or in the aggregate) to which Seller is a party or by which it is bound or had the counterparty to such a Contract accelerate, terminate, modify or cancel such a Contract;

 

(ix) imposed any Lien, except for Permitted Liens, upon any of its Assets, tangible or intangible;

 

(x) maintained the Assets in a state of repair and condition that was inconsistent with the requirements and normal conduct of the Business;

 

(xi) made any capital expenditure (or series of related capital expenditures) either involving more than $10,000.00 or outside the Ordinary Course;

 

(xii) made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions);

 

(xiii) issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness;

 

(xiv) billed and collected its accounts receivable of the Business inconsistent with its Ordinary Course or made an effort to accelerate the billing or collection of any of such accounts receivable;

 

(xv) delayed or postponed the payment of accounts payable and other known Assumed Liabilities outside the Ordinary Course;

 

(xvi) declared, set aside, or paid any dividend or made any distribution (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its equity securities;

 

ASSET PURCHASE AGREEMENT – Page 14

 

 

(xvii) entered into any employment Contract or collective bargaining agreement, written or oral, or modified the terms of any existing such Contract or agreement;

 

(xviii) adopted, amended, modified, or terminated any benefit plan, any profit sharing, incentive, severance, or other plan; or any other Contract or commitment for the benefit of any of its current or former directors, officers, and employees;

 

(xix) paid, or committed to pay (whether or not in writing) any severance, termination or similar payment to any current or former employee (regardless of whether such severance, termination or similar payment has been paid pursuant to any benefit plan);

 

(xx) entered into any compromise or settlement of any litigation, Proceeding or investigation by any Governmental Entity relating to the Assets or the Business;

 

(xxi) made any Tax election, adopted or changed any accounting method or policy (whether or not for Tax purposes), filed any Tax Return, consented to or entered into any closing agreement or similar agreement with any taxing authority, consented to or settled or compromised any Tax claim or assessment or taken any position inconsistent with any past practice on any Tax Return;

 

(xxii) made or granted any bonus or any wage, salary or compensation increase in excess of $10,000.00 per year to any employee or independent contractor;

 

(xxiii) transferred, assigned, or granted any license or sublicense of any rights under or with respect to any Intellectual Property;

 

(xxiv) experienced any damage, destruction or Loss (whether or not covered by insurance) to its property or any effect or change that would be materially adverse to the Business, assets, condition (financial or otherwise), operating results, operations, or business prospects of Seller, taken as a whole, or on the ability of Seller to consummate timely the transactions contemplated hereby (regardless of whether or not such adverse effect or change can be or has been cured at any time or whether Buyer has knowledge of such effect or change on the date hereof);

 

(xxv) entered into any other material transaction other than in the Ordinary Course, or changed any material business practice; or

 

(xxvi) agreed or committed (whether or not in writing) to do any of the foregoing.

 

(h) Absence of Adverse Change. Except as and to the extent set forth in Schedule 4.1(h), since December 1, 2019, there has not been any material adverse change in the conduct, financial condition, business, prospects or operations of the Business or the Assets.

 

ASSET PURCHASE AGREEMENT – Page 15

 

 

(i) Business Agreements and Commitments. Except as disclosed in Schedule 4.1(i), with respect to the Business Agreements: (A) each Business Agreement is in full force and effect and constitutes the legal, valid and binding obligation of Seller and, to Seller’s Knowledge, the other party thereto, enforceable in accordance with its terms; (B) all parties thereto are in material compliance with the provisions thereof; (C) no party thereto is in default in the performance, observance or fulfillment of any obligation, covenant or condition contained therein; (D) no event has occurred that with or without giving notice or lapse of time, or both, would constitute a default thereunder and (E) no Business Agreement was awarded to the Business based upon Seller’s size, the ownership of Seller, the ownership make up or any other characteristic or attribute of Seller or its owners, in each case, that forms the basis for any “set aside” program for small, women-owned, minority owned businesses or similar programs, whether or not sponsored by a Governmental Entity.

 

(j) Intellectual Property.

 

(i) Schedule 4.1(j)(i) contains a complete and accurate list and description of each material item of Intellectual Property in which Seller has or purports to have an ownership interest of any nature (whether exclusively, jointly with another Person or otherwise), and constitutes all of the Intellectual Property necessary for use in, or required for the conduct of the Business. Seller owns or has the right to use, as presently being used in the conduct of the Business, all of the Intellectual Property. No Person has asserted that the use of the Intellectual Property in the Business as currently conducted by Seller infringes any intellectual property rights of a third party. Except for software owned by Seller, Seller has a valid, fully paid license from all required licensors for all software used by Seller in connection with the Business. Seller has not copied or reproduced, in any manner, any software in violation of any such license.

 

(ii) Schedule 4.1(j)(ii) contains a complete and accurate list and summary description of each Contract relating to the Intellectual Property pursuant to which Seller has granted, or Seller has been granted, any license under, or otherwise has received or acquired any right (whether or not currently exercisable) or interest in, any Intellectual Property (“IP Contracts”), including any royalties paid or received by Seller, and Seller has delivered to Buyer accurate and complete copies of the IP Contracts, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs with a value of less than $1,000.00 under which Seller is the licensee (“Packaged Software”). There are no outstanding and, to Seller’s Knowledge, no threatened disputes or disagreements with respect to any IP Contract. Seller has all fully paid-up licenses for all Packaged Software used or available to the Business.

 

(iii) Seller is not bound by, and no Intellectual Property is subject to, any IP Contract containing any covenant or other provision that limits or restricts the ability of Seller to use, exploit, assert, or enforce any Intellectual Property anywhere in the world.

 

(iv) To the extent necessary or advisable, all documents and instruments necessary to establish, perfect and maintain the rights of Seller in the Intellectual Property, have been validly executed, delivered and filed in a timely manner with the appropriate Governmental Entity.

 

ASSET PURCHASE AGREEMENT – Page 16

 

 

(v) Each Person who is or was an employee or independent contractor of Seller and who is or was involved in the creation or development of any Intellectual Property has signed a valid and enforceable agreement containing an irrevocable assignment of any rights in the Intellectual Property to Seller and confidentiality provisions protecting the Intellectual Property, together with a waiver of all moral rights in such Intellectual Property.

 

(vi) Seller owns all the Intellectual Property that was created by employees or independent contractors during their service to Seller.

 

(vii) No funding, facilities or personnel of any Governmental Entity or any college, university, or other educational institution were used, directly or indirectly, to develop or create, in whole or in part, any Intellectual Property.

 

(viii) To Seller’s Knowledge, no Person has infringed, misappropriated, or otherwise violated, and no Person is currently infringing, misappropriating or otherwise violating, any Intellectual Property.

 

(ix) To Seller’s Knowledge, Seller has never infringed (directly, contributorily, by inducement or otherwise), misappropriated or otherwise violated any intellectual property right of any other Person.

 

(x) To Seller’s Knowledge, no Intellectual Property infringes, violates, or makes unlawful use of any intellectual property right of, or contains any intellectual property misappropriated from, any other Person.

 

(xi) No lien, interference, opposition, reissue, reexamination or other Proceeding of any nature is or has been pending or, to Seller’s Knowledge, threatened, in which the scope, validity or enforceability of any Intellectual Property is being, has been or would reasonably be expected to be contested or challenged.

 

(xii) To Seller’s Knowledge, there is no basis for a claim that any Intellectual Property is invalid or unenforceable.

 

(xiii) Seller has complied and is in compliance with, has not violated and is not in violation of, and has not received any notices of non-compliance or violation or alleged non-compliance or violation with respect to any United States federal, state, municipal, and county law, or the laws of any foreign country regarding intellectual property rights. Further, Seller represents and warrants that the Intellectual Property, including all parts thereof, materially complies with all applicable United States federal, state, municipal, and county laws regarding intellectual property rights, the laws regarding intellectual property rights of any applicable foreign country to which the Intellectual Property and any parts thereof are subject, and all the licenses, authorizations and/or permits required by such laws or regulations.

 

(k) Records. The Records are complete and correct in all material respects and have been prepared and maintained in material compliance with applicable laws, regulations and other requirements.

 

ASSET PURCHASE AGREEMENT – Page 17

 

 

(l) Material Partners. Schedule 4.1(l) lists all (i) customers and clients of the Business that paid to the Business $20,000.00 or more during the 2019 calendar year (“Material Customers”); and (ii) all suppliers, excluding independent contractors, of the Business that received from the Business $10,000.00 or more during the 2019 calendar year (“Material Suppliers” and together with Material Customers, referred to herein as “Material Partners”). Schedule 4.1(l) also presents fairly and accurately Seller’s annual dealings for the 2019 calendar year for all Material Partners. Furthermore, except for any Material Customer intended from the outset to be (and identified as such on Schedule 4.1(l)) as a single matter client relationship (as opposed to an ongoing client relationship), no Material Partner terminated or materially reduced its relationship with the Business or notified Seller that it intends to terminate or materially reduce its relationship with the Business.

 

(m) Restrictive Agreements. Seller is not a party to or bound by any agreement, deed, lease or other instrument with respect to the Business which restricts the operation of the Business. Without limiting the generality of the foregoing, Seller is not a party to or bound by any agreement requiring Seller to assign any interest in any trade secret or proprietary information, or with respect to the Business, prohibiting or restricting Seller from competing in any business or geographical area or soliciting customers or employees or otherwise restricting it from carrying on the Business anywhere in the world.

 

(n) Receivables. All accounts receivable and work in progress: (i) arose from bona fide arms’ length transactions in the Ordinary Course, consistent with past practice, and are payable on ordinary trade terms; (ii) are valid and binding obligations of the respective debtors; and (iii) are not subject to any valid set-off, defense or counterclaim and, to Seller’s Knowledge, are fully collectable in the Ordinary Course.

 

(o) Tax Matters.

 

(i) With respect to all taxable years or periods ending on or before the Closing Date, Seller has caused to be filed, or will cause to be filed, on a timely basis all Tax Returns which relate in any way to the Assets or the Business that Seller is required to file, and has paid, or will pay, when due all Taxes of any nature that have become due with respect to the Assets or the Business that Seller is required to pay. All Taxes owed by Seller (whether or not shown on any Tax Return) have been paid. Seller is not a beneficiary of any extension of time within which to file any Tax Return.

 

(ii) There is no pending claim and no circumstance exists which is likely to give rise to any such claim, for Taxes or Tax liens against or with respect to the Assets. There is no claim by any Governmental Entity having or purporting to exercise jurisdiction with respect to any Tax in a jurisdiction where Seller does not file Tax Returns that Seller is or may be subject to taxation by that jurisdiction.

 

(p) No Brokers or Finders. Neither Seller nor any of its directors, officers, employees or agents have retained, employed or used any broker or finder in connection with the transactions provided for herein or the negotiation thereof. 

 

ASSET PURCHASE AGREEMENT – Page 18

 

 

(q) Employees.

 

(i) To Seller’s Knowledge, no officer, employee or independent contractor of Seller has any plans to terminate his, her or its employment or relationship with Seller.

 

(ii) Seller has complied with all applicable Legal Requirements relating to the employment of personnel and labor, including, but not limited to, the Employee Retirement Income Security Act of 1974, as amended, the Fair Labor Standards Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, provisions thereof relating to wages, hours, equal opportunity, collective bargaining and the payment of social security, Medicaid, and other employment-related Taxes, including withholding requirements, the Worker Adjustment Retraining and Notification Act of 1988, as amended, or any similar state or local plant closing or mass layoff statute, rule or regulation, and the Immigration Reform and Control Act of 1986, as amended.

 

(iii) Attached hereto as Schedule 4.1(q)(iii) is a complete and accurate list of each employee, independent contractor, consultant and agent of the Business at all times to the present, including each such person’s name, job title, date of commencement of work, date of termination (if applicable), reason for termination (if applicable), compensation paid, and sick and vacation leave that is accrued but unused. No current or former employee of the Business is a party to any Contract or agreement with Seller except as described on Schedule 4.1(q)(iii).

 

(iv) Seller has not experienced any strike, grievance, unfair labor practice claim, charge of discrimination, workers’ compensation claim or other material employee or labor dispute, and Seller has not engaged in any unfair labor practice. Seller does not have any Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of Seller. Seller has satisfied any notice or bargaining obligation it may have under any law or collective bargaining agreement to any employee representative.

 

(r) Affiliate Transactions. No Affiliate of Seller (i) is a party to any Contract or transaction with Seller (other than in such Affiliate’s capacity as an owner, officer, director, employee or independent contractor of Seller, the compensation for which is reflected on Schedule 4.1(q)(iii)); or (ii) has any ownership interest in or owns any asset, tangible or intangible, which is used in the Business of Seller.

 

(s) Litigation. Schedule 4.1(s) lists each Proceeding in which Seller is or was a party that currently is pending, was settled or adjudicated within the past five (5) years, was settled and adjudicated more than five (5) years ago, but with respect to which Seller has any unsatisfied Assumed Liabilities, or that, to Seller’s Knowledge, is threatened. Schedule 4.1(s) sets forth, with respect to each matter disclosed on such schedule, (i) the parties; (ii) the nature of dispute; (iii) the relief sought; (iv) the status of dispute; (v) the extent to which Seller’s insurance would cover the relief; and (vi) Seller’s assessment of its likelihood of prevailing. Except as set forth in Schedule 4.1(s), there is no Proceeding pending or, to Seller’s Knowledge, threatened against Seller, or its managers, directors or officers (in such capacity), any Owner, or any subsidiary that in any way involves the Business, the Assets, or the Assumed Liabilities.

 

ASSET PURCHASE AGREEMENT – Page 19

 

 

(t) Privacy Laws. Seller is in compliance with data privacy Legal Requirements regarding the retention, recording, use and transfer of personal and sensitive data, whether cross border or to third Persons, has completed all adequate filings or notifications with all applicable Governmental Entities or otherwise, and kept such data secure and confidential at all times.

 

(u) Compliance with Legal Requirements. Seller is in compliance with all Legal Requirements that are applicable to it or to the conduct of the Business or the ownership or use of any of the Assets, and, to Seller’s Knowledge, no event has occurred or circumstance exists that (with or without notice or lapse of time) may constitute or result in a violation by Seller of, or a failure by Seller to comply with, any such Legal Requirement or may give rise to any obligation on the part of Seller to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. Seller has not received any notice or other communication (whether oral or written) from any Governmental Entity or any other Person regarding any actual, alleged, possible or potential violation of, or failure to comply with, any Legal Requirement applicable to Seller or the Business, or regarding any actual, alleged, possible or potential obligation on the part of Seller to undertake, or to bear all of or any portion of the cost of, any material remedial action of any nature.

 

(v) Related Parties. None of Seller’s Affiliates has had or currently has any ownership interest in any property used or pertaining to the Business, nor has any such Person had business dealings or a financial interest in Seller, the Business or the Assets other than Owners’ investment in Seller and other than transactions conducted in the Ordinary Course on substantially prevailing market terms. No Affiliate of Seller, or other Person related to Seller, is a party to any Contract with, or has a claim or right against, Seller or the Assets, except for Owners under the governing documents of Seller.

 

(w) Foreign Corrupt Practices Act. None of Seller or any Owners, or any other Affiliates, officers, directors, employees of Seller or accountants, counsel, consultants, advisors, independent contractors or agents of Seller, acting at Seller’s request, has (i) used any of Seller’s funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity or to influence official action; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from Seller’s funds; (iii) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment; or (iv) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder; and Seller has instituted and maintains policies and procedures designed to ensure compliance therewith.

 

(x) Disclosure. No representation or warranty by Seller or Owners in this Agreement, in any Ancillary Documents, or in any list, statement, document or information set forth in or attached to any schedule or exhibit delivered or to be delivered by Seller pursuant to this Agreement contains or will contain when delivered any untrue statement of a material fact or omits or will omit when delivered any material fact required to be stated therein or necessary in order to make the statements contained therein not misleading.

 

ASSET PURCHASE AGREEMENT – Page 20

 

 

(y) Real Estate. Seller does not lease or sublease any real property in connection with the operation of the Business. Exhibit “C” contains a legal description of the Real Property. The Real Property is in good operating condition, normal wear and tear excepted, and is suitable for the operation of the business of Seller. To the Knowledge of Seller, the mechanical, electrical, plumbing, HVAC and other systems servicing the Real Property are in good working order and repair, ordinary wear and tear excepted, and there are no defects in such systems, or in the buildings, improvements and structures or fixtures located on or at the Real Property, individually and as a whole, which would reasonably be expected to impair the conduct of the Business by Buyer immediately following the Closing, and the physical condition of the Real Property is sufficient to permit the continued conduct of the Business as presently conducted, subject to the provision of usual and customary maintenance and repair performed in the Ordinary Course. All utilities currently servicing the Real Property are properly operating with no overdue amounts payable and are sufficient for the operation of the Business currently conducted. Other than with respect to the Insurance Claim, no portion of the Real Property or the improvements thereon has suffered any damage by fire or other casualty that has not heretofore been completely repaired and restored to its original condition.

 

(z) Reliance. The foregoing representations and warranties have been made by Seller, Parent and Oz Capital with the knowledge and expectation that Buyer and GENH are relying thereon.

 

(aa) Environmental Matters. The Business is, and has been operated, in compliance with all applicable Environmental Laws, and there are no claims, proceedings, investigations or Actions by any Governmental Entity or other Person pending or, to the Knowledge of Seller, threatened in connection with the operation of the Business or the Assets or the Real Property, under any applicable Environmental Law.

 

(bb) Inventories. Except as set forth in the Financial Statements, all of the Inventory and other materials and supplies included with the Assets consist of items of quality and quantity, in good condition and usable or salable in the ordinary course of the Business. The values of the inventories stated in the Financial Statements reflect Seller’s normal inventory valuation policies and were determined in accordance with GAAP consistently applied.

 

(cc) Permits. Schedule 1.1(f) lists all Permits held by Seller and used or useable in the conduct of the Business. Such Permits are valid, and Seller has not received any notice that any Governmental Entity intends to cancel, terminate or not renew any such Permit. Seller holds all licenses, Permits and other governmental authorizations necessary or advisable to operate the Business. The Business is not being conducted, in violation of any statute, law, ordinance, regulation, rule or Permit of any Governmental Entity or any Order.

 

4.2 Representations and Warranties of Owners. Each Owner represents and warrants to Buyer, Parent and GENH that the following shall be true and correct as of the Effective Date and as of the Closing Date:

 

(a) Capacity and Enforceability. Such Owner has full capacity to execute and deliver this Agreement and all Ancillary Documents to which such Owner is a party and to perform his obligations hereunder and thereunder.  This Agreement and the Ancillary Documents to which such Owner is a party, will, when executed, constitute, valid and legally binding obligations of such Owner, enforceable in accordance with their terms and conditions.

 

ASSET PURCHASE AGREEMENT – Page 21

 

 

(b) Absence of Conflicts; Consent. Except as set forth in Schedule 4.2(b), Neither the execution, delivery or performance of this Agreement or any Ancillary Document by such Owner, nor the consummation by such Owner of the transactions contemplated hereby or thereby will:

 

(i) (A) conflict with or will result in any breach, default or violation of; or (B) give any third party the right to terminate or to accelerate any obligation under; or (C) result in the creation of any Lien upon any of such Owner’s assets, under any Contract or Legal Requirement by which such Owner or any of his assets is bound or affected; or

 

(ii) require any Consent to be obtained by such Owner other than consents obtained on or before the Closing Date.

 

(c) Brokers’ Fees. Such Owner has not entered into any agreement requiring such Owner to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.

 

(d) Accredited Investor Status. Each Owner receiving GENH Common Stock issued hereunder is an “accredited investor” as defined in Regulation D of the Securities Act of 1933, as amended.

 

4.3 Representations and Warranties of Buyer. GENH and Buyer jointly and severally represents and warrants to Seller, Parent and Owners that the following shall be true and correct as of the Effective Date and as of the Closing Date:

 

(a) Organization and Existence of Buyer and GENH. Buyer is a limited liability company that is duly organized, validly existing, and in good standing under the laws of the State of Colorado. GENH is a limited liability company that is duly organized, validly existing, and in good standing under the laws of the State of Colorado. Each of GENH and Buyer has all requisite power and authority to consummate the terms and provisions of this Agreement and the Ancillary Documents. GENH has all requisite power and authority to issue the GENH Common Stock to Owners.

 

(b) Authority. Each of Buyer and GENH has taken all necessary action to approve this Agreement and the Ancillary Documents to which Buyer and GENH are a party, to authorize its officers to execute and deliver this Agreement and such Ancillary Documents, and to execute and deliver such further documents as are necessary and proper to consummate the terms and provisions of this Agreement and the Ancillary Documents to which Buyer or GENH is a party. Upon the execution of this Agreement and those Ancillary Documents to which Buyer or GENH is a party, this Agreement and such Ancillary Documents will constitute the valid and legally binding obligations of Buyer and/or GENH enforceable in accordance with their respective terms.

 

(c) No Violations. Neither the execution and delivery of this Agreement or any Ancillary Document nor the consummation of the transactions herein and therein contemplated and compliance with the terms and provisions hereof and thereof will (i) conflict with or result in any breach or default of any of the terms or conditions of or constitute a default under or result in the creation of any Lien under: (A) the governing documents, if and as amended, of Buyer or GENH; (B) any note, agreement, indenture, mortgage, deed of trust, lease, contract, agreement, license or other instrument or obligation to which Buyer or GENH is a party; or (C) any judgment, order, decree, ruling, injunction, license, permit, law, rule or regulation of any court, governmental body or arbitrator in Proceedings to which Buyer or GENH is a party; or (ii) require a consent or waiver to be obtained by Buyer or GENH, except for those comments or waivers contemplated by this Agreement.

 

ASSET PURCHASE AGREEMENT – Page 22

 

 

(d) No Brokers or Finders. Neither Buyer or GENH nor any of their managers, directors, officers, employees or agents have retained, employed or used any broker or finder in connection with the transactions provided for herein or the negotiation thereof.

 

(e) Buyer Litigation. There is no actual or, to Buyer’s Knowledge, threatened Proceeding that presents a claim to restrain, delay, condition or prohibit the transactions contemplated herein or to impose upon Buyer or GENH any material costs, conditions or obligations in connection therewith, and to Buyer’s Knowledge, there is no basis for such Proceeding.

 

(f) GENH Common Stock. The GENH Common Stock has been duly authorized, and upon consummation of the transactions contemplated by this Agreement, will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances, except as contained in the Shareholders Agreement; provided, however, that the Stock Consideration may be subject to restrictions on transfer set forth in this Agreement or under state and/or federal securities laws as required by such laws at the time a transfer is proposed.

 

5. Additional Covenants of Buyer and Seller.

 

5.1 Labor and Employment Matters.

 

(a) Generally. Without limiting Section 2 hereof, Buyer shall not assume any employment or employee benefit obligation, or any wage or salary payment obligation, including, without limitation, those arising under any pension, profit sharing, deferred compensation, bonus, stock option, severance, welfare, medical, dental, sick leave or vacation, wage or other employee benefit, retirement (including any supplemental executive retirement plan Liabilities) or compensation plan, procedure, policy or practice of Seller (“Seller’s Employee Plans”), regardless of whether such plan, procedure, policy or practice is disclosed to Buyer.

 

(b) Employment Transition Provisions. Prior to the Closing, Seller shall afford Buyer a reasonable opportunity to interview Seller’s employees for prospective employment by Buyer if so requested by Buyer. Buyer shall be entitled (but shall have no obligation, except with respect to Jack and Watt) to offer employment to any such person, on terms and conditions established by Buyer; provided, however that Buyer (i) shall offer employment to a reasonable number of employees of Seller sufficient to continue to operate the Business in substantially the same manner as conducted as of the Closing Date; and (ii) shall offer employment to the persons listed on Schedule 5.1(b). On the Closing Date, Seller will pay all wages, salaries, bonuses and other compensation and benefits (and all related employment Taxes), if any, of Seller’s employees accrued through, and including, the Closing Date, and all severance and other amounts, if any, which may become payable to or receivable by Seller’s employees and Buyer shall not assume or be responsible for the payment of any such amounts owed to such employees.

 

ASSET PURCHASE AGREEMENT – Page 23

 

 

(c) Employee Plans. Seller, and not Buyer, shall be solely responsible and liable to pay or make provision for all pension, profit sharing, deferred compensation, bonus, stock option, severance, retirement, sick leave and vacation (other than for Seller’s employees that are employed by Buyer after the Closing Date), welfare, medical, dental and other amounts due under any of Seller’s Employee Plans, through, and including, the Closing Date with respect to Seller’s employees.

 

(d) Employment of Owners. Buyer and Seller agree that the continued employment of Owners listed on Schedule 5.1(d) is critical to the success of the Business. Buyer’s obligations to consummate the transactions contemplated by this Agreement are contingent upon each Owner signing, prior to Closing, an employment agreement, in the form attached hereto as Exhibit “D” with Buyer.

 

5.2 Operation of the Business Prior to Closing. Prior to the Closing Date, Seller will operate the Business in a substantially similar manner as the Business is being operated as of the Effective Date.

 

5.3 Restrictive Covenants.

 

(a) Non-competition for Owners, Seller and Parent. As an inducement to Buyer and GENH to execute and deliver this Agreement and the Ancillary Documents and to consummate the transactions contemplated hereby, for a period of three (3) years from the Closing Date (and for each Owner, if later, one (1) year after each Owner’s separation of employment from Buyer), Seller, Parent, and each Owner will not, and will cause its or his Affiliates to not, within the United States, directly or indirectly, engage in, continue in or carry on any business that competes in any aspect with the Business, or the business of Buyer or any of its Affiliates, in each case as operated at any point during the period from the Closing until such Owner’s separation of employment from Buyer or GENH.

 

(b) Non-Disparagement. Each of the Parties agrees that it will not, and each will cause its Affiliates to not, disparage the other Parties or their respective Affiliates, or the Business, to any Person. Notwithstanding the foregoing, nothing contained herein shall prevent any Party from providing truthful testimony under compulsion of legal process or in response to any governmental investigation.

 

(c) Confidentiality. Seller, Parent, Oz Capital and each Owner will, and will cause their Representatives to, hold in confidence any and all information, whether written or oral, concerning the Business and the Assets, except to the extent that Seller, Parent, Oz Capital or Owners can show that such information (i) is already publicly known at the time of disclosure to Seller, Parent, Oz Capital or such Owner; (ii) becomes publicly known after disclosure to Seller, Parent, Oz Capital or such Owner through no fault of Seller, Parent, Oz Capital, Owners or their Affiliates or Representatives; (iii) is disclosed to Seller, Parent, Oz Capital, Owners or their Affiliates or Representatives by third parties having no obligation of confidentiality to Buyer; or (iv) is independently developed or learned by Seller, Parent, Oz Capital, Owners or their Affiliates or Representatives after the Closing Date without reference or use of such confidential information of Buyer. If Seller, Parent, Oz Capital, any Owner or any of their Affiliates or Representatives is compelled to disclose any such information by judicial or administrative process or by other requirements of law, Seller, Parent, Oz Capital or such Owner shall promptly notify Buyer in writing of such fact and Seller, Parent, Oz Capital or such Owner shall use its or his reasonable efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information. Seller, Parent, Oz Capital and Owners shall enforce, at Buyer’s expense, for the account, and for the benefit, of Buyer, all confidentiality and similar agreements between Seller and any other party relating to the Assets or the Business.

 

ASSET PURCHASE AGREEMENT – Page 24

 

 

(d) Non-Solicitation. For a period of five (5) years from the Closing Date (and for each Owner, if later, one (1) year after each Owner’s separation of employment from Buyer), each Owner, Seller, Parent and Oz Capital will not, and will cause their Affiliates to not, (i) directly or indirectly solicit, divert or take away, in whole or in part, any customers or prospects of the Business to provide or perform services offered by the Business; (ii) hire or solicit or entice any employee or independent contractor of the Business to leave his or her employment or retention by the Business and/or accept employment or retention with any other person or entity whose business is competitive with the Business; or (iii) divert or attempt to divert business of any kind from the Business, including, without limitation, interference with any business relationship with suppliers, customers, licensees, licensors or contractors. The foregoing solicitation restriction shall not apply to broad-based, untargeted solicitations to prospective employees or candidates so long as no employees of the Business are hired.

 

5.4 Press Releases and Announcements. Except for any public disclosure that any Party in good faith believes is required by any Legal Requirement (in which case, if practicable, the disclosing Party will give the other Parties an opportunity to review and comment upon such disclosure before it is made), prior to the Closing no Party will make any public disclosure, announcement or press release concerning this Agreement or the transaction contemplated by this Agreement without the prior written consent of the other Parties, which consent shall not be unreasonably withheld, delayed or conditioned. Notwithstanding the foregoing, after the Effective Date, (i) Buyer will be permitted, in its reasonable discretion, to make a public disclosure (including an 8-K filing under the Exchange Act), announcement and press release concerning Buyer’s acquisition of the Business; provided, however, that Buyer must submit such disclosure to Seller before such disclosure; and (ii) neither Seller nor any Owner will make any public disclosure, announcement or press release concerning the Business, this Agreement or any of the transactions contemplated by this Agreement without Buyer’s prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned.

 

5.5 Litigation Support. In the event and for so long as any Party actively is contesting or defending against any Proceeding in connection with (a) any transactions contemplated under this Agreement; or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving Seller or Buyer, each of the other Parties will cooperate with such contesting or defending Party and its counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor). Notwithstanding the foregoing, this Section 5.5 shall not apply to any matter in which the supporting Party would be required to take any position adverse to such Party’s own interest, the interest of such Party’s Affiliates, or any Person related to such Party by blood or marriage.

 

ASSET PURCHASE AGREEMENT – Page 25

 

 

5.6 Further Assurance. Each Party hereto agrees at any time and from time to time, to make, execute and deliver any and all such other and further instruments or documents and do any and all such acts and/or things as the other Party shall reasonably require for the purpose of giving full force and effect to the terms and conditions of this Agreement and the transactions contemplated hereunder.

 

5.7 Payment of Sales or Transfer Taxes. All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the Ancillary Documents (including any real property transfer Tax and any other similar Tax) shall be borne and paid by Seller when due. Seller shall, at its own expense, timely file any Tax Return or other document with respect to such Taxes or fees (and Buyer shall cooperate with respect thereto as necessary).

 

5.8 Consents; Permits. Seller and Buyer shall use reasonable best efforts to give all notices to, and obtain all consents from, all third parties that are described in Schedule 4.1(c). As promptly as reasonably practicable following the execution of this Agreement, Seller shall request (and Buyer shall reasonably cooperate with Seller in connection with such request) from each of the third parties listed on Schedule 4.1(c) and use its best efforts to obtain from each of such clients and other third parties a written consent to the assignment of the Assets, in form and substance reasonably acceptable to Buyer (each, a “Consent”). Buyer shall use its reasonable best efforts to obtain, as promptly as reasonably practicable following execution of this Agreement, the approval of Buyer’s senior secured lender of the consummation of the transactions contemplated by this Agreement.

 

5.9 Name Change. Within five (5) Business Days following the Closing Date, Seller and Owners may (i) cause Seller to change its name with the Secretary of State of the State of Texas and the State of Kentucky to a name approved by Buyer that does not contain “Halcyon Thruput” or any similar name and Seller and Owners shall cause Seller to cease using such names immediately upon Closing; and (ii) assist Buyer with filing and obtaining a registered trademark with the United States Patent and Trademark Office for such marks as Buyer desires to register.

 

5.10 Information Regarding Buyer. During the period from the Effective Date to the Closing Date, Buyer shall make available to Owners such information regarding Buyer as Owners reasonably request in order to allow Owners (i) to make such investigation of the business, properties, books and records of Buyer as Owners reasonably deem necessary; and (ii) to conduct such examination of the condition of Buyer as Owners reasonably deem necessary for purposes of conducting such due diligence as Owners reasonably deem necessary. Buyer shall promptly notify Seller after becoming aware of any material adverse change in the business, assets, condition (financial or otherwise), operations, results of operations or prospects of Buyer which occurs between the Effective Date and the Closing Date.

 

5.11 Website. Promptly after Closing, Seller and Owners shall cause the domain registration for halcyonthruput.com to be transferred to Buyer.

 

ASSET PURCHASE AGREEMENT – Page 26

 

 

5.12 Rights.

 

(a) Mandatory Registration. As soon as reasonably practicable, following the Closing, but not later than November 30, 2020, the Company shall file a registration statement with the SEC providing for registration of all of the GENH Common Stock issued to Seller pursuant to this Agreement then outstanding (the “Registration Statement”). The Company shall use its commercially reasonable efforts to cause the Registration Statement to be declared effective under the Securities Act by the SEC as soon as reasonably practicable. The Registration Statement when effective (including the documents incorporated therein by reference) will comply as to form in all material respects with all applicable requirements of the Securities Act and the Exchange Act and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any prospectus contained in such Registration Statement, in the light of the circumstances under which a statement is made).  As soon as practicable following the date that the Registration Statement becomes effective, but in any event within two (2) Business Days of such date, Buyer shall provide Seller with written notice of the effectiveness of such Registration Statement. Notwithstanding any registration of the GENH Common Stock, the Holders shall not have the right to Transfer the GENH Common Stock until after the expiration of the Restricted Period.

 

(b) Delay Rights. Notwithstanding anything to the contrary contained herein, Buyer shall not be required to file a Registration Statement (or any amendment thereto) or, if a Registration Statement has been filed but not declared effective by the SEC, request effectiveness of such Registration Statement, for a period of up to forty-five (45) days, if (i) Buyer determines in good faith that a postponement is in the best interest of Buyer and its stockholders generally due to a pending transaction involving Buyer (including a pending securities offering by Buyer, or any proposed financing, acquisition, merger, tender offer, business combination, corporate reorganization, consolidation or other significant transaction involving Buyer), (ii) Buyer determines such registration would require disclosure of material information that Buyer has a bona fide business purpose for preserving as confidential, or (iii) audited financial statements as of a date other than the fiscal year end of Buyer would be required to be prepared; provided, however, that in no event shall any such period exceed an aggregate of ninety (90) days in any 365-day period.

 

5.13 Pro Formas. Seller shall update the Pro Formas after each month-end after the Effective Date and prior to the Closing Date and provide such updated Pro Formas to Buyer within seven (7) days after each month-end.

 

5.14 Personal Guaranty. Buyer shall agree to secure the termination of any personal guaranties provided by the Owners with respect to Contracts and Liabilities of the Business listed on Schedule 5.14 (the “Personal Guaranties”). To the extent that such Personal Guaranties cannot be released and terminated, Buyer shall indemnify and hold the Owners harmless from and against any Losses incurred by the Owners under such Personal Guaranties from events and facts arising after the Closing Date.

 

ASSET PURCHASE AGREEMENT – Page 27

 

 

6. Closing.

 

6.1 Closing. The consummation of the transactions contemplated by this Agreement (the “Closing”) may occur my mail and electronic mail on a date mutually agreed upon by the Parties following the date on which all closing conditions set forth in Section 7 have been satisfied or waived. The date on which the Closing actually takes place is referred to in this Agreement as the “Closing Date.”

 

6.2 Deliveries at Closing.

 

(a) Buyer’s and GENH’s Deliveries. At the Closing, Buyer and GENH shall deliver or cause to be delivered to Seller the following:

 

(i) the Cash Payment pursuant to wire transfer instructions provided by Seller;

 

(ii) the GENH Common Stock to be issued on the Closing Date issued to the Holders as provided on Schedule 3.1(b).;

 

(iii) the Bill of Sale - Assignment and Assumption Agreement, executed by Buyer;

 

(iv) an offer letter executed by the plant manager;

 

(v) the Employment Agreement, executed by each of Jack and Watt for Seller (other than Owners) in the form set forth on Exhibit “D”;

 

(vi) a Subscription Agreement with respect to the GENH Common Stock in form and substance reasonably satisfactory to GENH;

 

(vii) a certificate of an officer of Buyer and GENH certifying (A) resolutions of the board of directors authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents to which Buyer or GENH is a party and consummation of the transactions contemplated by this Agreement and the Ancillary Documents to which Buyer or GENH is a party, and including a copy of such resolutions; and (B) certifying as to the incumbency of the officer(s) of Buyer and GENH executing this Agreement and the Ancillary Documents on behalf of Buyer or GENH;

 

(viii) a directors and officers questionnaire in form and substance reasonably satisfactory to GENH;

 

(ix) any consents, waivers and authorizations necessary or appropriate for the consummation by Buyer or GENH of the transactions contemplated by this Agreement; and

 

(x) such other documents as may be specified in this Agreement or any exhibit or schedule hereto to be delivered by Buyer or GENH at the Closing and as may otherwise be reasonably required by Seller or Parent to effect the transactions contemplated by this Agreement.

 

ASSET PURCHASE AGREEMENT – Page 28

 

 

(b) Seller’s and Parent’s Deliveries. At the Closing, Seller shall deliver, or cause to be delivered, to Buyer and GENH the following:

 

(i) Agreements in form and substance reasonably satisfactory to Buyer pursuant to which the Holders agree not to Transfer their GENH Common Stock until after the expiration of the Restricted Period;

 

(ii) a certificate of good standing, or equivalent, for Seller and Parent as issued by the Secretary of States of the State of Texas;

 

(iii) the Bill of Sale - Assignment and Assumption Agreement, executed by Seller;

 

(iv) an offer letter executed by the plant manager;

 

(v) the Employment Agreement, executed by each of Jack and Watt for Seller (other than Owners) in the form set forth on Exhibit “D”;

 

(vi) a certificate of an Officer of Seller and Parent (A) certifying that attached to such certificate are true and complete copies of Seller’s and Parent’s (I) articles of organization, as amended through and in effect on the Closing Date; (II) operating agreement and limited partnership agreement, as amended through and in effect on the Closing Date; and (III) resolutions of members of Seller and partners of Parent authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents to which Seller or Parent is a party, and consummation of the transactions contemplated by this Agreement and the Ancillary Documents to which Seller or Parent is a party; and (B) certifying as to the incumbency of the officer(s) of Seller and Parent executing this Agreement and the Ancillary Documents on behalf of Seller and parent;

 

(vii) all necessary or appropriate payoff letters and other lien-release documentation;

 

(viii) all other consents, waivers, releases and authorizations necessary or appropriate for the consummation by Seller of the transactions contemplated by this Agreement, including the Consents and releases or waivers of any Liens (other than Permitted Liens) of record on the Assets from the applicable lienor;

 

(ix) all filings and registrations with, and all approvals from, all federal, state and local governmental agencies or authorities required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; and

 

(x) such other documents as may be specified in this Agreement or any exhibit or schedule hereto to be delivered by Seller or Parent at the Closing and as may otherwise be reasonably required by Buyer or GENH to effect the transactions contemplated by this Agreement.

 

ASSET PURCHASE AGREEMENT – Page 29

 

 

7. Condition Precedent to Buyer’s and GENH’s Obligations Hereunder. The obligation of Buyer and GENH to consummate this Agreement, and the transactions contemplated hereby, shall be subject to and conditioned upon the satisfaction at or before Closing of each of the following conditions; it being understood that the following conditions precedent are included herein for the exclusive benefit of Buyer and GENH, may be waived, in writing, in whole or in part, by Buyer and GENH at any time, and shall not survive the Closing:

 

7.1 Covenants and Deliverables. All of the covenants and agreements contained in this Agreement to be complied with and performed by Seller, Parent, GENH and each Owner at or before the Closing shall have been complied with and performed in all respects, and Seller shall have delivered to Buyer all of the consents, documents and instruments that are required to be delivered by Seller to Buyer at or prior to the Closing, and Seller shall have received the Consents required by Section 7.9. Seller, Parent, GENH and each Owner shall have executed and delivered each of the Ancillary Documents to which each of them is a party. Seller shall have filed (where necessary) and delivered to Buyer all documents necessary to transfer the Assets to Buyer free and clear of all Liens (other than Permitted Liens).

 

7.2 Representations and Warranties. All representations and warranties of Seller, Parent, GENH and Owners contained in or made pursuant to this Agreement shall be true, correct and complete at the Closing as if made at and as of the Closing, unless an earlier date is indicated in such representation and warranty, in which case such representation or warranty shall be true, correct, and complete as of such date.

 

7.3 Material Adverse Change. There shall have occurred no material adverse change in the business, assets, condition (financial or otherwise), operations, results of operations or prospects of the Business or the financial condition or results of operations of Seller since January 1, 2020.

 

7.4 Certificates. Seller and Parent shall have delivered to Buyer and GENH certificates, dated as of the Closing Date, executed by a responsible officer on behalf of Seller and Parent and certifying to the satisfaction of the conditions specified in Sections 7.1, 7.2 and 7.3 hereof.

 

7.5 Permits. Buyer shall have obtained any governmental licenses, authorizations, certificates and permits required by applicable Governmental Entities to permit Buyer to acquire the Assets, and to establish and operate the Business in the manner in which it was operated immediately prior to the Closing.

 

7.6 No Liens. No Liens, except for Permitted Liens, have been filed against the Assets.

 

7.7 No Actions. No action, suit or Proceeding by any Governmental Entity shall be pending which seeks to prevent the consummation of the transactions contemplated by this Agreement, no injunction or order of any court or administrative agency of competent jurisdiction shall be in effect which restricts or prohibits the consummation of the transactions contemplated by this Agreement, and all waiting periods, if any, specified by law shall have passed.

 

ASSET PURCHASE AGREEMENT – Page 30

 

 

7.8 Due Diligence. Buyer shall have completed to its sole and exclusive satisfaction its due diligence investigation of the Business.

 

7.9 Required Consents Obtained. Buyer shall have received the Consents set forth in Schedule 7.9, and any other applicable Contracts, leases or agreements listed on Schedule 7.9 from each of the clients, vendors and any other third party listed on Schedule 7.9.

 

7.10 Sufficiency of Employees. Buyer or GENH shall have obtained signed employment agreements and commitments of continued employment from employees of Seller sufficient to continue to operate the Business in the same manner as conducted as of the Closing Date.

 

7.11 Exhibits and Schedules. The exhibits and the schedules to this Agreement shall have been revised to the reasonable satisfaction of Buyer and GENH to reflect only events and updated information that occurred and became available after the execution of this Agreement.

 

7.12 Insurance Claim. Seller shall have settled the Insurance Claim with the Insurance Company and received the payment for the Insurance Claim from the Insurance Company; provided, however, that Buyer may, at its sole option, waive the condition precedent to Closing contained in this Section 7.12 in exchange for the assignment of any of Seller’s rights to the proceeds from the Insurance Claim to Buyer, in form and substance acceptable to Buyer.

 

7.13 Real Property. All of the transactions contemplated the Real Property Purchase Agreement shall have been consummated simultaneously with the transactions under this Agreement.

 

7.14 SEC Waiver. The SEC shall have waived the obligation of GENH to audit the Yearly Financial Statements.

 

7.15 Equity. GENH shall have raised additional cash equity equal to the Cash Payment.

 

7.16 DaysOS Software. The DaysOS Membership Interest Purchase Agreement and the DaysOS License Agreement shall have been consummated simultaneously with the transactions under this Agreement.

 

ASSET PURCHASE AGREEMENT – Page 31

 

 

8. Conditions Precedent to Seller’s, Parent’s and Owners’ Obligations Hereunder. The obligation of Seller, Parent and Owners to consummate this Agreement, and the transactions contemplated hereby, shall be subject to and conditioned upon satisfaction at or before the Closing of the following conditions; it being understood that the following conditions precedent are included herein for the exclusive benefit of Seller and Owners, may be waived, in writing, in whole or in part, by Seller, Parent and Owners at any time, and shall not survive the Closing:

 

8.1 Covenants and Deliverables. All of the covenants and agreements contained in this Agreement to be complied with and performed by Buyer and GENH at or before the Closing shall have been complied with and performed in all respects, and Buyer and GENH shall have delivered to Seller all of the consents, documents and instruments which are required to have been delivered by Buyer and GENH at or prior to the Closing. Each of Buyer and GENH shall have executed and delivered each of the Ancillary Documents to which it is a party.

 

8.2 Representations and Warranties. All representations and warranties of Buyer contained in or made pursuant to this Agreement shall be true, correct and complete at the Closing as if made at and as of the Closing unless an earlier date is indicated in such representation and warranty, in which case such representation or warranty shall be materially true, correct, and complete as of such date.

 

8.3 Certificates. Buyer and GENH shall have delivered to Seller a certificate, dated the Closing Date, executed by a responsible officer on behalf of Buyer and GENH and certifying to the satisfaction of the conditions specified in Sections 8.1 and 8.2 hereof.

 

8.4 No Actions. No action, suit or Proceeding by any Governmental Entity shall be pending which seeks to prevent the consummation of the transactions contemplated by this Agreement, no injunction or order of any court or administrative agency of competent jurisdiction shall be in effect which restricts or prohibits the consummation of the transactions contemplated by this Agreement, and all waiting periods, if any, specified by law shall have passed.

 

9. Termination of Agreement. This Agreement may be terminated at any time prior to the Closing Date:

 

(a) by mutual written consent of Buyer and GENH and Seller and Parent;

 

(b) by Buyer giving written notice to Seller if Seller is in breach, or by Seller giving written notice to Buyer if Buyer is in breach, in any material respect of any representation, warranty or covenant contained in this Agreement and such breach, if capable of being cured, is not cured within seven (7) days after the date of such written notice;

 

(c) by Buyer, if the conditions precedent to Buyer’s and GENH’s obligations to close set forth in Section 7 have not been satisfied, or waived by Buyer, as of the Closing;

 

ASSET PURCHASE AGREEMENT – Page 32

 

 

(d) by Seller, if the conditions precedent to Seller’s and Parent’s obligations to close set forth in Section 8 have not been satisfied, or waived by Seller, as of the Closing;

 

(e) by Buyer by giving written notice to Seller if Buyer is not satisfied with the results of its continuing business, legal and accounting due diligence regarding Seller; or

 

(f) by Buyer or Seller if any court of competent jurisdiction in the United States or other United States Governmental Entity shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable.

 

10. Indemnification.

 

10.1 Survival of Representations, Warranties, Covenants, and Indemnifications. The representations and warranties of the Parties contained in this Agreement shall survive the Closing for a period of twenty-four (24) months after the Closing Date, unless and then only to the extent that non-compliance with such representations and warranties is waived in writing by the Party for whose benefit such representations and warranties are being made; provided, that the Fundamental Representations and claims based upon fraud or intentional misrepresentations shall survive the Closing until sixty (60) days past the expiration of the applicable statute of limitations, unless and then only to the extent that non-compliance with such representations and warranties is waived in writing by the Party for whose benefit such representations and warranties are being made.

 

10.2 Indemnification by Seller, Parent, Oz Capital and Owners. Seller, Parent, Oz Capital and the Owners hereby jointly and severally agree to protect, indemnify, defend and hold Buyer, GENH and their Affiliates, and their respective members, managers, directors, shareholders, officers, agents, legal representatives, successors and assigns, and each of them (“Buyer Indemnified Parties”), free and harmless from and against any and all Losses to the extent accruing, based upon, or resulting from (a) any breach, violation or non-fulfillment by Seller, Parent, Oz Capital or the Owners of any representation or warranty set forth in this Agreement or any of the Ancillary Documents; (b) the breach by Seller, Parent, Oz Capital or the Owners of any covenant, agreement or other term or provision of this Agreement or any of the Ancillary Documents; (c) the operation of the Business prior to the Closing; (d) the ownership or condition of the Assets prior to the Closing; (e) the Excluded Assets; (f) incidents, occurrences or conditions relating to the Business commencing or in existence prior to the Closing, unless the Losses occur after the Closing and Buyer failed to use reasonable efforts to mitigate such Losses; (g) any and all liabilities and obligations of Seller and Owners of any nature whatsoever, including, without limitation, the Retained Liabilities (whether accrued, absolute, contingent, known, asserted, unasserted or otherwise, and whether due or to become due), excluding only the Assumed Liabilities; (h) fraud or intentional misrepresentations by Seller or any Owner; (i) any claims, demands and Proceedings pending against the Business or related to the Business as of the Closing Date and any claims and demands and Proceedings brought against the Business after the Closing Date that are based upon acts, omissions, facts, conditions, events and circumstances occurring or existing on or prior to the Closing Date, whether or not set forth on Schedule 4.1(s); and (j) any and all Losses incident to any of the foregoing. Notwithstanding anything herein to the contrary, in the case of the representations set forth in Section 4.2, only the Owner who has breached, violated or failed to fulfill a representation, shall have any liabilities or obligations under this Section 10.2 to the Buyer Indemnified Parties as a result of such breach, violation or non-fulfillment.

 

ASSET PURCHASE AGREEMENT – Page 33

 

 

10.3 Indemnification by Buyer. Buyer and GENH hereby jointly and severally agree to protect, indemnify, defend and hold Seller, Parent, Owners, their Affiliates, and their respective members, managers, officers, agents, legal representatives, heirs, personal representatives, successors and assigns, and each of them, free and harmless from and against any and all Losses accruing, based upon, resulting from or directly or indirectly arising out of (a) any breach, violation or non-fulfillment of any representation, warranty or covenant by or of Buyer set forth in this Agreement or any of the Ancillary Documents; (b) the breach by Buyer of any other term or provision of this Agreement or any of the Ancillary Documents; (c) any and all liabilities and obligations of Buyer whatsoever pursuant to this Agreement (including, but not limited to the Assumed Liabilities), excluding those liabilities and obligations expressly retained by Seller pursuant to this Agreement; (d) the operation of the Business or ownership or condition of the Assets after the Closing; and (e) fraud or intentional misrepresentations by Buyer.

 

10.4 Claims.

 

(a) Whenever any claim for indemnification shall arise under this Section 10, including a third party claim (each, a “Claim”), the Party seeking indemnification (the “Indemnitee”) shall notify in writing the Party from which indemnification is sought (the “Indemnitor”) of the Claim promptly after Indemnitee becomes aware of the Claim’s existence, specifying the factual basis for the Claim and the amount or an estimate (if known or reasonably determinable) of the liability that may arise therefrom (an “Indemnification Notice”).

 

(b) For an Indemnitee to be entitled to any indemnification provided for under this Agreement arising out of or involving a claim or demand made by any third party, including a claim or demand made by any Governmental Entity (a “Third Party Claim”), the Indemnitee shall provide an Indemnification Notice to the Indemnitor relating to the Third Party Claim as soon as possible after the Indemnitee’s receipt of notice of the Third Party Claim. Thereafter, the Indemnitee shall deliver to the Indemnitor copies of all notices and documents, including all court papers, received by the Indemnitee relating to the Third Party Claim. An Indemnitee’s failure to provide an Indemnification Notice promptly shall not relieve the Indemnitor from its indemnification obligations with respect to the subject of the Indemnification Notice, except to the extent the Indemnitor is materially prejudiced as a result of such failure.

 

(c) If a Third Party Claim is made against an Indemnitee, then the Indemnitor shall be entitled to participate in the defense of the Third Party Claim and, if the Indemnitor so chooses, to assume the defense of the Third Party Claim. If the Indemnitor so elects to assume the defense of a Third Party Claim, then the Indemnitor shall not be liable to the Indemnitee for legal expenses subsequently incurred by the Indemnitee in connection with the defense of the Third Party Claim. If the Indemnitor assumes such defense, then the Indemnitee shall have the right to participate in the defense of the Third Party Claim and to employ counsel, at its own expense, separate from the counsel employed by the Indemnitor, it being understood, however, that the Indemnitor shall control such defense, but shall not have the right to settle, adjust or compromise such Third Party Claim without the consent of the Indemnitee which consent shall not be unreasonably withheld, conditioned or delayed. If the Indemnitor chooses to defend any Third Party Claim, then the Parties shall cooperate in the defense of the Third Party Claim. Such cooperation shall include the retention and (upon the Indemnitor’s request) provision to the Indemnitor of records that are reasonably relevant to the Third Party Claim and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided. If the Indemnitor, within a reasonable time after receipt of an Indemnification Notice relating to a Third Party Claim, chooses not to assume defense of the Third Party Claim or fails to defend the Third Party Claim actively and in good faith, then the Indemnitee shall (upon further notice to the Indemnitor) have the right to undertake the defense of the Third Party Claim; provided, however, that, if indemnification is to be sought hereunder, the Indemnitee may not to settle, adjust or compromise such Third Party Claim without the consent of the Indemnitor which consent shall not be unreasonably withheld, conditioned or delayed.

 

ASSET PURCHASE AGREEMENT – Page 34

 

 

10.5 Limitation of Liability. Under no circumstances shall any Party be liable to another Party for any consequential, incidental, indirect, exemplary, special, or punitive damages unless damages of this sort have been awarded to a third party.

 

10.6 Offset. To the extent that Buyer or GENH shall have any Claims for Losses under Section 3.5 or Section 10.2, Buyer or GENH and its Affiliates shall have the right, as a non-exclusive remedy, to offset such Losses against any payments in cash or GENH Common Stock (including the Stock Consideration) due under or with respect to the Earn-Out , the Working Capital adjustment or any other payment due under this Agreement.  If Buyer or GENH elects to offset, Buyer shall promptly notify Seller in writing (the “Offset Notice”) of the amount, nature and basis of the offset.  If Seller disputes Buyer’s offset, Seller shall notify Buyer of its dispute in writing (the “Offset Dispute Notice”) within thirty (30) days of Seller’s receipt of the Offset Notice.  If no Offset Dispute Notice is given within such 30-day period, (a) Buyer’s offset described in the Offset Notice shall be deemed agreed upon between the Parties; and (b) the amount set forth in the Offset Notice may be subtracted from the payments due and owing to Seller.  In the event an Offset Dispute Notice is timely delivered to Buyer, Buyer and Seller shall use their commercially reasonable efforts to resolve such dispute among themselves.   In the event of a dispute, the portion of the amount of the Loss set forth in the Offset Notice shall not be paid to Seller until such dispute is resolved.

 

10.7 Limitations.

 

(a) Seller and Owners shall not have any liability for Losses under Section 10.2(a) unless and until the aggregate of all Losses related thereto for which Seller and Owners would otherwise be required to provide indemnification exceeds on a cumulative basis an amount equal to $25,000.00 (the “Threshold”), at which point Seller shall indemnify Buyer Indemnified Parties for all of such Losses, including the Threshold; provided, however, that the limitations set forth in this Section 10.7(a) shall not apply to any indemnification claim brought for breach of (i) Sections 4.1(a), 4.1(b), 4.1(d), 4.1(o), 4.1(p), 4.2(a), 4.2(b) and 4.2(c) (the “Fundamental Representations”); or (ii) any fraudulent or intentional misrepresentations or willful misconduct.

 

(b) Notwithstanding anything to the contrary in this Agreement and in addition to all other limitations set forth herein, the amount of all indemnification payments required to be made by Seller and Owners pursuant to Section 10.2(a) shall not, individually or in the aggregate, exceed $2,600,000.00; provided, however, that the limitations set forth in this Section 10.7(b) shall not apply to any indemnification claim brought for (i) a breach of the Fundamental Representations; or (ii) any fraudulent or intentional misrepresentations or willful misconduct.

 

ASSET PURCHASE AGREEMENT – Page 35

 

 

(c) Each Party must provide notice pursuant to Section 10.4(a) of a Claim pursuant to Section 10.2(a) with respect to a breach of a representation or warranty during the survival period of such representation or warranty as set forth in Section 10.1.

 

11. General Provisions.

 

11.1 Recitals. The recitals set forth above are incorporated herein by reference as though fully set forth verbatim at length herein.

 

11.2 Exclusivity. In consideration of the expenses that Buyer has incurred and will incur in connection with the proposed transaction contemplated by this Agreement, Seller agrees that neither it nor any of its agents, Affiliates or Representatives will: (a) directly or indirectly initiate contact with or solicit any inquiries or proposals from any person or entity (other than Buyer) relating to any sale of the Business, whether directly or by merger or any similar transaction or business combination involving Seller; or (b) furnish any information to any person or entity about or relating to the Business in connection with any of the foregoing. Seller agrees to promptly notify Buyer in writing of any contact (whether by telephone, personal conversation, fax, e-mail or otherwise) between Seller and/or any of its representatives, on the one hand, and any other Person, on the other hand, regarding any offer, proposal or inquiry of any nature relating to the prohibited types of transactions described in this paragraph. Seller will cause its Representatives to terminate all such discussions or negotiations that may be in progress on the date hereof.

 

11.3 Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered, or if mailed, by certified or registered mail, postage prepaid, or by express courier, to the Parties at the following addresses (or such other addresses that shall be given in writing by any Party to the others by notice in accordance with this Section 11.3):

 

If to Seller or any Owner:

 

OZC Agriculture KY, LLC

222 West Exchange Street

Fort Worth, Texas 76164

Attn: Jack N. Sibley

 

with a copy to (which shall not constitute notice):

 

Matthew A. Boyd, Esq.

Hawkins Parnell & Young, LLP

303 Peachtree Street NE, Suite 4000

Atlanta, Georgia 30308

 

ASSET PURCHASE AGREEMENT – Page 36

 

 

If to Buyer:

 

Generation Hemp, Inc.

PO Box 540308

Dallas, Texas 75354

Attn: Gary C. Evans

 

with a copy to (which shall not constitute notice):

 

Larry L. Shosid, Esq.

Bell Nunnally & Martin LLP

2323 Ross Avenue, Suite 1900

Dallas, Texas 75201

 

If personally delivered, then such communication shall be deemed delivered on the date of actual receipt, and if sent by overnight courier or certified or registered mail, then such communication shall be deemed delivered one (1) Business Day after being deposited with an overnight courier, in the case of an overnight courier, or three (3) Business Days after being deposited with the U.S. Postal Service, in the case of certified or registered mail.

 

11.4 Complete Agreement; Burden and Benefit; Assignment. This Agreement, together with the Ancillary Documents and the exhibits and schedules hereto, represents the final and complete contract of the Parties regarding the transactions contemplated hereby and thereby, and shall be binding upon, and inure to the benefit of, the Parties and their respective beneficiaries, successors and assigns. No other agreements, representations, warranties, or other matters, whether written or oral, will be deemed to bind the Parties with respect to the subject matter hereof. Buyer shall not assign any of its rights or obligations hereunder without the prior written consent of Seller.

 

11.5 Modification and Waiver. No alterations or variations of the terms and provisions of this Agreement shall be valid unless made in writing and signed by all of the Parties or their successors or permitted assigns. No waiver by any Party of any of the provisions hereof shall be effective unless expressly set forth in writing and executed by the Party so waiving. The waiver by a Party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.

 

11.6 Governing Law; Venue. The Parties agree that the law of the State of Texas shall govern any dispute arising out of this Agreement or any Ancillary Document (unless an Ancillary Document expressly provides that it is governed by the laws of a jurisdiction other than Texas) regardless of any conflict of law doctrines applicable to the States in which the Parties reside or in which the claim arises. Furthermore, the Parties agree that they consent to the personal jurisdiction of the courts located in the State of Texas, County of Dallas, which shall provide the exclusive forum for any controversy arising under this Agreement. Each Party consents to personal and subject matter jurisdiction and venue in such applicable court and waives and relinquishes all rights to object to the suitability or convenience of such venue or forum by reason of their present or future domiciles or by any other reason. The Parties acknowledge that all directions issued by the forum court, including all injunctions and other decrees, will be binding and enforceable in all jurisdictions. Process in any such action may be served on any Party anywhere in the world, whether within or outside the jurisdiction of any such court. Without limiting the foregoing, each Party agrees that service of process on such Party in a manner described in Section 11.3 for the giving of notice shall be deemed effective service of process on such Party.

 

ASSET PURCHASE AGREEMENT – Page 37

 

 

11.7 Arbitration. Any dispute arising under or relating to this Agreement must be submitted to binding arbitration in Dallas County, Texas pursuant to the rules for commercial arbitrations of the American Arbitration Association with a single arbitrator, and the Parties hereby agree to and will not contest such submissions. Judgment upon the award rendered by an arbitrator may be entered in any court having jurisdiction. Nothing contained in this Section 11.7 shall prevent Buyer from seeking injunctive or other equitable relief

 

11.8 Waiver of Jury Trial. EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

11.9 Severability. If any provision of this Agreement is held to be invalid or unenforceable, such holding will not affect the validity or enforceability of the other provisions of this Agreement.

 

11.10 Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same agreement. Electronic transmission signatures shall suffice for execution hereof.

 

11.11 Exhibits and Schedules. All exhibits and schedules referred to in this Agreement are incorporated herein by reference.

 

11.12 Section and Subsection Headings. Section and subsection headings inserted in this Agreement are for convenience only and shall not be deemed to have any legal effect whatsoever in the interpretation of this Agreement.

 

11.13 No Strict Construction. Notwithstanding the fact that this Agreement has been drafted or prepared by one of the Parties, each of the Parties confirms that both it and its counsel have reviewed, negotiated and adopted this Agreement as the joint agreement and understanding of the Parties. The language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party.

 

11.14 Expenses. Each Party shall bear the fees, costs and expenses of its legal counsel, accountants, and other advisors in connection with the negotiation and consummation of the transactions contemplated hereby.

 

11.15 Independent Counsel. Each Party warrants and represents that it has entered into this Agreement based upon its independent judgment, knowledge and expertise, as well as on the advice of professional persons or firms consulted by it and not in reliance upon advice of professional persons or firms retained by any other Party.

 

11.16 Attorneys’ Fees. In the event that any Party hereto brings a Proceeding to enforce or interpret the terms and provisions of this Agreement, the prevailing Party in that Proceeding shall be entitled to have and recover from the non-prevailing Party all such fees, costs and expenses (including, without limitation, all court costs and reasonable attorneys’ fees) as the prevailing Party may suffer or incur in the pursuit or defense of such Proceeding.

 

Signature Pages Follow

 

ASSET PURCHASE AGREEMENT – Page 38

 

 

IN WITNESS WHEREOF, this Asset Purchase Agreement has been executed by the Parties, the corporate Parties acting through their respective duly authorized officers, as of the date first above written.

 

  SELLER:
     
  HALCYON THRUPUT, LLC,
  a Texas limited liability company
     
     
  By: /s/ Watt P. Stephens
  Name: Watt P. Stephens
  Title: Partner
     
     
  OZ CAPITAL:
     
  OZ CAPITAL, LLC,
  a Texas limited liability company
     
     
  By: /s/ Watt P. Stephens
  Name: Watt P. Stephens
  Title: Partner
     
     
  PARENT:
     
  OZC AGRICULTURE KY, LP,
  a Texas limited partnership
     
  By:   OZC Kentucky GP, LLC,
    its general partner

 

  By: /s/ Watt P. Stephens
  Name: Watt P. Stephens
  Title: Partner

 

  OWNERS:
   
  /s/ Jack Sibley
  JACK SIBLEY, a resident of the State of Texas
   
   
  /s/ Watt Stephens
  WATT STEPHENS, a resident of the State of Texas

 

ASSET PURCHASE AGREEMENT – Signature Page

 

 

  BUYER:
   
  GENH HALCYON ACQUISITION, LLC,
  a Texas limited liability company
     
  By: /s/ Gary C. Evans
        Gary C. Evans, Chairman and CEO

 

  GENH:
   
  GENERATION HEMP, INC.,
  a Colorado corporation
     
  By: /s/ Gary C. Evans
        Gary C. Evans, Chairman and CEO

 

ASSET PURCHASE AGREEMENT – Signature Page

 

 

Schedules to and Exhibits of Purchase and Sale Agreement

 

 

Schedule 1.1(a) Business Agreements
   
Schedule 1.1(b) Tangible Assets of the Business
   
Schedule 1.1(c) Accounts Receivable
   
Schedule 1.1(d) Inventory
   
Schedule 1.1(f) Licenses and Permits of the Business
   
Schedule 1.1(g) Marketing Assets
   
Schedule 1.1(i) Confidentiality and Noncompetition Agreements
   
Schedule 1.2(c) Other Excluded Assets
   
Schedule 2.1(ii) Assumed Payables
   
Schedule 2.1(iii) Assumed Liabilities
   
Schedule 3.1(b) Equity Distribution
   
Schedule 3.5(a) Working Capital Methodologies
   
Schedule 4.1(c) No Violations or Conflicts
   
Schedule 4.1(d) Title to Assets
   
Schedule 4.1(e) Financial Statements
   
Schedule 4.1(f) Liabilities
   
Schedule 4.1(g) Certain Developments
   
Schedule 4.1(h) Absence of Adverse Change
   
Schedule 4.1(j)(i) Intellectual Property of the Business
   
Schedule 4.1(j)(ii) Intellectual Property Contracts
   
Schedule 4.1(l) Material Partners
   
Schedule 4.1(q)(iii) List of Business, Independent Contractors, Consultants and Agents
   
Schedule 4.1(s) Litigation
   
Schedule 5.1(d) Owners who Will Transition to Buyer
   
Schedule 5.14 Personal Guaranties
   
Schedule 7.9 Required Consents
   
Exhibit “A” Definitions
   
Exhibit “B” Bill of Sale – Assignment and Assumption Agreement
   
Exhibit “C” Real Property Purchase Agreement
   
Exhibit “D” Owner Employee Agreement

 

 

 

 

Exhibit “A”

 

Definitions

 

“Accounting Firm” has the meaning set forth in Section 3.4(c).

 

“Action” means any action, complaint, claim, petition, litigation, suit, arbitration or other proceeding, whether civil or criminal, at law or in equity, before any Governmental Entity relating to this Agreement or the transactions contemplated hereby

 

“Adjusted Working Capital” has the meaning set forth in Section 3.5(c).

 

“Affiliate” means with respect to any Person, each of the Persons that directly or indirectly, through one or more intermediaries, owns or Controls, is Controlled by or is under common Control with, such Person. Each Owner is deemed to be an Affiliate of Seller.

 

“Agreement” has the meaning set forth in the introductory paragraph.

 

“Ancillary Documents” has the meaning set forth in Section 1.3.

 

“Assets” has the meaning set forth in Section 1.1.

 

“Assumed Liabilities” has the meaning set forth in Section 2.1.

 

“Business” has the meaning set forth in the recitals.

 

“Business Agreements” has the meaning set forth in Section 1.1(a).

 

“Business Day” means a day that is not a Saturday or a Sunday or a day that banks in the State of Texas are not generally authorized or required by Legal Requirements to be closed.

 

“Buyer” has the meaning set forth in the introductory paragraph.

 

“Buyer Indemnified Parties” has the meaning set forth in Section 10.2.

 

“Buyer’s Knowledge” means the actual knowledge of Gary Evans without any investigation and inquiry.

 

“Cash Payment” has the meaning set forth in Section 3.1(a).

 

“Claim” has the meaning set forth in Section 10.4(a).

 

“Closing” has the meaning set forth in Section 6.1.

 

“Closing Balance Sheet” has the meaning set forth in Section 3.5(c).

 

“Closing Date” has the meaning set forth in Section 6.1.

 

“Consent” has the meaning set forth in Section 5.8.

 

 

 

 

“Contract” means any oral or written agreement, instrument, lease, or other business or commercial arrangement (in each case, including any extension, renewal, amendment or other modification thereof) to which Seller is a party or by which it is bound.

 

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of management and policies, whether through the ownership of voting securities, by contract or otherwise.

 

“Earn-Out” has the meaning set forth in Section 3.2.

 

“Earn-Out Objection Notice” has the meaning set forth in Section 3.4(b).

 

“Earn-Out Objection Period” has the meaning set forth in Section 3.4(b).

 

“Earn-Out Payment” has the meaning set forth in Section 3.2.

 

“Effective Date” has the meaning set forth in the introductory paragraph.

 

“Environmental Law” means any Law, Order or other requirement of Law for the protection of the environment, or for the manufacture, use, transport, treatment, storage, disposal, release or threatened release of petroleum products, asbestos, urea formaldehyde insulation, polychlorinated biphenyls or any substance listed, classified or regulated as “hazardous” or “toxic” or any similar term under such Environmental Law.

 

“Estimated Balance Sheet” has the meaning set forth in Section 3.5(a).

 

“Estimated Working Capital” has the meaning set forth in Section 3.5(a).

 

“Estimated Insurance Ceiling” has the meaning set forth in Section 3.1(c).

 

“Estimated Insurance Floor” has the meaning set forth in Section 3.1(c).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Excluded Assets” has the meaning set forth in Section 1.2.

 

“Financial Statements” has the meaning set forth in Section 4.1(e).

 

“Fundamental Representations” has the meaning set forth in Section 10.7(a).

 

“GAAP” means United States generally accepted accounting principles in effect from time to time.

 

“GENH” has the meaning set forth in the introductory paragraph.

 

“GENH Common Stock” has the meaning set forth in Section 3.1(a).

 

“Government Contract” means any prime Contract, or subcontract under any prime Contract, with any Governmental Entity.

 

 

 

 

“Governmental Entity” means any government, agency, governmental department, commission, board, bureau, court, arbitration panel or instrumentality of the United States of America or any foreign government or any state, municipality or other political subdivision in or of any of the foregoing (whether now or hereafter constituted and/or existing) and any court, agency, instrumentality, regulatory commission or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

 

“Gross Receipts” has the meaning set forth in Section 3.3(a).

 

“Holders” has the meaning set forth in Section 3.1(b).

 

“Indemnification Notice” has the meaning set forth in Section 10.4(a).

 

“Indemnitee” has the meaning set forth in Section 10.4(a).

 

“Indemnitor” has the meaning set forth in Section 10.4(a).

 

“Insurance Claim” has the meaning set forth in Section 3.1(c).

 

“Insurance Company” has the meaning set forth in Section 3.1(c).

 

“Intellectual Property” has the meaning set forth in Section 1.1(e).

 

“Inventory” means any inventory, including goods, goods-in-transit, supplies, containers, packaging materials, raw materials, work-in-progress, finished goods, samples and other consumables.

 

“IP Contracts” has the meaning set forth in Section 4.1(j)(ii).

 

“Jack” means Jack Sibley, a resident of the State of Texas.

 

“Law” means any federal, state, territorial, foreign or local law, common law, statute, ordinance, rule, regulation or code of any Governmental Entity.

 

“Legal Requirement” means any federal, state, local and foreign laws, statutes, codes, rules, regulations, ordinances, judgments, orders, decrees and the like of any Governmental Entity, including common law.

 

“Liability” means any liability or obligation of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise, and to the extent the same is required to be accrued on the financial statements of such entity.

 

“Lien” means any restriction, mortgage, pledge, lien, charge, security interest, encumbrance, objection or joint ownership.

 

“Loss” means any and all claims, debts, liabilities, obligations, losses, damages, fines, penalties, judgments, assessments, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses), liens and encumbrances.

 

“Material Customers” has the meaning set forth in Section 4.1(l).

 

“Material Partners” has the meaning set forth in Section 4.1(l).

 

 

 

 

“Material Suppliers” has the meaning set forth in Section 4.1(l).

 

“Net Cash Flow” has the meaning set forth in Section 3.3(b).

 

“Objection Notice” has the meaning set forth in Section 3.5(d).

 

“Objection Period” has the meaning set forth in Section 3.5(d).

 

“Offset Dispute Notice” has the meaning set forth in Section 10.6.

 

“Offset Notice” has the meaning set forth in Section 10.6.

 

“Operating Expenses” has the meaning set forth in Section 3.3(c).

 

“Order” shall mean any judgment, order, injunction, decree, or writ of any Governmental Entity or any arbiter.

 

“Ordinary Course” means in the ordinary course of Seller’s Business consistent with past practice.

 

“Owner” or “Owners” has the meaning set forth in the recitals.

 

“Oz Capital” has the meaning set forth in the introductory paragraph.

 

“Packaged Software” has the meaning set forth in Section 4.1(j)(ii).

 

“Parent” has the meaning set forth in the introductory paragraph.

 

“Party” or “Parties” has the meaning set forth in the introductory paragraph.

 

“Permitted Liens” means (a) Liens on assets arising by operation of Legal Requirement securing the payment of Taxes which are not yet due and payable; (b) mechanics’, carriers’, workers’, repairers’, and similar non-consensual Liens arising by operation of law and relating to obligations of Seller which are incurred in the Ordinary Course and which are not due and payable as of the Closing Date; (c) with respect to real property only, (i) minor imperfections of title, if any, none of which detracts from the value or impairs the present or anticipated use of any real property subject thereto in any material respect or impairs the marketability of any real property subject thereto in any material respect, or impairs the present or anticipated operations of the Business in any material respect; and (ii) zoning laws and other land use restrictions of any Governmental Entity that do not impair the present or anticipated use of any real property subject thereto; and Liens to be satisfied from the proceeds of the Purchase Price immediately after Closing; and (d) any lien, whether arising by contract or statute, in favor of any landlord on personal property located on premises leased from such landlord.

 

“Permits” has the meaning set forth in Section 1.1(f).

 

“Person” means any corporation, association, joint venture, partnership, limited liability company, organization, business, individual, trust, government or agency or political subdivision thereof or other legal entity.

 

“Personal Guaranties” has the meaning set forth in Section 5.14.

 

“Pro Formas” has the meaning set forth in Section 4.1(e) .

 

 

 

 

“Proceeding” means any civil or criminal litigation, arbitration, mediation or other action, suit, claim, demand, summons, citation or subpoena or inquiry of any kind or nature whatsoever, civil, criminal, regulatory or otherwise, at law or in equity.

 

“Purchase Price” has the meaning set forth in Section 3.1(a).

 

“Purchase Price Allocation” has the meaning set forth in Section 3.6.

 

“Real Property” has the meaning set forth in the recitals.

 

“Real Property Purchase Agreement” has the meaning set forth in Section 1.4.

 

“Records” has the meaning set forth in Section 1.1(h).

 

“Registration Statement” has the meaning set forth in Section 5.12(a).

 

“Representatives” means a Party’s Affiliates, officers, directors, employees, accountants, counsel, consultants, advisors and agents.

 

“Restricted Agreements” has the meaning set forth in Section 1.3.

 

“Restricted Period” has the meaning set forth in Section 3.1(b).

 

“Retained Liabilities” has the meaning set forth in Section 2.2.

 

“SEC” has the meaning set forth in Section 3.4(a).

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder and any successor laws.

 

“Seller” has the meaning set forth in the introductory paragraph.

 

“Seller’s Employee Plans” has the meaning set forth in Section 5.1(a).

 

“Seller’s Knowledge” means the actual knowledge of Jack N. Sibley and Watt P. Stephens after reasonable investigation and inquiry.

 

“Settlement Amount” has the meaning set forth in Section 3.1(c).

 

“Shareholders Agreement” has the meaning set forth in Section 3.1(b).

 

“Stock Consideration” has the meaning set forth in Section 3.1(a).

 

“Tax” or “Taxes” means (i) all taxes, charges, fees, levies or other assessments in the nature of a tax (whether federal, state, local or foreign), including income, gross receipts, excise, property, sales, use, transfer, license, payroll, franchise, ad valorem, withholding, Social Security and unemployment taxes; and (ii) any interest, penalties and additions related to the foregoing.

 

“Tax Return” means any return, amended return, declaration, report, claim for refund, information return or other document (including any related or supporting schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of Taxes or the administration of any Legal Requirement relating to any Taxes.

 

 

 

 

“Threshold” has the meaning set forth in Section 10.7(a).

 

“Third Party Claim” has the meaning set forth in Section 10.4(b).

 

“Transfer” has the meaning set forth in Section 3.1(b).

 

“WCA Claim” means the claims of Sellers that exist or may be asserted by Sellers against West Coast Agricultural Construction Company.

 

“Watt” means Watt Stephens, a resident of the State of Texas.

 

“Working Capital” has the meaning set forth in Section 3.5(a).

 

“Working Capital Methodologies” has the meaning set forth in Section 3.5(a).

 

“Working Capital Target” has the meaning set forth in Section 3.5(b).

 

“Year One” means the 2020 calendar year.

 

“Year Three” means the 2022 calendar year.

 

“Year Two” means the 2021 calendar year.

 

“Yearly Financial Statements” has the meaning set forth in Section 4.1(e).

 

 

 

 

Exhibit “B”

 

Bill of Sale – Assignment and Assumption Agreement

 

[see attached]

 

 

 

 

Exhibit “C”

 

Real Property Purchase Agreement

 

[see attached]

 

 

 

 

Exhibit “D”

 

Owner Employee Agreement

 

[see attached]

 

 

 

 

 

Exhibit 21

 

List of Subsidiaries

 

Entity   Jurisdiction
     
Energy Hunter Resources, Inc.   Delaware
     
JDONE LLC   Colorado

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

 

I, Gary C. Evans, certify that:

 

1) I have reviewed this annual report of Generation Hemp, Inc. on Form 10-K;

 

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4) I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))  for the Registrant and have;

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure the material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation.

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5)   I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls over financial reporting.

 

DATE:     December 15, 2020 By: /s/ Gary C. Evans
    Gary C. Evans
    Chairman
    Chief Executive Officer
(Principal Executive Office and
Principal Accounting and Financial Officer)

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT 0F 2002

  

In connection with the Annual Report of Generation Hemp, Inc. (the Company”) on Form 10-K for the period ended herein as filed with the Securities and Exchange Commission (the “Report”), I. Gary C. Evans, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  (2) The information contained in the Report fully presents, in all material respects, the financial condition and results of operations or the Company.

 

DATE: December 15, 2020 By: /s/ Gary C. Evans
    Gary C. Evans
    Chairman
    Chief Executive Officer
(Principal Executive Office and
Principal Accounting and Financial Officer)